Day Trading RulesSEC & NYSE day trading rules. Pattern day trading rule. Day trading definition. New day trading regulations. Stock trading rules.
Day Trading DefinitionAny time you buy and then sell the same security in one trading session, you have executed a day trade.The type of security does not matter. The buy does not have to precede the sell. Short sales where you sell the stock and then buy it back are considered day trades by the Securities Exchange Commission or SEC. If you are trading from the long side and you close out a position and then open a new position in the same security during one session, this is not considered to be a day trade.
Pattern Day TradingIf you day trade 4 or more times in a period of 5 business days or 5 running trading days and those trades constitute more than 6% of your total trading activity for those 5 days, your day trading account will be coded by your broker as a pattern day trading account.Once the account is coded for pattern day trading, it becomes subject to the day trading margin requirements. This can happen inadvertently to investors who are not day traders. One day, when I first started swing trading, I entered buy limit orders for six different stocks before the open. All the orders filled within the hour. Later that same day, as the result of a bad news report, the markets took a nose dive and triggered all my stop loss orders which I had placed right after my orders filled. I hadn't meant to, but I had made six day trades that day. My trading account was subsequently coded for pattern day trading. I called my online broker, explained what had happened and asked that the account be restored to its former state. I did not wish to keep the $25,000 day trading margin in this account at that time. My account was restored but I was warned. If it happened again, the account would be coded for pattern day trading and they would not change it again.
New Day Trading RulesA margin account which is coded for pattern day trading must maintain a minimum of $25,000 on any day that the account holder day trades. The $25,000 can be any mix of equities and cash but it must be in the margin account prior to any specific day trading taking place.This is the pattern day trading rule as stated by FINRA (the Financial Industry Regulatory Authority) on their website. In actual practice, my online discount broker (Choicetrade) would not allow me to place any buy orders at all once my holdings fell below the maintenance margin requirement. My trading privileges were only restored after I had transferred enough money into my account to meet the margin requirements. The first time this happened to me, I didn't have my account set up so that I could transfer money from another account into it electronically. I had to mail a check. I was out of the game for days and missed several profitable trades. Do yourself a favor and set your margin account up to make and recieve electronic fund transfers from the beginning. I also want to mention that when they say the money must be in the margin account prior to the onset of day trading activities, they mean that the total value of your day trading account must be at least $25,000 at the close of the previous session in order for you to be able to day trade during the next session.
Margin Day Trading RuleAnother day trading rule is that a pattern day trader may trade up to 4 times the maintenance margin in their margin account at the close of the previous session.This means that if your account was worth $30,000 at the close on Monday. You would have $120,000 in buying power on Tuesday morning. These are the NYSE day trading rules approved by the SEC in 2001. Prior to the institution of these new day trading rules, the day trading margin requirement was $2,000 with 2:1 buying power. If you exceed the buying power in your margin investment account (not every firm will even allow you to do this), a margin call will be issued. You will have 5 days to deposit enough additional funds to meet the margin requirement. If you fail to do so, you can be restricted to trading on a cash available only basis for 90 days. The final new rule of day trading is that cross guarantees are not allowed. You can't borrow cash or equities from another trader's account to meet a margin call. And the funds used to meet a margin call must remain in your margin trading account for at least 2 business days after the day they are deposited.
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