Stock Trading and Other Things

Does "pattern day trader" rule only apply to trades within a margin account?

If I don't use a margin account, am I still at risk of being labeled a "pattern day trader" if I do 4 or more day trades in a 5 day period? I only intend to use cash to purchase stocks.

Public Comments

1. It also applies to cash accounts, but only to those accounts with less than $25,000 in assets.

2. Pattern daytrade applies to all accounts. If you have under $25k in your account you are prohibited from doing more than 3 daytrades per 5 day trading rolling period. If you make 4 daytrades in this period you will be red flagged as a patern daytrader and must bring your account to $25k within 5 days. If you don't then you will be restricted from opening new positions for 90 days or until your account meets $25k minimum balance whichever comes first.

It applies to all accounts even if you have more than $25k.
If your labeled a patern daytrader and lets say you don't make any daytrades for 2 months and your account falls below $25k. You will still be restricted from opening new positions until you bring it back to $25k. In other words to clear yourself of a patern daytrader designation you must not make any daytrades what so ever for 90 straight days.

3. 1) No.
2) Yes.

4. You may day trade in a cash account. However, once you are labeled as a "pattern day trader" you must have a margin account and maintain a $25,000. minimum balance. This is an SEC requirement.

You are correct about the definition. Making 4 or more day trades within any 5 consecutive business days will earn you that label. More fully, the number of day trades must also be more than 6% of the number of total trades during the period. But I think that condition is irrelevant for most traders.