What is a pattern day trader?

A Pattern Day Trader is a regulatory designation for investors who execute four or more day trades in a five-business-day rolling period using a margin account. Once you are designated as a Pattern Day Trader, FINRA requires account holders to maintain at least $25,000 of equity in their account as of the close of every trading day.

Do you have to borrow on margin to violate the pattern day trader rule?

Keep in mind that you don’t have to borrow on margin to violate the pattern day trader rule. It's a good idea to be aware of the basics of margin trading and its rules and risks. There are a few simple but strict rules that define pattern day trading. Let’s go over them. A “round trip” simply means opening and closing a security position.

How much cash should a pattern day trader hold?

Although both groups have mandatory minimum assets that must be held in their margin accounts, a pattern day trader must hold at least $25,000 in their account. That amount need not necessarily be cash; it can be a combination of cash and eligible securities.

What is a day trading rule?

The purpose of the rule is to protect day traders from the risks associated with leveraged retail trading accounts. Customers who are day trading must demonstrate they can afford to cover losses when trading on margin.