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Pattern Day Trading Rule - SEC & FINRA NASD Rule 2520

Pattern day trader rule history:

On February 27, 2001, the SEC approved rule changes proposed by the NYSE and FINRA (NASD) aimed at imposing more stringent margin requirements for day trading customers. Under these rules, customers who are deemed "pattern day traders" must have at least $25,000 in their accounts and can only trade in margin accounts.

This site is intended to clarify this rule and offer suggestions about trading in relation to this rule.

Basic pattern day trader rule summary:

An NASD & SEC rule that applies to anyone who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account.

A more complete version is listed here: NASD Rule 2520

What is a day trade?:

It is important to understand what is considered a day trade under this rule. A day trade is when you buy and sell the same stock (same symbol) during the same day. This includes if you buy and sell during the pre-market, regular market hours, or in the after-market hours on the same day. A day trade is just a buy and sell (or short sell and buy to cover) of the same stock in one trading day.

What is not a day trade?:

If you open a stock position one day and hold it overnight and cover it the next day (or any subsequent day), that is an overnight trade. A trade held overnight is not considered a day trade in relation to this rule. There is no limits imposed on overnight trading, you can do this as often as you want.

Scope of the pattern day trader rule:

The pattern day trader rule applies to all brokers in the United States who are NASD members. There may be foreign brokers who are not directly regulated by NASD and offer pattern day trading to clients with less than $25,000 in their account.

This rule only applies to stock and option trading. There is no pattern day trading rule regulations currently on futures or forex.

 

 
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PatternDayTraderRule.com (the "site") is an informational website only. Pattern Day Trader Rule may include sections of FINRA (NASD), SEC or other regulatory rules. These rules may be subject to change at anytime and those changes may not be reflected on this site. The site may also have summaries or incomplete versions of these rules, which have not been approved by any regulatory agency. This site is not affiliated with any regulatory body, including but not limited to FINRA (NASD) and SEC.

The fact that this site may have links to other websites does not constitute an endorsement or recommendation of any kind. Hyperlinks to third party sites are being provided for informational use only and will be used at your own risk.

 

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