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What is a "Pattern Day Trader"?

Last Updated: Jun 19, 2015 02:17PM EDT
A Pattern Day Trader (PDT) is someone who effects four (4) or more Day Trades within a five (5) business day period. A trader who executes four (4) or more day trades in this time is deemed to be exhibiting the pattern of day trading (which is defined by FINRA, Financial Industry Regulation Authority) and is thereafter subject to the PDT restrictions.

A day trade is to buy and sell the same security during the same day in a margin account.

If you effect a Day Trade, you will be given a Potential Pattern Day Trader notification warning which will identify how many Day Trades you have and how many Day Trades you have remaining before you are deemed a Pattern Day Trader. It will also spell out the requirements and rectification that you will be allowed to exercise should you be tagged as a “Pattern Day Trader”.

The account holder can wait for the five-day period to end before any new positions can be initiated in the account to avoid being designated a “Pattern Day Trader”.

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