Day Trading
- Stephen H Akin
- Mar 31
- 6 min read
Do you actively trade stocks? If so, it's important to know what it means to be a "pattern day trader".
This information on Day Trading and "Pattern Day Trader" are from FINRA and are provided as information only and not to be considered as an investment recomendation.
Day Trading
Do you actively trade stocks? If so, it's important to know what it means to be a "pattern day trader" (PDT) because there are requirements associated with engaging in pattern day trading. Once you understand the requirements you must meet, you reduce the risk that your firm will place restrictions on your ability to trade.
What Is Day Trading?
Day trading, as defined by FINRA’s margin rule, refers to a trading strategy where an individual buys and sells (or sells and buys) the same security in a margin account on the same day in an attempt to profit from small movements in the price of the security. FINRA’s margin rule for day trading applies to day trading in any security, including options.
Day trading in a cash account is not permitted. All securities purchased in the cash account must be paid for in full before they are sold. In the cash account, under FINRA rules, purchasing a security, paying for it in full as required by Regulation T, and then selling the same security is not considered a day trade.
Who Is a Pattern Day Trader?
According to FINRA rules, you’re considered a pattern day trader if you execute four or more "day trades" within five business days—provided that the number of day trades represents more than 6 percent of your total trades in the margin account for that same five business day period.
There are two methods of counting day trades. Please contact your brokerage firm for more details on how they count trades to determine if you’re a pattern day trader.
The rules also require your firm to designate you as a pattern day trader if it knows or has a reasonable basis to believe that you’ll engage in pattern day trading. For example, if the firm provided day-trading training to you before opening your account, it could designate you as a pattern day trader.
In general, once your account has been coded as a pattern day trader account, a firm will continue to regard you as a pattern day trader, even if you don’t day trade for a five-day period, because the firm will have a “reasonable belief” that you’re a pattern day trader based on your prior trading activities. If you change your trading strategy to cease your day trading activities, you can contact your firm to discuss the appropriate coding of your account.
What Are the Requirements for Pattern Day Traders?
First, pattern day traders must maintain minimum equity of $25,000 in their margin account on any day that the customer day trades. This required minimum equity, which can be a combination of cash and eligible securities, must be in your account prior to engaging in any day-trading activities. If the account falls below the $25,000 requirement, the pattern day trader won’t be permitted to day trade until the account is restored to the $25,000 minimum equity level.
In addition, pattern day traders cannot trade in excess of their "day-trading buying power," which is generally up to four times the maintenance margin excess as of the close of business of the prior day. Maintenance margin excess is the amount by which the equity in the margin account exceeds the required margin.
What if I Get a Margin Call?
If a pattern day trader exceeds the day-trading buying power limitation, a firm will issue a day-trading margin call, after which the pattern day trader will then have, at most, five business days to deposit funds to meet the call. Until the margin call is met, the account will be restricted to a day-trading buying power of only two times maintenance margin excess based on the customer's daily total trading commitment. If the day-trading margin call is not met by the deadline, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met.
Any funds used to meet the day-trading minimum equity requirement or to meet a day-trading margin call must remain in the account for two business days following the close of business on any day when the deposit is required. The use of cross-guarantees to meet any day-trading margin requirements is prohibited.
Why Do I Have to Maintain Minimum Equity of $25,000?
Day trading can be extremely risky—both for the day trader and for the brokerage firm that clears the day trader’s transactions. Even if you end the day with no open positions, the trades you made while day trading most likely have not yet settled. The day trading margin requirements provide firms with a cushion to meet any deficiencies in your account resulting from day trading.
Most margin requirements are calculated based on a customer's securities positions at the end of the trading day. A customer who only day trades doesn’t have a security position at the end of the day upon which a margin calculation would otherwise result in a margin call.
Nevertheless, the same customer has generated financial risk throughout the day. These rules address this risk by imposing a margin requirement for day trading calculated based on a trader’s positions during the day rather than on open positions at the end of the day.
Firms are free to impose a higher equity requirement than the minimum specified in the rules, and many of them do. These higher minimum requirements are often referred to as "house" requirements.
Is Pattern Day Trading Right for You?
Before you come to any conclusion, read and consider the points set forth in the Day-Trading Risk Disclosure Statement embodied in FINRA Rule 2270. In addition to minimum equity requirements, day trading requires knowledge of both securities markets in general and, more specifically, your brokerage firm's business practices, including the operation of the firm's order execution systems and procedures.
Day trading generally isn’t appropriate for someone of limited resources, limited investment or trading experience and low risk tolerance. A day trader should be prepared to lose all of the funds used for day trading. Given the risks, day-trading activities shouldn’t be funded with retirement savings, student loans, second mortgages, emergency funds, assets set aside for purposes such as education or home ownership or funds required to meet living expenses.
Market Performance for the 1st Quarter of 2025
Markets are set to wrap up March on a woeful note after a rough month and quarter beset by Trump's fast-evolving tariff policy. Last week was the fifth in six weeks that the S&P 500 and Nasdaq Composite ended the week in the red.
This March is shaping up to be the worst for both indexes since the advent of the pandemic in 2020. The benchmark index is down over 5% to start the year, while the Nasdaq has lost over 10%.
Even in a down market there are winners!
Today A,T and T traded at a NEW 52 WEEK HIGH $28.56
RTX (Raytheon) Traded at NEW 52 WEEK HIGH $136.17 March 26, 2025
Gold touches new high, on pace for best quarterly performance in nearly 40 years
Futures traded as high as $3,160 an ounce!
Gold has long been considered a hedge against stock market volatility and inflation:
Kate Stalter
Feb 20, 2025
If a recession has caused excessive growth in the money supply and inflation is a chief concern, gold is often an attractive investment opportunity, says Stephen Akin, registered investment advisor at Akin Investments in Charleston, South Carolina.
There are several ways an investor can own gold.
"For true safekeeping, bullion and coins are preferred," Akin says. "Mining stocks can leverage the market moves and will be winners in an up market."
Akin says he favors using these stocks as they can outperform an index. Investors may also consider gold ETFs, he adds.
Options
"Options, when understood and used prudently, are a wonderful tool,"
US NEWS and WORLD REPORT
Kate Stalter
Jul 5, 2022
While options can help preserve and grow account value, investors must use caution.
Stephen Akin, founder and investment advisor representative at Akin Investments in Biloxi, Mississippi, has used options for many years, sometimes with a very simple strategy of put or call purchases on the direction of an underlying stock or overall market.
"Another easy way to buy a stock in volatile markets is to sell a put on a company that I'd like to buy," Akin adds. "If the stock weakens enough to have the option exercised, I'm in at a lower price. If it's not exercised, simply book the profit on the expired put. This also enhances total return on the portfolio."
He also uses options as a hedge on holdings as a form of portfolio insurance. This strategy can even be adapted for fixed-income holdings.
"Options, when understood and used prudently, are a wonderful tool," he says. "Unfortunately, we hear all too often about option-market disasters. That comes from traders who simply don't understand the products and risks that they may carry."
Asset and Cash Management Solutions
Comments