What Is a Pattern Day Trader
A pattern day trader is a designation used by broker-dealers for customers who execute four or more day trades within five business days in a margin account. The U.S. Financial Industry Regulatory Authority sets this classification under its rules.
Pattern Day Trader Requirements
To continue day trading, the account must maintain a minimum equity of $25,000. If the balance falls below that level, the trader may be restricted to closing positions only until the requirement is met again.
How Pattern Day Trading Works
Brokers monitor trading activity and apply the designation when the frequency threshold is reached. Traders can avoid the rule by using a cash account, but they cannot use margin for same-day trades.
For official guidance on margin and day trading rules, see the FINRA margin rules page.
