Pattern Day Trader (PDT)
A FINRA classification for traders who execute four or more day trades within five business days in a margin account.
What is Pattern Day Trader?
A pattern day trader (PDT) is defined by FINRA Rule 4210 as any customer who executes four or more day trades — buying and selling the same security on the same day — within any rolling five-business-day period in a margin account, where those day trades represent more than 6% of total trading activity in the account. Pattern day traders must maintain a minimum equity balance of $25,000 on any day they trade. If the account falls below this threshold, the broker must restrict the account to closing transactions only until the equity is restored. The PDT rule was introduced after the dot-com era to protect retail investors from the financial risks of excessive short-term speculation. Traders can avoid the rule by using a cash account, staying below four day trades in five days, or maintaining the $25,000 minimum.
Example
A retail investor with a $15,000 margin account buys and sells Apple stock on the same day three times in one week, then does the same on Monday of the following week — four day trades within five business days. Their broker flags the account as a pattern day trader and issues a margin call requiring the account to reach $25,000. Until then, only position-closing trades are permitted.