Pattern Day Trader
A US regulatory designation for accounts making four or more day trades in five business days.
Also called: pdt · pdt rule · day trading rule
Written by Javier Sánchez Ros
In plain language
The rule applies to margin accounts at US brokers. Four or more same-day round trips within five business days triggers the designation.
Flagged accounts must maintain at least $25,000 in equity. Below that threshold, day trading is restricted until the balance is restored.
It is a broker and regulatory constraint, not a market one, but it shapes what strategies are practical for smaller US accounts.
Worked through
Three day trades used by Wednesday, on a $22,000 account
- Account equity
- $22,000
- Threshold for the rule
- $25,000
- Day trades allowed
- 3 per 5 business days
- Used by Wednesday
- 3
A fourth round trip before the window rolls forward flags the account as a pattern day trader, and below $25,000 that brings restrictions — commonly a freeze on opening new positions for ninety days.
The dangerous version is not the restriction itself, it is the position it creates. A trade opened on Thursday cannot be closed on Thursday without using a day trade the account does not have, so a trade that was meant to last an hour is held overnight, with gap risk that was never part of the plan.
Traders then manage the constraint rather than the trade: holding a loser into the next session to preserve a count, or refusing to enter a good setup because it is Thursday. Both are decisions about a brokerage rule being made inside a trading account.
The rule applies to margin accounts in the US. The workable responses are to trade in a cash account and accept settlement timing, to hold positions longer than a day by design, or to keep equity above the threshold — but the one that causes damage is forgetting the count exists.
Why it matters
The rule can lock you out of closing a position the same day you opened it, which turns an intended day trade into an unintended overnight one with gap risk attached.
Common mistakes
- Being restricted mid-week and having to hold a losing trade overnight.
- Assuming the rule applies to cash accounts, where settlement rules apply instead.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The firm that routes your orders to the market and holds your account.
The capital your broker requires you to post to open and hold a leveraged position.
A jump between one period’s close and the next period’s open with no trading in between.
The period each candle on a chart represents, from one minute to one month.
A written set of rules defining what you trade, how you size it, and when you exit.