What Is a Pattern Day Trader (PDT)?

What Is a Pattern Day Trader (PDT)?

Let me explain what a pattern day trader, or PDT, really is. If you're executing four or more day trades over five business days in a margin account, and those trades make up more than 6% of your total activity in that period, you're going to get flagged as a PDT by your broker. This isn't something you choose—it's a regulatory label designed to curb excessive trading, and it comes with restrictions on what you can do next.

Key Takeaways

As a PDT, you're someone who hits that threshold of four or more day trades in five business days in the same account. Your broker identifies this automatically, and it means you're under extra regulatory watch with specific limits. Most importantly, you need to keep $25,000 in equity in your margin account; if it dips below that, you can't make any more day trades until it's back up.

Understanding Pattern Day Traders (PDTs)

You might be trading stocks, options, or even short sales as a PDT—any trade that opens and closes on the same day counts toward this designation. Your day-trading buying power lets you go up to four times the equity above your maintenance margin, which is the minimum you need to hold. If you're not a PDT, you're limited to just two times that excess.

If a margin call comes in, you've got five business days to fix it. During that time, your trading drops to two times the maintenance margin excess. Ignore it, and after five days, your account goes cash-restricted for 90 days or until resolved. Remember, positions held overnight and sold before new buys the next day don't count as day trades for PDT purposes. And keep in mind, PDT rules only apply to stock and equity options trades.

Regulations That Govern Pattern Day Traders

FINRA sets the PDT rules, which go beyond standard day trading by focusing on the frequency within that five-day window. You must have at least $25,000 in your account—cash or eligible securities count. Drop below that, and no more day trades until you're back above it. This is the PDT Rule, aimed at reducing risk, though your broker might enforce it even stricter or let you self-identify.

The idea is to protect against over-trading, so if your equity falls short, trading halts. It's an industry standard, but brokers can tweak their approach.

Example of Pattern Day Trading

Take a PDT with $100,000 in their margin account. Standard rules require at least 25% equity, so $25,000 minimum. If they've got $30,000 in equity, that's $5,000 excess over maintenance. As a PDT, you could trade up to four times that excess—$20,000 worth. A non-PDT with the same setup would only get two times, or $10,000.

This setup allows for bigger trades and potentially higher returns, which might appeal if you're a high-net-worth individual. But remember, the flip side is the risk of bigger losses—it's not all upside.

Why Has My Broker Flagged Me as a Pattern Day Trader?

Your broker flags you automatically if you do four or more day trades in five business days, and they represent over 6% of your total trades in that margin account period. Some brokers might use a broader definition, so check with them.

What Is Classified as a Day Trade?

It's simple: buying and then selling, or selling short and then buying, the same security on the same day. Just buying without selling that day doesn't count.

Should I Be Concerned That I’ve Been Flagged as a Pattern Day Trader?

Not overly, but expect restrictions. FINRA requires $25,000 minimum in your account for PDTs, and you can only trade in margin accounts. If you drop below, no day trades until restored. This covers any security, including options.

I Am Not Trading as Frequently Anymore, So Why Is My Broker Still Flagging Me?

Once flagged, your broker keeps you as a PDT based on past activity, assuming you'll continue. If you've cut back, contact them to discuss recoding your account.

The Bottom Line

If you execute four or more day trades in five business days via a margin account, you're a PDT and must maintain $25,000 equity. Fall below, and your broker stops your day trading until it's fixed. It's all about managing risk in frequent trading.