When you invest, your capital is at risk.

Share

Pattern day trading

A day trade is the act of buying and selling a financial instrument once or multiple times during a single trading day. Investors who execute four day trades in a rolling five-day period will be marked as a Pattern Day Trader (PDT) and could face regulatory restrictions if they do not meet certain criteria. Read on to learn more.

What is pattern day trading?

Pattern day trading involves executing more than three day trades within a rolling five-day period. If an investor makes a fourth day trade during those five days, they will be marked as a Pattern Day Trader (PDT).

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

Depending on the circumstances, a PDT can also face further restrictions beyond the 90-day restriction at the discretion of our U.S. broker-dealer, DriveWealth. For more information on regulatory restrictions, please check the FINRA website.

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 buy order 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.

Get started with Stake

Sign up to Stake and join 500k+ investors accessing the ASX & Wall St all in one place.

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.


Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.


Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stake is the trading name of Hellostake Limited, a company registered in England and Wales (Company no. 11676409). Hellostake Limited is authorised and regulated by the UK Financial Conduct Authority under the Firm Reference Number 830771. Registered address: 85 Great Portland Street, London, W1W 7LT, United Kingdom.

When you invest, your capital is at risk.

The value of your investments can go down as well as up and you may receive back less than your original investment. Any advice is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate independent taxation and legal advice. The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services.

At Stake, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Please view ourTerms & Conditions,Privacy PolicyandDisclaimers before deciding to use or invest on Stake. By using the Stake website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance

Copyright © 2024 Stake. All rights reserved.