Business

Rules & Regulations About Trading and Pattern Requirements

A lot of people assume that to become a regular day trader, all they need to do is close and open assets within 24 hours. A broker will want to know whether you’re going to identify yourself as a bona fide day trader and follow the pattern rule. The FINRA, or financial regulatory authority for the US, established something called pattern day trader rules to dictate how people need to operate in the regular investment market.

Where Did This Requirement Come From?

In that time, the minimum equity you needed to have in your account was only $2,000. However, as technology made it easier to open and close numerous positions within a day, the demand on minimum equity went up. Even if you don’t regularly invest in daily securities, but you meet the requirements to become a PDT, then your brokerage is likely to hold you to the $25,000 equity requirement rule. The good news is that you can meet the requirement to have a certain amount of equity in your account using a combination of securities and cash.

Are There Any Benefits to this Rule?

With access to margin and leverage, it’s possible to make a lot more money much faster, without spending too much in initial down payments. Of course, you will need to make sure that you have a strategy in place that allows you to track what’s happening in your accounts carefully and make sure that you never fall outside of the equity limits.

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