FINRA rules define a “pattern day trader” as any customer who executes four or more “day trades” within five business days, provided that the number of day trades represents more than six percent of the customer’s total trades in the margin account for that same five business day period. This rule is a minimum requirement, and some broker-dealers use a slightly broader definition in determining whether a customer qualifies as a “pattern day trader.” Customers should contact their brokerage firms to determine whether their trading activities will cause their broker to designate them as pattern day traders.
A broker-dealer may also designate a customer as a “pattern day trader” if it “knows or has a reasonable basis to believe” that a customer will engage in pattern day trading. For example, if a customer’s broker-dealer provided day trading training to such customer before opening the account, the broker-dealer could designate that customer as a “pattern day trader.”
Under FINRA rules, customers designated “pattern day traders” by their brokerage firms must have at least $25,000 in their accounts and can only trade in margin accounts.