Quick Answer
A pattern day trader makes four or more day trades in five business days when those trades exceed 6% of total activity in that period. The margin account must have at least $25,000 before day trading. Buying power is generally four times prior-day maintenance-margin excess, subject to calls and restrictions.
Day trading is measured by activity in a margin account, then constrained by equity and buying-power limits.
Pattern Day Trader Standard
- Day trade: The purchase and sale, or sale and purchase, of the same security in a margin account on the same day.
- Pattern day trader: A customer who executes four or more day trades within five business days, provided those day trades are more than 6% of the customer's total trading activity during the same five-business-day period.
- Minimum equity: A pattern day trader must maintain at least $25,000 in equity in the margin account before day trading.
Four or more day trades in five business days + more than 6% of total activity → pattern day trader standard.
Memory Aid: Think "four, five, six": four or more day trades, five business days, and more than 6% of the customer's activity. Once that pattern applies, remember the separate $25,000 minimum-equity requirement before day trading.
Day-Trading Buying Power and Calls
- Day-trading buying power: Maximum securities value a pattern day trader may purchase on a given day, generally four times the account's maintenance-margin excess at the preceding day's close of business.
- Day-trading margin call: Results when a pattern day trader exceeds day-trading buying power.
- If the call is not met within five business days, day-trading buying power is restricted to two times maintenance-margin excess for 90 days, or until the call is met.
Maintenance-margin excess at prior close → four times buying power. Exceeding that amount → day-trading margin call.
Exam Tip: Gotchas
The restriction after an unmet day-trading margin call is two times, not four times, maintenance-margin excess. It lasts for 90 days or until the call is met, and it applies when the call is not met within five business days.