The "Pattern Day Trading (PDT)" rules were issued by the Financial Industry Regulatory Authority (FINRA) to ensure that a minimum amount of equity must be deposited and maintained in day trading accounts. This rule only applies to customers residing outside the European Econmic Area (EEA).
What is a Day trade?
FINRA rules define a day trade as the purchase and sale or short sale and purchase of the same security on the same day (regular and extended trading hours) on a margin account. This definition covers any security, including options. Simply buying a security without selling it later that day would not be considered a day trade.
These products, which you trade via your securities sub-account, are affected by day trading rules:
- Stock options
- US index options
- Single Stock Futures
The following products are not traded via the securities sub-account and are therefore not subject to the restrictions:
- Non-US Index Options
- Index futures
A Pattern Day Trader is any customer who uses a margin account to execute four or more day trades within five business days. An account can make up to three day trades in a five business day period without any consequences. If you execute a fourth (or more) day trade within the mentioned period, the account will be marked as a Pattern Day Trader. If an account is marked as PDT, the marking remains on the account for 90 calendar days.
In order to operate Day Trading freely, your account must have a Net Liquidation Value (NLV) of at least USD 25,000. The Net Liquidation Value is calculated as the P&L of cash, stocks, options and futures (TWS: Equity with loan). A cash account is also exempt from the rules.
To prevent your margin account from being blocked due to PDT restrictions for day trading, the system has algorithms to prevent a fourth day trade if the PDT requirements are not met.
If your account or NLV falls below $25,000 USD during the day and you have executed more than three day trades, your account will automatically be marked PDT and blocked for the next 90 days for day trades. The PDT rules are also applied retroactively to the 4 previous trading days.
Please note that you will still be able to close existing positions in the affected account. However, you are not permitted to open new positions.
As a customer, you have the following options to remove the block:
- Deposit into your account to increase the net liquidation value to the required minimum of $25,000
- Wait for the prescribed period of 90 days. After this period, you can open new positions
- Request a reset of the PDT status ("Account Reset")
For example, if the window shows you the information (0,0,1,2,3), this should be interpreted as follows:
Suppose today is Wednesday. The first number in parentheses represents today. So for Wednesday there are 0 remaining day trades available. The second number in brackets (0) means that there are no day trades available for Thursday. The third number in brackets (1) indicates that 1 day trade is still possible on Friday. The fourth number in brackets (2) indicates that 2 day trades are possible on Monday, if you do not execute a day trade on Friday. The fifth number in parenthesis (3) indicates that you have 3 day trades available on Tuesday if you do not execute any day trades on Friday and Monday.
The pattern day trading rules allow brokers to remove the PDT mark from an account if the customer confirms that he/she does not intend to pursue day trading strategies and requests the removal of the PDT mark. If you wish to have the PDT mark on your account removed, you can request a PDT reset in Account Management in two different ways:
- Click the Support tab and then click Tools. Scroll to the end of the list and click on "PDT Reset"
- Open the message center in the account management. Select Pattern Day Trader reset from the "New Ticket" drop-down menu and click the green "Create" button to open the PDT Reset tool
Once the tool has opened, you can simply follow the instructions on the screen. We will process your request as soon as possible, usually within 24 hours.
The previous day's equity is determined at the close of trading on the previous day (16:15 US Eastern Time). The previous day's equity must be at least USD 25,000. Net deposits and withdrawals that have increased the previous day's equity to or above the required level of $25,000 after 4:15 p.m. US Eastern Time of the previous trading day are treated as adjustments to the previous day's equity so that the client can trade the next day.
For example, a new customer's initial deposit of USD 50,000 may not be received in his account until after the close of trading. Although the customer's previous day's equity was 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 customer's transactions would be rejected on the first trading day based on the customer's equity balance at the close of trading on the previous day.
- Accounts that had more than USD 25,000 at any one time, were identified as day trading accounts and subsequently fall below a net liquidation value of USD 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
- Profits from the exercise or allocation of an option are included in the determination of day trading activities as if a direct transaction with the underlying instrument had taken place. The delivery of a single-stock future or the expiration of an option is not taken into account when determining day trading activities