What is day trading? 🧐
Let’s break it down! A day trade happens when you buy and sell the same stock on the same trading day (from market open to close, including pre-market and after-hours).
Example to make it clear:
You buy 5 shares of $AMZN in the afternoon.
Later that same day, you sell 3 of those shares before the market closes.
That’s a day trade! 🎯
It doesn’t matter how many shares you bought or sold; it’s about buying and selling the same stock on the same day.
What’s a pattern day trader? 🤔
If you make 4 or more day trades in 5 business days, you’ll be flagged as a pattern day trader (PDT).
As per the rules (set by financial regulators like FINRA), to become a PDT, you must have at least $25,000 in your account at all times. If you don’t, you’ll be restricted from making additional day trades.
Here’s an example of 3 day trades in 5 days:
Day trade 1: You buy Amazon shares and sell them later that day.
Day trade 2: You sell Apple shares and then buy them back the same day.
Day trade 3: You buy Amazon shares again and sell them the same day.
What does this mean?
You can still buy as many stocks as you want, but you won’t be able to sell those stocks on the same day. Instead, you’ll need to wait until the next trading day to sell. This restriction is part of the Pattern Day Trader (PDT) rule, which applies to our partner broker and all brokers regulated by FINRA for U.S. trading.
How to avoid restrictions?
If you want to make unlimited day trades, maintain a $25,000 balance in your account, which can include cash and equity.
FAQs about day trading
What if I add money to reach $25,000?
Once your account balance hits $25,000, you’ll be free to day trade as much as you like! However, this feature becomes available the next trading day, not immediately.
What happens if I try to make a 4th-day trade without $25,000?
Your trade won’t go through on the same day, and you’ll need to either wait for your rolling 5-business-day period to reset or sell the stock the next trading day.
Is the pattern day trader (PDT) rule set by our partner broker?
No, the pattern day trader (PDT) rule is regulated by FINRA for U.S. trading and applies to all brokers offering access to U.S. markets.
Some platforms use aggregated accounts under their name, by passing the PDT rule due to high account balances. With individual accounts like those offered through our partner broker, trades are executed under your name with immediate settlement, allowing you to reuse funds from stock sales instantly. However, the PDT rule limits day trades to three within a five-business-day period unless your balance is $25,000 or more.