What is a pattern day trader account?

If you make four or more day trades over the course of any five business days, and those trades account for more than 6% of your account activity over the period, your margin account will be flagged as a pattern day trader account. (Note that you can day trade in a cash account.)

What happens if a pattern day trader is flagged?

This can be risky especially when there is a big move in the after or pre-market trading sessions. The moment your trading account is flagged as a pattern day trader, your ability to trade is restricted. Unless you bring your account balance to $25,000 you will not be able to trade for 90 days.

When did the pattern day trading rule come into effect?

The pattern day trading rule came into effect in 2001, right after the collapse of the dot com bubble. In the run-up to the bubble, many traders categorized themselves as a day trader. Staying long in the market, traders eventually got margin calls when they were caught on the wrong side of the market correction.

What is considered a day trade?

In other words, if you are trading stocks in the United States, and you both open and close a trade during the same session, that is considered to be a day trade. In order to day trade on a consistent basis, you need to have equity of at least $25,000 and a margin account.