The Financial Industry Regulatory Authority FINRA designates individual as a pattern day trader if he/she executes more than three day trades in a rolling five business day period. If you get flagged, your account is locked from trading any new positions for 90 days.
(oh, tt has to also be in a margin account and the day trades are required to be more than six percent of the total trading activity in that five day period, blah blah)
Ok, lets back up… what counts as a day trade? A day trade is any opening and closing of a position on a stock or option within the same trading day (typically 9:30am-4:00pm EST).
An example is if you buy 2 shares of GME at 10am, then sell 1 share at 1pm, and another 1 share at pm, you have executed 2 Day Trades.
Another example, if you buy 1 share of GME at 10am, buy another 1 share of GME at 11am, and sell 2 shares at 3pm, you’ve also executed 2 Day Trades.
If you’re like me, you’re probably thinking “This rule is BS!” and you’d be right. The requirement to avoid the 90day lock out is having $25,000 in your account at the beginning of each trading day.
Yup, $25,000. It’s utterly stupid and the barrier to entry does no good to anyone. I mean, you shouldn’t be selling GME in both the examples above because #diamondhands. Jokes aside, the $25,000 is a serious barrier to entry and basically forces accounts less than that to suffer sub-optimal trading habits.
While it’s supposed to discourage “risky” trading, holding positions overnight, not taking profits early, and not executing on stop losses are all MUCH riskier. And breeds bad habits, ultimately keeping the retail trader from ever having the chance to become successful.
Down with the PDT rule!!