Pattern Day Trader / SEC

[HighRoll]

What is the name of your state (only U.S. law)? Michigan

People often argue whether a person using their own money (as opposed to a margin account) are subject to SEC rules regarding "pattern day trading." Does a person trading with only their OWN money have to maintain a balance of $25,000 in their brokerage account to trade as a PDT?

Thanks.

 

[efflandt]

SEC rules say a pattern day trader is required to have a margin account with $25k in assets. One problem with frequent trading of a small amount of money is that trade commissions would be a higher percentage of each trade and would tend to eat up the money.

You also have to be aware of "free ride" rules which would make day trading impractical in a small cash account. If you sell a stock and use unsettled cash to buy other stock the same day, you cannot sell the 2nd stock until the 1st sell settles.

I have one broker that has what they call "cash margin" for IRA's, which means that you can do option strategies with defined risk by putting a hold on enough cash in your account to cover the risk until you close out the trade. Not sure if that would get you around the margin rule, but they still warned me after I changed my mind about a trade and immediately reversed it, that that I could only do that 2 more times in 5 days without the SEC required $25k in assets in the account.