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How is a pattern day trading account defined?
Based on FINRA day trading rules, any properly qualified margin account that places four or more day trades within five business days is deemed to be a pattern day trading account.
Pattern day trading accounts must maintain an account net worth (both beginning day and real-time) of at least $25,000 USD. If the account net worth falls below $25,000, trading is restricted to closing transactions until the account equity is increased above $25,000.
What if my account net worth falls below $25,000 and I decide not to re-fund my pattern day trading account but want to continue trading with TradeStation?
On a one-time basis, you may elect to either:
- Open a non-pattern day trading margin account. Your account will be limited to no more than three opening transactions per day and no more than three day trades per five rolling business days. For example, if you made two day trades in the preceding four trading days, you will be permitted to place one new opening transaction (buy to open or sell to open) during the current trading day. You are still permitted to place as many closing transactions (sell to close or buy to close) as you would like during the current trading day
Or
- Open a cash account. This account will allow you to place unlimited non-margined trades, provided your account has settled funds to place a trade. Remember that the settlement period for a stock sale is T+2 (two business days after trade date) and the settlement period for options sales is T+1 (one business day after trade date).
If my pattern day trading Account Net Worth falls below $25,000, why can’t I just reclassify the account as either a non-pattern day trading or cash account rather than opening a new account?
Once a pattern day trading account is classified as such, we do not permit you to reclassify it as another account type. Any opening transaction in a pattern day trade account could (upon its liquidation) be deemed a “day trade.” If we allowed this to happen after the account net worth falls below $25,000, your account would be subject to regulatory restrictions for up to 90 days. You must therefore either re-fund your pattern day trading account net worth above $25,000 to resume trading or open one of the “non-pattern day trading accounts” referenced above.
What if my non-pattern day trading account appreciates above $25,000 in account net worth?
If your non-pattern day trading account net worth appreciates above $25,000, the non-pattern day trading account limitations will still apply.
If you wish to trade without those limitations, you may transfer your equity back to the original pattern day trading account. TradeStation discourages and may elect to restrict excessive transfers between pattern day trading accounts and non-pattern day trading accounts.
