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Day Trading ~ Frequently Asked Questions (FAQs)
Pattern Day Trading Rules - Overview Day Trading FAQs Examples
Day Trading FAQs
Day Trading FAQ
What is a Day Trader?
FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects four or more day trades (same day opening and closing of a given equity security ("stock") or equity option) within a five business day period. Note that Futures contracts and Futures Options are not included in the SEC Day Trade rule.
Learn how FINRA defines Pattern Day Trader rules: http://www.sec.gov/answers/patterndaytrader.htm
What is the definition of a "Potential Pattern Day Trader"?
A potential pattern day trader error message means that an account has less than the SEC required $25,000 minimum Net Liquidation Value AND the number of available day trades (3) has already been used within the last five days.
The Place Trade system is programmed to prohibit any further trades to be initiated in the account, regardless of the intent to day trade that position or not. The Place Trade system is programmed to protect the accounts with less than $25,000 so the account would not “potentially” be flagged as a day trading account.
If an account receives the error message “potential pattern day trader”, there is no PDT flag to remove. The account holder will need to wait for the five-day period to end before any new positions can be initiated in the account.
What happens if an account with less than $25,000 is flagged as a day trading account? Or, if the account is flagged as a PDT account, and the value subsequently falls below the SEC required $25,000 minimum (intraday included)?
The customer has the following options:
B. Wait the required 90 day period before any new positions can be initiated C. Request a PDT account reset
The customer will have the same options listed above, however, if at any time the Net Liquidation Value figure goes back above the threshold amount ($25,000), then the account will once again have unlimited day trades available.
What is a PDT account reset?
FINRA has provided brokerage firms the ability to remove the PDT flag from a customer’s account once every 180 days. If an account was erroneously flagged, and the customer’s intent is not to day trade in his/her account, Place Trade has the ability to remove this flag. Once the PDT flag is removed, the customer will then be allowed three day trades every five business days. If an account gets re-flagged as a PDT account within 180 days after the reset, the customer then has the following options: A. Deposit funds to bring the account’s equity up to the SEC required minimum of $25,000 B. Wait the required 90 day period before any new positions can be initiated
How do I request that my account, that is currently designated as a PDT account, be reset?
FINRA and the NYSE define a Pattern Day Trader (PDT) as one who effects 4 or more day trades (same day purchase and sale of a given equity security ("stock") or equity option) within a five-day period, and NYSE and FINRA rules place certain restrictions on those who are deemed to be pattern day traders. If a Place Trade (PT) account effects three (3) day trades involving stocks or equity options within any five (5) day period, PT will require that such account satisfy the minimum Net Liquidation Value requirement of $25,000 before PT will accept the next order to purchase or sell a stock or equity option. Once the account has effected a fourth day trade (in such 5 day period), PT will deem the account to be a PDT account.
Pattern Day Trading regulations allow a broker to remove the PDT designation if the client acknowledges that she/he does not intend to engage in day trading strategies, and requests that the PDT designation be removed.
If you wish to have the PDT designation for your account removed, provide PT with the following information in a letter using the Customer Service Message Center in Account Management.
Please follow these specific steps to make your request:
How to interpret the “day trades left” section of the account information window? For example, if the window reads (0,0,1,2,3), here is how to interpret this information:
Examples
Day Trading Examples
■ On Wednesday, 1000 shares of XYZ stock are purchased. Later on that same day, 500 shares of XYZ stock are sold. This is considered to be a day trade. ■ On Monday, 500 shares of XYZ stock are purchased. Later on that same day, another 500 shares of XYZ are purchased. In after hours trading on Monday, 1000 shares of XYZ are sold. This is considered to be 1-day trade. ■ On Monday, 500 shares of XYZ stock are purchased. On Tuesday, another 500 shares of XYZ stock are purchased. Later on Tuesday, 500 shares of XYZ stock are sold. This is considered to be 1-day trade. ■ On Thursday, 500 shares of XYZ stock are purchased in pre-market. In after hours trading on Thursday, 200 shares of XYZ stock are sold. This is considered to be a day trade. ■ On Monday, customer sells short 10 YXX September 2005 90 calls and simultaneously buys 10 YXX December 2005 95 calls (combination order type). Later on Monday, customer buys back 5 YXX September 2005 90 calls and sells 5 YXX December 2005 95 calls for a profit. This is considered to be 2 day trades (one day trade for each leg of the spread). ■ On Thursday, customer buys 500 shares of YXZ stock. Later on Thursday, customer sells 1500 shares of YXZ stock (reversal creates new short position). On Friday, customer purchases 1000 shares of YXZ stock. This would be considered to be 1-day trade.
Non-Day Trading Examples
■ On Thursday, customer buys 500 shares of YZZ stock. On Friday, customer sells 500 shares of YZZ stock. Later on Friday, customer buys 500 shares of YZZ stock. This is not considered to be a day trade. ■ On Friday, 1000 shares of XYZ stock are purchased. On the following Monday, 1000 shares of XYZ stock is sold. This is not considered to be a day trade.
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