A day trade is defined as a purchase and sale of a security (both U.S. and non-U.S. securities) within the same trading day. FINRA and the NYSE have adopted rules limiting the size of trades that can be made in accounts with small account balances, specifically accounts with a net liquidation value of less than $25,000.
A pattern day trader is a trader who performs four or more day trades within five business days. In this case, the regulations are violated and as a trader you are therefore subject to PDT restrictions.
On this page we answer various questions about PDT regulations.
Note: These regulations only affect custody accounts maintained in the UK. Deposits with account management in the EU are not affected by this regulation.
Overview of regulations for pattern day trading (PDT)
FINRA and the NYSE have adopted rules limiting the amount of trading that can be conducted in accounts with small account balances, specifically accounts with a net liquidation value of less than $25,000 (value in TWS: equity with loan). The pattern day trading rules do not apply to portfolio margin accounts.
Day Trade
Any combination of transactions in which a position for a U.S. security (stocks, stock or index options, warrants, T-bills, bonds, or single-stock futures) is increased ("opened") and then reduced ("closed") within the same trading session.
Pattern Day Trader
A Pattern Day Trader is a trader who executes four or more day trades within five business days. If a trader executes more than four day trades within this period, he shows day trading behavior patterns ("Patterns") and falls under the PDT restrictions from that point on.
To be able to day trade freely, your account must have a Net Liquidation Value (NLV) of at least $25,000. The net liquidation value here is the G&V of cash capital, shares, options and futures.
Under NYSE regulations, an account with an NLV of less than $25,000 that is identified as a day trading account must be frozen for a period of 90 days to prevent further transactions. However, we have developed algorithms to prevent accounts with lower principal values from being flagged as day trading accounts in order to protect these accounts from the associated 90-day freeze. To this end, we disallow the fourth position opening transaction in five days if the account has less than $25,000 in equity.
Adjustments to the previous day's equity and first day of trading
The previous day's equity is determined at the close of trading on the previous day (4:15 pm US Eastern Time). The previous day's equity must be at least USD 25,000. Net deposits and withdrawals that raised the previous day's equity to or above the required 25,000 USD after 16:15 US Eastern Time on the previous trading day will be treated as adjustments to the previous day's equity so that the client can trade the next day.
For example, it would be possible for a new customer's initial deposit of $50,000 to be received into their account after the close of trading. Although the customer's previous day's equity was at a balance of 0 at the close of trading, the deposit made late the previous day is taken into account as an adjustment and the customer's previous day's equity is adjusted to $50,000 so that he is able to trade on the first trading day. Without this adjustment, the client's transactions would be rejected based on their equity balance at the close of trading the previous day on the first trading day.
Special cases
- Accounts that had more than $25,000 at some point in time, were identified as day trading accounts, and subsequently fall below a net liquidation value of $25,000 may face the 90-day day trading suspension. This restriction can be lifted by increasing the equity in the account, or by using the reset procedure explained in the Day Trading FAQ.
- Income from an option exercise or assignment is included in the determination of day trading activities as if a direct transaction with the underlying had occurred. The delivery of a single-stock future or the expiration of an option is not included in the determination of day trading activities.
Frequently asked questions about pattern day trading
For more information, please visit our Help Center
The NASD and NYSE define a Pattern Day Trader (PDT) as someone who makes 4 or more day trades (opening and closing positions in a particular equity security, or equity option, on the same day is considered a 1 day trade) during a 5-day period (business days).
Please note that CFDs, futures contracts and futures options are not affected by the SEC Day Trade Rulebook.
The term Potential Pattern Day Trader appears as text on a warning message ("error message") that appears when an account has less than the SEC required account minimum of $25,000 AND when the number of executable day trades has already been used up during the last 5 days.
The IB system is programmed to block any further attempt to place a trade, whether it is a day trade or not in this case. The Interactive Brokers system protects accounts with less than $25,000 balance from the potential classification of being day trading accounts.
