The term "Pattern Day Trader" (PDT) is a U.S. regulation set by the Securities and Exchange Commission (SEC) that applies to margin accounts held at U.S.-based brokerage firms. A Pattern Day Trader is someone who makes four or more "day trades" within five business days using a margin account. A day trade occurs when a trader buys and sells a security (such as stocks, options, or bonds) on the same day using margin.
If your margin account balance is over $25,000, you are not considered a Pattern Day Trader and can make unlimited day trades. However, if your margin account balance is below $25,000, you are limited to three-day trades within a five-business-day period.
It’s important to note that the PDT rule does not apply to cash accounts, which are not subject to these restrictions. Additionally, margin accounts involve leverage, which allows you to control larger positions, but also increases your risk. For example, if your leverage is 4:1 and you have $25,000 in your account, your buying power would be $100,000.