Day Trading Regulations
and the S.E.C.

There are day trading regulations that every day trader needs to know. And it is best to know these before you begin trading. It may not surprise you to learn that trading stocks is a highly regulated industry. Failure to follow these regulations can result in notices from your broker, informing you that you have broken these regulations, or margin calls in which the broker insists upon more equity being deposited in your account.

I differentiate between a broker's day trading rules and the S.E.C.'s (U.S. Securities and Exchange Commission) regulations. But you need to be aware of both. Both the rules and the regulations are designed to protect investors against the fraud of others as well as our own irresponsibility.

There are three basic aspects to the S.E.C.'s day trading regulations and they can be broken down as follows:

1) Minimum Equity Requirement. If you are classified as a pattern day trader, then you are required to have at least $25,000 equity in your account.

2) Number of Executions. If you buy and sell the same stock in the same day, then this is one day trade. Do this more than three times in a five day period, and you are considered a pattern day trader.

3) Margin. If you are considered a pattern day trader, then you must establish a margin account.

Now, your broker is responsible to the S.E.C. also and they want to make sure that their clients (the traders like you and me) are in compliance with the S.E.C. rules.  So, your broker will notify you if you violate these rules and regulations.  That said, it is also your responsibility and you need to know these things before you begin day trading.  These are regulations that you don't want to discover via an email or phone call from your broker!


I suggest you read the S.E.C.'s guidance on day trading by clicking this link.

Day Trading Regulations
and Pattern Day Trading

Here's a clip from the S.E.C. web site:

I strongly encourage you to read both the S.E.C.'s rules and regulations as well as your broker's rules.

As I mentioned earlier, your broker will also have certain rules and regulations regarding your trading account.  So I encourage you to become familiar with this material as well.

Now that I've scared you with all of the rules and regulations, the S.E.C., etc....then I want to mention one thing to you.  Let's say you want to day trade but you don't have the $25,000 necessary for a day trading account.  While you may wish to trade stocks, you have the option of trading currencies.  This is called Forex trading and you may have heard of it.  But the good news is that you can open a Forex account for as little as $100 and day trade that account with no limitations.  Now, you won't make a lot of net profit with that small of an account.  But you will be able to get started with day trading and you'll be able to "get your feet wet", as they say.

If you're interested in Forex trading, then you'll see some material on this site related to that since I trade currencies myself.  You can also visit my Facebook page since I post currency charts and alerts on that page.  Just click here to see that link.