Day Trading Rule
Day trading refers to the practice of buying and selling the same securities within the same trading day such that all positions are usually closed that trading day. Day trading using a cash account can easily lead to Good Faith Violations.
The New York Stock Exchange ("NYSE") and the Financial Industry Regulatory Authority ("FINRA") amended their rules relating to margin requirements for accounts that engage in a pattern of day trading. These rules apply to all "Pattern Day-Traders" throughout the United States. Please note that Day Trading rules apply to Margin Accounts only.
The significant aspects of the rules are summarized below:
- The term "Pattern Day-Trader" is defined as any customer who executes four or more day trades within five business days, provided the number of Day-Trades is more than 6% of the total trades in the account during that period.
- Any account engaging in pattern Day Trading activity are subject to a minimum equity requirement of $25,000. Pattern Day Trading accounts with less than $25,000 in equity will not have day trading buying power.
- The sale of an existing position from the previous day and its subsequent repurchase is not considered a day trade.
- Day Trading Buying Power for equity securities will be four (4) times the NYSE excess as of the close of business on the previous day, and the "time and tick" method of calculating Day Trading is acceptable.
- If an account has an outstanding Day Trading Margin Call, Day Trading Buying Power will be reduced to two (2) times the NYSE excess, and the "time and tick" calculation method cannot be used while a Day Trading margin call is outstanding. The aggregate method (using the total of all day trades) will be used.
- If an account fails to meet a Day Trading margin call by depositing additional funds within 5 business days, Day Trading buying power will be reduced to 1 time NYSE excess for a period of 90 days (cash trades only), or until the call is met.
- Deposits of funds to meet minimum equity requirements or to meet Day Trading Margin Calls must remain in the customer's account and cannot be withdrawn for a minimum of five business days.