|
Pattern Day
Trader Rule Summary:
A FINRA & SEC rule
that applies to anyone who buys and sells a particular
security in the same trading day (day trades), and does this four or
more times in any five consecutive business day period. A pattern day
trader is subject to special rules. The main rule is that in order
to engage in pattern day trading you must maintain an equity balance of at
least $25,000.
A more complete
version of the FINRA rule is
listed below.
-------------------------------------------------------------------------------------------------
FINRA (NASD) Rule 2520
- Day
Trading Margin Requirements*
Day Trading
(i) The term “day trading” means the purchasing and selling or the
selling and purchasing of the same security on the same day in a
margin account except for:
a. a long security position held overnight and sold the next day prior
to any new purchase of the same security, or
b. a short security position held overnight and purchased the next day
prior to any new sale of the same security.
(ii) The term “pattern day trader” means any customer who executes
four or more day trades within five business days. However, if the
number of day trades is 6% or less of total trades for the five
business day period, the customer will not be considered a pattern day
trader and the special requirements under paragraph (f)(8)(B)(iv) of
this Rule will not apply. In the event that the organization at which
a customer seeks to open an account or to resume day trading knows or
has a reasonable basis to believe that the customer will engage in
pattern day trading, then the special requirements under paragraph
(f)(8)(B)(iv) of this Rule will apply.
(iii) The term “day trading buying power” means the equity in a
customer’s account at the close of business of the previous day,
less any maintenance margin requirement as prescribed in paragraph (c)
of this Rule, multiplied by four for equity securities.
Whenever day trading occurs in a customer's margin account the special
maintenance margin required for the day trades in equity securities
shall be 25% of the cost of all the day trades made during the day.
For non-equity securities, the special maintenance margin shall be as
required pursuant to the other provisions of this Rule. Alternatively,
when two or more day trades occur on the same day in the same
customer’s account, the margin required may be computed utilizing
the highest (dollar amount) open position during that day. To utilize
the highest open position computation method, a record showing the
“time and tick” of each trade must be maintained to document the
sequence in which each day trade was completed.
(iv) Special Requirements for Pattern Day Traders
a. Minimum Equity Requirement for a Pattern Day Trader - The minimum
equity required for the accounts of customers deemed to be pattern day
traders shall be $25,000. This minimum equity must be deposited in the
account before such customer may continue day trading and must be
maintained in the customer’s account at all times.
b. Pattern day traders cannot trade in excess of their day-trading
buying power as defined in paragraph (f)(8)(B)(iii) above. In the
event a pattern day trader exceeds its day-trading buying power, which
creates a special maintenance margin deficiency, the following actions
will be taken by the member:
1. The account will be margined based on the cost of all the day
trades made during the day,
2. The customer’s day-trading buying power will be limited to the
equity in the customer’s account at the close of business of the
previous day, less the maintenance margin required in paragraph (c) of
this Rule, multiplied by two for equity securities, and
3. “time and tick” (i.e., calculating margin using each trade in
the sequence that it is executed, using the highest open position
during the day) may not be used.
c.
Pattern day trader who fail to meet their special maintenance
margin calls as required within five business days from the date the
margin deficiency occurs will be permitted to execute transactions
only on a cash available basis for 90 days or until the special
maintenance margin call is met.
d. Pattern day traders are restricted from using the guaranteed
account provision pursuant to paragraph (f)(4) of this Rule for
meeting the requirements of paragraph (f)(8)(B).
e. Funds deposited into a pattern day trader account to meet the
minimum equity or maintenance margin requirements of paragraph
(f)(8)(B) of this Rule cannot be withdrawn for a minimum of two
business days following the close of business on the day of deposit.
-------------------------------------------------------------------------------------------------
Information listed above is provided courtesy of
the site:
Pattern Day Trader Rule
Free Real-Time LEVEL II Simulator Trial
* Listed for informational purposes only. The rule may be subject to
change, which may not be reflected on this site. NASD is now known as FINRA.
|
