Day Trading Rules
What you need to know

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.


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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 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".  At least that's the rule for most brokers.   As with all rules, you should check with your broker for the specifics since there can be slight variations of this rule in other countries.

The trading rule for pattern day traders is that you must have $25,000 equity in your account.  If you fall below $25,000 and you trade MSFT four times in one week, then you'd be classified as an unqualified pattern day trader and the broker would send you a warning.

Most brokers will give you one warning and ask (should I say "demand") 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.

If you cannot qualify as a pattern day trader for trading stocks, then I encourage you to consider trading the currency market.  This is called Forex trading and it is actually a much larger market than the U.S. stock market.  There are no day trading rules in place for trading Forex, so there are no minimum equity requirements for Forex brokers other than the minimum deposits required for opening your account.  (This can be as little as $100.)  I would offer a warning though:  trading the Forex market is very different from trading stocks, so don't believe the hype you'll see advertised regarding how "easy" it is to make quick money.



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For more information about day trading rules and the S.E.C.'s regulations, then click this link.

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