Pattern Day Trader Rules

What Is a Day Trade?

A day trade is buying and selling (or short selling and buying back) the same security on the same day. It's the round trip that counts.

Examples:

• Buy Apple at 9:30am, sell Apple at 2pm = 1 day trade
• Buy 100 shares of Tesla, sell 50 shares same day = 1 day trade
• Buy Monday, sell Tuesday = NOT a day trade

When PDT Applies

You're flagged as a Pattern Day Trader if you make 4 or more day trades within 5 business days, AND those trades represent more than 6% of your total trades in that period.

The rule only applies to margin accounts. Cash accounts aren't subject to PDT (though they have other limitations).

What Happens If You're Flagged

If you're flagged as a PDT with less than $25,000:

1. Your account is restricted to "closing only" trades
2. You can't open new positions until you deposit $25,000
3. Or wait 90 days for the flag to be removed
4. Some brokers offer a one-time reset

Ways to Avoid or Work Around PDT

1. Keep $25,000+ in Your Account

The simplest solution. Maintain $25,000 equity and day trade freely. But if your balance drops below $25,000 (from losses), you lose day trading privileges until you restore it.

2. Use a Cash Account

Cash accounts aren't subject to PDT. The catch: you must wait for trades to settle (T+1) before using those funds again. This limits how much you can trade with.

3. Limit to 3 Day Trades Per 5 Days

Stay under the threshold. Most brokers show your day trade count. Plan carefully.

4. Use Multiple Brokers

PDT is tracked per account. With $10,000 at each of 3 brokers, you could make 3 day trades at each = 9 total per week. Not efficient, but possible.

5. Trade Futures or Forex

PDT only applies to equities and options. Futures and forex have different rules (though different risks too).

6. Offshore Brokers

Some non-US brokers don't enforce PDT. But you lose SIPC protection and face potential tax complications. Generally not recommended.

PDT Doesn't Apply To:

• Cash accounts (no margin)
• Accounts with $25,000+ equity
• Futures trading
• Forex trading
• Cryptocurrency (currently)
• Swing trades (overnight holds)

Broker Day Trade Counters

Most brokers show your day trade count:

• Robinhood: Shows day trades used in last 5 days
• Webull: Day trade counter in account info
• Fidelity: Day trade buying power shown
• Schwab: Trading activity summary

The $25,000 Must Be Equity

You need $25,000 in account equity—not just deposited cash. If you deposit $25,000 and immediately lose $5,000, you're below the threshold.

Also: you can't day trade to build up to $25,000. If you start with $10,000 and try to day trade your way to $25,000, you'll get flagged first.

Common PDT Mistakes

Accidentally Triggering PDT

New traders often don't realize they've made 4 day trades until their account is locked. Always know your count.

Thinking Options Are Different

Options day trades count toward PDT just like stock day trades.

Multi-Leg Trades

Opening and closing a multi-leg options spread same day counts as multiple day trades (one per leg).

The Bottom Line

The PDT rule exists to protect inexperienced traders from rapid losses. But it also limits opportunities for skilled traders with smaller accounts.

Your options:

• Fund to $25,000 to trade freely
• Use a cash account and work within settlement limits
• Limit to 3 day trades per 5 days
• Focus on swing trading (overnight holds) instead

Many successful traders started with swing trading precisely because of PDT constraints. It's a limitation, not a death sentence.