Other Margin Accounts

Beyond standard margin accounts, there are two specialized account types tested on the Series 7: pattern day trading accounts and portfolio margin accounts. Each has unique requirements and higher minimums.

Pattern Day Trading

A pattern day trader is defined by two conditions that both must be met:

1. Executes 4 or more day trades within 5 consecutive business days
2. Those day trades represent more than 6% of total trades in the account during that period

A day trade is opening and closing the same security position on the same day.

Pattern Day Trader Requirements

Key Rules

• If the account falls below $25,000, the customer cannot day trade until equity is restored
• The $25,000 minimum can be a combination of cash and eligible securities; it does not need to be all cash
• Day-trading buying power is calculated based on the prior day's closing equity minus maintenance requirements, multiplied by 4
• If day-trading buying power is exceeded, a day-trading margin call is issued

Exam Tip: Gotchas

• Pattern day trader requires BOTH conditions. 4+ day trades in 5 business days AND those trades must exceed 6% of total trades. The exam may present a scenario with exactly 4 day trades but a very high total trade count (making day trades less than 6%); in that case, the customer is NOT a pattern day trader.
• $25,000 minimum can include securities. It does not need to be all cash.
• Day-trading buying power is 4x (not 2x like standard margin).

Portfolio Margin

Portfolio margin uses risk-based modeling instead of the fixed percentage requirements of Regulation T (Reg T):

• Computer models calculate theoretical gains/losses across multiple pricing scenarios
• Margin is based on the greatest projected net loss across all positions in a group of related securities
• Typically results in lower margin requirements for well-hedged, diversified portfolios

Think of it this way: Standard margin applies the same flat percentage to every position. Portfolio margin looks at the big picture and asks, "If the market moves against you, how much could you actually lose across all your positions?" A hedged portfolio (long stock plus protective put, for example) has less real risk, so it requires less margin.

Minimum Equity Requirements

The minimum equity for portfolio margin depends on monitoring capability:

Additional Rules

• Available only to customers who meet eligibility criteria (net worth, trading experience, account approval)
• Eligible products: equity securities, equity options, index options, narrow-based index options, and certain other products
• The firm must maintain robust controls to monitor credit exposure and concentration risk

Exam Tip: Gotchas

• Portfolio margin minimum starts at $100,000 (much higher than the standard $2,000 margin minimum). The minimum jumps to $500,000 when some trades are executed at other firms.
• Portfolio margin lowers requirements for hedged portfolios. If a question describes a well-diversified, hedged portfolio, portfolio margin will produce a lower requirement than Reg T.

Margin Disclosure Requirements (FINRA Rule 2264)

The firm must deliver a margin disclosure statement to the customer at or before account opening. The disclosure must explain:

• The firm can force the sale of securities without notice
• The firm can increase margin requirements at any time without advance notice
• The customer is not entitled to an extension of time to meet a margin call
• The customer can lose more money than originally deposited
• Short sellers can lose more than the proceeds from the short sale

This disclosure must be provided at least once per calendar year to all non-institutional margin customers.

Exam Tip: Gotchas

• The firm can liquidate margin positions without giving the customer notice or time. Students often assume the customer gets a chance to respond first; the disclosure explicitly states otherwise.
• The customer is not entitled to a time extension on a margin call. The firm decides whether to grant extra time, not the customer.