Note that when an account receives the warning signal in the form of a Potential Pattern Day Trader message, that account has NOT yet received the PDT classification. Therefore, there is NO PDT Flag to be lifted at this time. The account holder must simply wait for the 5-day period in which no more day trades can be made. At the end of this period, new positions can be established in this account again.
The customer has the following options:
- Deposits of funds to bring the account balance to the minimum level of $25,000 set by the SEC.
- Allow the 90-day period to pass before entering new positions
- Request a PDT account reset
If the intraday scenario occurs, the customer is prevented from establishing new positions with immediate effect. Customers can still liquidate existing positions, but new positions can no longer be realized. The customer will face the same options as mentioned above. However, if at any time the Equity with Loan Value amount rises back above the threshold of $25,000, then the account will again have unlimited day trades.
IMPORTANT: the PDT rule will be applied retroactively to the 4 previous trading days if you set the account to a value of less than 25,000 USD (equivalent) by making a withdrawal. If you have placed more than 5 day trades in these 4 trading days, your account will be suspended according to PDT rule.
FINRA has established the ability for brokerage firms to remove the PDT flag from a customer's account once every 180 days. If an account has been flagged in error and it is not the customer's intent to day trade in the account, the flag can be removed. Once the PDT flag is removed, three day trades per five business day period will again be available to the customer. If an account is again flagged as a PDT account within 180 days of the reset, the customer has the following options:
- One makes a deposit into the account to bring the account balance to the SEC mandated Day Trade minimum of $25,000
- You wait 90 days before you can build up new positions again
As defined by FINRA and the NYSE, a "pattern day trader" (PDT) is a trader who executes four or more day trades (i.e., opens and closes a stock position or stock option position between the start and close of trading on the same day) within a five business day period. NYSE and FINRA rules place certain restrictions on traders who are classified as Pattern Day Traders. If there are three (3) day trades in stock or stock options in a five-day period in a customer account, the account in question must meet a minimum net liquidation value requirement of $25,000 before we will accept any further orders to buy or sell stock or stock options. Once the account executes a fourth day trade transaction (within a 5-day period), we classify the account as a PDT account.
The Pattern Day Trading Regulations allow brokers to unmark an account's PDT if the relevant client confirms that he/she does not intend to engage in day trading strategies and requests the PDT mark to be removed. If you wish to have the PDT marking of your account removed, you can request a PDT reset in the account management in two different ways:
- Click on the "Support" tab and then on "Tools". Scroll to the bottom of the list and click PDT Reset.
- Open the Message Center in the Account Management. From the "New Ticket" drop-down menu, select the "Pattern Day Trader Reset" option and click the green "Create" button to open the PDT Reset tool.
Once the tool is opened, you can simply follow the on-screen instructions. We will process your request as soon as possible, usually within 24 hours.
In the account window (accessible in your TWS/Classic view at the top left under "Account") you can see an example of the possible day trades ("Day Trades Left") in the chart: (3,3,3,3,3)
If one were to see Account Information window the following combination of numbers (0,0,1,2,3), one would have to interpret this information as follows:
If today were Wednesday, the first number "0" would indicate that there are no (0) day trades available for today, Wednesday.
The second "0" stands for the information that there are also no (0) day trades available for Thursday (...and so on).
The "1" in the third position stands for one (1) single day trade that can be executed on Friday.
The "2" in the fourth position means that you have 2 day trades left for Monday and the "3" in the fifth position stands for the number of day trades on Tuesday if you have not used up your day trade quota on Friday or Monday.
3 day trades could then be executed in the account.
- Monday; 1000 pieces of the XYZ share are bought. Later on the same day; 1000 units of the XYZ share are sold. This is one (1) single day trade.
- Wednesday; 1000 pieces of the XYZ share are bought. Later on the same day; 500 shares of XYZ stock are sold. This is one (1) single day trade.
