Day Trading FAQs
Q. What is the definition of a "Pattern Day Trader"?
A. FINRA defines a Pattern Day Trader as "any customer who executes four or more day trades within five business days, provided the number of day trades is more than 6% of the total trades in the account during that period". Scottrade defines a pattern day trader as any customer who executes four or more day trades within five business days.
Q. What is a Day Trade?
A. A day trade is the purchasing and selling or the selling short and purchasing to cover of the same security on the same day (including pre- and post-market) in a margin account except for:
a. A long security position held overnight and sold the next day prior to any new purchase of the same security, or
b. A short security position held overnight and purchased the next day prior to any new sale of the same security.
Q. Will Pattern Day Traders be required to have a margin account?
A. Yes, all Pattern Day Traders must have a margin account and will be required to maintain $25,000 equity in order to continue Pattern Day Trading.
Q. What are the consequences if I have a margin account and I day trade four times in five rolling business days?
A. Your account will be designated as a Pattern Day Trading account, and you will be required to maintain $25,000 equity at all times in order to continue day trading.
Q. What are the consequences if I am a Pattern Day Trader and execute a day trade with under $25,000 equity?
A. When you execute a day trade with under $25,000 equity, your account will lose margin privileges and you will be restricted to closing transactions only until one or more of the following occurs:
All margin debits are satisfied.
Your equity is brought up/increases to $25,000.
90 days pass without any day trade transactions.
If all margin debts are satisfied, you may resume trading in a cash account.
Q. Once an account is coded as a "Pattern Day Trader", can the account be re-coded as a non-day trading account?
A. No, not for a period of 90 days. If 90 days pass without any day trade transactions, your Pattern Day Trading designation will be removed and the surveillance process will start over. As an alternative, you may pay off the margin debit balance, close any short positions and trade in the cash account.
Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. Scottrade's margin agreement, available at scottrade.com or through a Scottrade branch office, contains the Margin Disclosure Statement and information on our lending policies, interest charges and the risks associated with margin accounts.