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