PDT Rule: Is a rule enforced by the Securities and Exchange Commission (SEC) that is given to traders who make four or more day trades in their margin account over a five-day period. A day trade is when you buy and sell a security within the same trading day.
PDT Rule Mechanics
Once your account is labeled as a Pattern Day Trader, you’ll be required to maintain a balance of at least $25,000 for 90 days to make any day trades. If you are unable to meet this requirement, you will be forced to open up another margin account with a different broker, or go with a cash account altogether. When you are using a cash account to day trade, you can place as many day trades as you wish, however you are required to let your cash settle for 2 days after every transaction. For example, if you have a $2,000 account, you can day trade once per day if you use $1,000 per day. The $1,000 on Monday will not be ready to use until Wednesday, but you still have your other $1,000 to use on Tuesday.
You can also get around PDT by opening up multiple margin accounts with different brokers. As long as you reach the minimum deposit amount, you can have as many margin accounts as you wish. This way, with each margin account you have open ,you will have access to 3 more day trades per 5 rolling day period. I personally recommend that if you are not going to focus on short selling, you should go with a cash account. Find out more about which brokers I recommend in my free trading workshop!
