What is a day trade?
What is a day trade?
FINRA Rule 4210(f)(8)(B)(i) defines “day trading” as the act of purchasing and selling or selling and purchasing the same security on the same day in a margin account except for positions held overnight. Shorting stock and buying to cover is considered a day trade, as well as opening and closing options positions on the same day.
What is a pattern day trader?
FINRA Rule 4210(f)(8)(B)(ii) defines a “pattern day trader” as a customer who executes four or more day trades within five business days (a customer is not considered a “pattern day trader” if the number of day trades is 6 percent or less of the total trades for a five business day period).
Would I still be considered a pattern day trader if I engage in four or more day trades in one week, then refrain from day trading the next week?
In general, once your account has been coded as a pattern day trader, we will continue to regard you as a pattern day trader even if you do not day trade for a five-day period. This is because Redbridge will have a "reasonable belief" that you are a pattern day trader based on your prior trading activities. However, we understand that you may change your trading strategies. You may request the pattern day trade flag be removed from your account once during the entire life of your account. These are regulatory policies that Redbridge is required to follow.
What is the minimum equity requirement for a pattern day trader?
The minimum equity requirement for an account engaged in pattern day trading is $25,000. This $25,000 must be deposited in the account before executing any day trades. In addition, the account must maintain at least $25,000 in equity at all times.
If your account equity falls below $25,000 at any point, you will receive an "Equity Maintenance" call notifying you that day trades cannot be placed since the account equity is below the requirement.
If you conduct a day trade when your equity is below $25,000, your account will be subject to a 90 day restriction, where you will be limited to closing transactions only and no opening trades will be permitted during the 90 day restriction period.
Does the $25,000 minimum equity requirement have to be 100 percent cash, or can it be a combination of cash and securities?
You can meet the $25,000 minimum equity requirement with a combination of cash and eligible securities.
Can I cross-guarantee my accounts to meet the minimum equity requirement?
No, you cannot use a cross-guarantee to meet the minimum equity requirement for day trading. Each day-trading account must independently meet the $25,000 minimum equity requirement using only the cash and eligible securities available in that specific account.
What is my Day-Trading Buying Power or “DTBP” under the rules?
Your day trading buying power or "DTBP" is generally calculated as up to four times your account's "maintenance margin excess" from the previous day's close of market. However, for certain securities, higher day trading requirements may apply.
It is important to note that we may impose a higher minimum equity requirement and/or may restrict your trading to less than four times the day trader's maintenance margin excess.
What if I exceed my day-trading buying power?
If you exceed your permitted day trading buying power, we will issue a "day trading margin call" to your account. You will have up to five business days to deposit funds to satisfy this margin call.
Until the margin call is met, your day trading buying power will be restricted to only two times your maintenance margin excess based on your total daily trading commitment.
If the day trading margin call is not satisfied within five business days, your account will be further restricted to trading only on a "cash available" basis for 90 days or until the call is met by depositing funds.
Can I withdraw funds that I use to meet the minimum equity requirement or day-trading margin call immediately after they are deposited?
No, any funds deposited to satisfy the $25,000 minimum equity requirement for day trading or to meet a day trading margin call must remain in your account for two business days after the initial deposit.
These funds cannot be withdrawn during the two business days following when the deposit was required to meet day trading requirements or resolve a margin call. This policy is in place to ensure sufficient good faith funds are available to support day trading activity and risk in the account.