Pattern day trading

What is pattern day trading?

A day trade is defined as the purchasing and selling or the selling and purchasing of the same security on the same day.

Investors will be marked as Pattern Day Traders (PDT) if they execute four “day trades” in a rolling period of five trading days. If you are marked as a Pattern Day Trader, you may be restricted from performing additional “day trades” for a period of 90 days or more.

Important to Note PDT rules come from the U.S. regulatory body FINRA, not from Stake. If you’re designated as a Pattern Day Trader, your ability to place “day trades” may be restricted for the allotted time. This means that if you buy into a security in a given day you are restricted from selling out of the same security on the same day and vice versa.

Those designated as PDT are subject to a 90-day restriction in accordance with FINRA regulations. The PDT restriction currently prevents you from placing “day trades” on Stake for the 90-day period.

We’ve built a Day Trade Counter into the Stake platform to help people track their day trade activity and notify Stake customers on their third day trade in a rolling five-day period.

Exemptions to the PDT rule

The day trade restriction only applies to PDT account balances valued under US$25,000. 

Your PDT account balance consists of: 

• Total settled cash; 
• Unsettled stock sale proceeds; and 
• The value of held securities (not on loan via Stock Lending)

To qualify for exemption to the PDT rule, your total PDT account balance must be over US$25,000 prior to trade commencement on a given day.

It is important to note that even if you have a PDT account balance of more than US$25,000, FINRA’s rules limit the day-trading buying power of all investors marked as PDTs. You can learn more about day-trading buying power limits for PDTs and the consequences here.

PDT and Stock Lending

If you participate in Stock Lending with Stake and a portion of your equities is currently on loan, the value of loaned equities is not included in your account balance for PDT purposes (i.e. your PDT account balance). As this can impact eligibility for the PDT rule exemption, it is recommended you opt out of Stock Lending if marked as a Pattern Day Trader.

Stake Black and PDT considerations

Stake Black Wall St customers have the ability to bypass the T+2 settlement period with the Instant Buying Power feature. However, Stake Black membership does not provide an exemption to the PDT account balance minimum.

How many trades can you make in a week?

There is no weekly or daily restriction on buy or sell trades. PDT restrictions only apply to 'day trades'.

In any rolling five-day period, investors will be able to make three day trades without being labelled as a Pattern Day Trader and being subject to the PDT account balance requirement to continue making buy trades.

However, you will always be able to make sell trades even when you are marked as a PDT.

Examples of day trading

To help illustrate day trading in action, here are a few practical examples. 

Example: Single day trade

Trade Pattern: Buy, Sell 

Context: You currently hold 0 shares of AMZN and place the following trades.

Buy 1 AMZN     

Sell 1 AMZN 

This constitutes a day trade as you bought and then sold AMZN on the same trading day.

Therefore:

Day trade 1 = Buy 1 AMZN + Sell 1 AMZN

Example: Two day trades

Trade Pattern: Buy, Sell, Buy, Sell 

Context: You currently hold 0 shares of AMZN

Buy 100 AMZN     

Sell 20 AMZN

Sell 30 AMZN

Buy 20 AMZN

Sell 20 AMZN 

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

Therefore:

Day trade 1 = Buy 100 AMZN + Sell 20 AMZN + Sell 30 AMZN

Day trade 2 = Buy 20 AMZN + Sell 20 AMZN

These are just a few examples if you’d like to learn more about PDT rules with additional examples, head here.

This does not constitute financial product advice nor a recommendation to invest, it is for informational purposes only. As always, do your own research and consider seeking appropriate financial or taxation advice from a licensed adviser before investing.