Margin Rules for Day Trading

Day traders, when using a margin account, must abide by the 25000 day trading rule. This essentially means that they must have a minimum balance of $25,000 in their accounts at all times. Otherwise, they won’t be able to trade until they deposit the said balance.

Let’s take a deeper dive into the day trading rules under 25k TD Ameritrade and why they are important.

What Is A “Pattern Day Trader”?

A pattern day trader buys/sells securities, and then sells/buys them the same day. Be it short selling or the other way around, if a day trader continues on this pattern, they must abide by the day trading 25k rule.

Why do you need 25k to day trade?

Well, simple, it is a regulation mandated by the FINRA, or the Financial Industry Regulatory Authority.

What Is A “Day Trade”?

Day trading rules cash account apply when a trader buys and sells (or vice versa) securities on the same day. This does not apply if the trader keeps the securities/stocks overnight and then sells them, or buys fresh stocks (of the same company/security) after selling them the previous day.

As the name signifies, day trading happens within a day, and the pattern day trading rule applies when this goes on for 4 days or more.

What Are The Margin Requirements For Pattern Day Traders?

The FINRA day trading rules require all brokers to identify pattern day traders and subject them to tighter regulations. These restrictions protect the market from manipulation by traders. If someone engages in pattern day trading via a margin account, their broker will flag their account.

For this, the trader must’ve been engaged in pattern day trading for at least 4 days and the revenue from these trades be 6% of their total winnings. If this is so, then the broker will apply the 25000 day trading rule.

This essentially means that the trader will have to keep $25,000 in their account at all times to be able to trade on the platform.

We hope this sums up the 25000 day trading rule!


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