The day trading rules you need to know before you start trading stocks.
There are certain day trading rules you need to know. When you open an account with a broker, there should be a day trading definition posted on their web site. But, let's go ahead and cover this before you place your first trade.
A day trader is defined as someone who enters and exits a trade on the same day. A "pattern day trader" is someone who does this more than three times within a five business day period.
So, if you buy Microsoft (MSFT) and then sell it in the same day then that is a day trade. If you do that three times in one week, then you're not a pattern day trader. But, if you do it four times then you're classified as a "pattern day trader".
Now, there's no problem with being classified this way - as long as you meet another day trading rule: you must have $25,000 equity in your account. If you fell below $25,000 and you traded MSFT four times in one week, then you'd be classified as a pattern day trader.
Most brokers will give you one warning once you've done this and ask you to bring your account up to $25,000 in equity. If you continue to break the day trading rules, then your broker can take action on your account, including shutting it down. (No, you don't lose your equity.) So, it's an important definition.
Some brokers have slight variations on these regulations. So, read your broker's information carefully when you open your account.
There are other points worth covering here. The five business day cycle is actually the stock market's five day period. So, when the market closes on Thanksgiving Day, this does not count as one of the five days. Just thought you should know.
If you do not have $25,000 in equity, then you can still start day trading. You just have to remember the rules. And, of course, there are other options besides day trading. You can swing trade, become a fundamentals investor, etc.
When you searched for
"day trading rules", did you mean rules for trading stocks?
If yes, then you may want to see my new video course
"Trading the Afternoon Market".
Click Here for more information.
If you want to learn more about brokers, then click here.
For more information about day trading rules and the S.E.C.'s regulations, then click this link.
To stay in touch, please sign up for my free e-zine. You'll receive a spicial report, a "Trade Review Form" that you can use over and over again to analyze your trades, and a bi-weekly e-zine that analyzes one stock chart using the techinical indicators mentioned in my books.