Quick Answer
A firm that promotes day trading must either approve the account as appropriate for day trading or get a written statement that the customer does not intend to day trade, and it must deliver a risk disclosure before the account opens. The rules apply only to firms that actively promote day trading, not to firms that merely permit it.
Now that you know the general requirements for opening accounts, this section covers the additional rules that apply specifically to firms promoting day-trading strategies. Two FINRA rules govern this area: the day-trading approval rule and the day-trading risk-disclosure rule.
When Must a Firm Approve a Day-Trading Account?
The day-trading approval rule applies to members that promote a day-trading strategy, directly or indirectly.
What Counts as "Promoting"?
- Advertising
- Website content
- Trading seminars
- Direct outreach to customers
What Must the Firm Do Before Opening the Account?
Before opening a day-trading account for a non-institutional customer, the member must do one of two things:
| Option | What the Firm Must Do |
|---|---|
| Option A: Approve the account | Determine that day trading is appropriate for the customer, and prepare a written record of the basis for approval |
| Option B: Obtain a written agreement | Get the customer's written statement that they do not intend to use the account for day trading |
What Facts Support an Appropriateness Determination (Option A)?
The firm must exercise reasonable diligence to ascertain:
- Investment objectives
- Investment and trading experience and knowledge
- Estimated annual income from all sources
- Estimated net worth (excluding family residence)
- Estimated liquid net worth
- Tax status
- Employment status
- Marital status and number of dependents
- Age
Exam Tip: Gotchas
- The day-trading approval rule only applies to firms that promote day trading. A firm that simply allows day trading without actively promoting it is not subject to these approval procedures. But if the firm promotes day trading in any way (even on its website), the approval rule kicks in.
- Net worth for the appropriateness determination excludes the family residence. The rule specifically says "exclusive of family residence."
What Must the Risk Disclosure Statement Say?
The risk disclosure must be furnished to each non-institutional customer individually (paper or electronic) before the account is opened. It must also be posted on the member's website in a clear and conspicuous manner.
What Must the Disclosure Statement Tell the Customer?
The disclosure statement must inform the customer that:
- Day trading is generally not appropriate for someone with limited resources, limited experience, and low risk tolerance
- The customer should be prepared to lose all funds used for day trading
- An investment of less than $50,000 will significantly impair a day trader's ability to profit
- Day trading requires in-depth knowledge of securities markets, techniques, and strategies
- The customer will be competing with professional, licensed traders
How Do the Approval and Disclosure Requirements Relate?
- The risk disclosure must be delivered before the account is opened (when the firm promotes day trading)
- The approval or written agreement is a separate requirement on top of the disclosure
- Both requirements target firms that promote day trading to non-institutional customers
Exam Tip: Gotchas
- The $50,000 figure in the risk disclosure is a warning, not a regulatory minimum. It is often contrasted with the $25,000 pattern-day-trader margin minimum, which FINRA eliminated (replaced by a real-time intraday margin standard). The $50,000 disclosure itself remains a required part of the risk disclosure.
- A firm cannot rely on Option B if it knows the customer intends to day trade. If the firm opens an account based on a written non-intent agreement and later learns the customer is day trading, the firm must approve the account under Option A as soon as practicable, and no later than 10 days after learning of the activity. That deadline is calendar days, not business days.
- The risk disclosure must come before the account opens. The disclosure is a prerequisite, not something that can be delivered after the fact.
What Should You Check on Exam Day?
- These rules apply only to firms that promote day trading, not firms that merely allow it
- Every promoting firm must do both: deliver the risk disclosure before the account opens, and either approve the account or get a written non-day-trading statement
- The $50,000 figure is a warning in the risk disclosure, not a minimum balance requirement
- If a firm later learns a "no day trading" customer is day trading, it has 10 days (not business days) to complete the appropriateness approval