Instant Buying Power and Pattern Day Trading

 

Instant Buying Power and pattern day trading rules explained.

Since Stake launched, a popular feature request has been trading on unsettled funds. That is, re-investing funds from a sale before it settles two days later. We call it Instant Buying Power.

The ability to invest immediately into a new opportunity in the US market, combined with commission-free trading, gives a whole new level of access and opportunity to our customers.

This increased access means our customers are now subject to US trading rules regarding  Pattern Day Trading (PDT).

Under these rules, investors will be marked as Pattern Day Traders if they execute more than three day trades in a rolling five trading day period. If marked as a Pattern Day Trader, you may be restricted from making another day trade for 90 days.

To ensure our customers stay safe and on the right side of this regulation, we’ve built a day trade counter into the platform. However, please keep reading to familiarise yourself with the details around PDT, which we’ve outlined below.

Important to note

PDT is a US regulatory (FINRA) rule, not a Stake rule. Therefore, those marked as Pattern Day Traders could face further restrictions beyond the 90 days, day trade restriction, at the discretion of our US broker-dealer, DriveWealth.

Defining a day trade

You make a day trade when you buy then sell the same stock/security on the same trading day.

Defining pattern day trading

As mentioned above, traders will be marked as Pattern Day Traders if they execute more than three day trades in a rolling five trading day period. If marked as a Pattern Day Trader, you may be restricted from making another day trade for 90 days.

Exemptions from PDT

Restriction on day trading only applies on account values under $25K, regardless of whether you’re on Stake Black or not. Those with account values over $25k can day trade freely, without restriction.

What if I’m marked as a pattern day trader?

If you are ever marked as a Pattern Day Trader or getting close, you can fund your account above $25K to remove the restrictions. However, you must be able to maintain this account value for the duration of the initial flagged 90 day period.

Stake Day Trader counter

To keep our customers safe and on the right side of the rules, we’ve built a Day Trade Counter into Stake. This will keep track of all your day trades and notify you when you are on your third day trade in a rolling five trading day period.  You’ll always have the right (and given the choice) to make a 4th day trade, but will be warned of the impact this may have.

Day Trading Examples

We get that day trading can be confusing, so here are a few examples.

One Day Trade

Example 1: Buy, Sell

You start with 0 shares of AAPL.

  • Buy AAPL
  • Sell AAPL

This constitutes one day trade because you bought then sold AAPL on the same trading day.

Day trade = Buy 1 AAPL, Sell 1 AAPL.

Example 2: Sell, Buy, Sell

You already own 100 shares of stock AAPL.

  • Sell 20 shares AAPL
  • Buy 10 shares AAPL
  • Sell 10 shares AAPL

This constitutes one day trade since you already owned positions the first sell doesn’t count towards a day trade.

Day trade = Buy 10 AAPL, Sell 10 AAPL.

Example 3: Buy, Buy, Buy, Sell, Sell, Sell

You currently hold 0 shares of stock AAPL.

  • Buy 5 shares AAPL
  • Buy 5 shares AAPL
  • Buy 3 shares AAPL
  • Sell 2 shares AAPL
  • Sell 3 shares AAPL
  • Sell 2 shares AAPL

This constitutes one day trade because there was only one change in direction between buys and sells.

Day trade = Buy 5 AAPL, Buy 5 AAPL, Buy 3 AAPL, Sell 2 AAPL.

More Than One Day Trade

Example 1: One stock

You start with 0 shares of AAPL.

  • Buy 100 AAPL
  • Sell 20 AAPL
  • Sell 40 AAPL
  • Buy 10 APPL
  • Sell 10 AAPL

This is two day trades as there were two changes in direction.

Day trade 1 = Buy 100 AAPL, Sell 20 AAPL

Day trade 2 = Buy 10 AAPL, Sell 10 AAPL

Example 2: Two Stocks

You currently hold 0 shares of stock AAPL and NFLX

  • Buy 100 AAPL
  • Buy 20 NFLX
  • Sell 40 AAPL
  • Sell 10 AAPL
  • Sell 10 NFLX

This constitutes two day trades as there were two changes in direction.

Day trade 1 = Buy 100 AAPL, Sell 40 AAPL

Day trade 2 = Buy 20 NFLX, Sell 10 NFLX

Example 3: Across Multiple Days 

You currently hold 0 shares of stock AAPL and NFLX.

  • Buy 100 AAPL (Monday)
  • Sell 40 APL (Monday)
  • Sell 10 APPL (Tuesday)
  • Buy 20 NFLX (Wednesday)
  • Sell 10 NFLX (Wednesday)

This constitutes two day trades as a change in direction occurred within the same day, twice over a 5 trading day period. 5 trade day period = Monday – Friday

Day trade 1 (Monday) = Buy 100 AAPL, Sell 40 AAPL

Day trade 2 (Wednesday) = Buy 20 NFLX, Sell 10 NFLX