- On Monday, 500 XYZ shares are purchased. Later on the same day, another 500 XYZ shares are bought. On the same day, 1000 shares of XYZ stock are sold in after-hours trading. Again, this is one (1) single day trade.
- Monday; 500 pieces of the XYZ share are bought. On Tuesday, another 500 XYZ shares are bought. Later on Tuesday, 500 shares of XYZ stock are sold. This is one (1) single day trade.
- Thursday; 500 shares of XYZ stock are purchased in pre-market trading. In the post-trading of the same day as the purchase, 200 shares of the XYZ share are sold. Again, we assume only one (1) single day trade.
- Monday; 10 YXX September 2005 90 calls are sold short and at the same time a purchase of 10 YXX December 2005 95 calls is made (out of a combination order type). Later on Monday, 5 YXX September 2005 90 calls are bought back and 5 YXX December 2005 95 calls are sold with profit. These transactions are two (2) day trades (1 day trade for each leg of the spread).
- Thursday; 500 pieces of the YXZ share are bought. Later on Thursday, 1500 shares of YXZ stock are sold (the reversal creates a new short position). Friday; 1000 pieces of the YXZ share are bought. Again, only one (1) day trade is assumed.
- Monday; 500 units of the XYZ share are bought. Tuesday; another 500 XYZ shares are bought. Wednesday; 1000 units of the XYZ share are sold. None of these transactions are classified as day trades.
- Thursdays; 500 pieces of YZZ share are bought. Fridays; 500 pieces of YZZ share are sold. Later on Friday, 500 shares of YZZ stock are bought. This transaction is not classified as a day trade.
- On Friday; 1000 pieces of the XYZ share are bought. On the following Monday, 1000 XYZ shares are sold. These transactions are also not day trades.
If your account falls under the PDT rule, you will receive the following email automatically from CapTrader (we have attached a German translation below for your convenience).
Please then follow the procedures contained there:
Day Trader Restriction Notice
Dear Trader,
You are receiving this message as your account UXXXXXXX falls under the regulatory designation of a Pattern Day Trader (PDT) and your account equity is below USD 25,000, or its equivalent. As background, a margin account is designated as a PDT if it transacts four or more day trades in any rolling five business day period (i.e., a PDT "trigger" ) and remains designated as such until a 95 day period has passed without the occurrence of a subsequent trigger. Based upon a review of your transaction history, your account last generated a PDT trigger on 20XX-XX-XX.
Please note that an account designated as a PDT may continue to day trade as long as account equity of at least USD 25,000 or its equivalent is maintained. As your account equity is currently below this regulatory threshold, you are restricted from entering opening transactions until one of the following conditions has been met:
1. you increase your account equity to at least USD 25,000;
2. a period of 95 days has passed since your account last generated a PDT trigger
You are eligible for and formally request a PDT reset via webticket through the Account Management Message Center. Note that an account is eligible for a reset only once within any 180 period.
Should you have any questions, or require further assistance please contact our Customer Service Center.
CapTrader Team
German translation:
Day Trader Restriction Notification
Dear CapTrader Customer,
You are receiving this notice because your UXXXXXXX account falls under the Pattern Day Trader (PDT) classification and your deposit is below $25,000 or its equivalent. A margin account will be classified as PDT if more than four day trades are executed within a period of five consecutive trading days (PDT Trigger) and will remain as such until the expiration of a 95-day period, unless this classification is retroactively removed. Based on your transaction history, it can be seen that the PDT Trigger was last triggered on XX.XX.20XX. Please note that an account that has been classified as PDT is entitled to further day trades as long as the deposit value is at least 25,000 USD. If your account falls below this value, your account will be blocked from opening new positions until one of the following conditions is met:
- You increase your deposit value to > 25,000 USD
- The 95-day period has elapsed since the PDT trigger was performed.
- Alternatively, you can request a reset of your account's PDT rating via Webticket. To do this, use the Message Center in the account management, but you should take into account that such a reset can be done only once every 180 days.
