Pattern Day Trading (PDT)

Pattern Day Trading (PDT) refers to the practice of executing four or more day trades within a five-business-day period in a margin account, provided the number of day trades is more than six percent of the total trading activity for that same five-day period. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) impose specific regulations on pattern day trading to protect investors from excessive risk.

Example:

Case 1:

John opens a margin account with a cryptocurrency exchange. On Monday, he executes three day trades. On Tuesday, he executes two more day trades. Since John has executed five day trades within the span of two days, he is not classified as a pattern day trader.

Case 2:

Samantha also opens a margin account with the same cryptocurrency exchange. On Monday, she executes three day trades. On Tuesday, she executes three more day trades. Since Samantha has executed six day trades within the span of two days, and this exceeds six percent of her total trading activity, she is classified as a pattern day trader.

In Case 2, Samantha would be subject to the PDT rules, which may include maintaining a minimum account balance of $25,000 in order to continue day trading. Failure to meet these requirements may result in trading restrictions or the closure of the account.