Trading stocks has its specifics, and one of them is Pattern Day Trading (PDT) rule. It is imposed by U.S. regulatory bodies like the SEC and FINRA and is mandatory for all US based brokers.
According to FINRA rules, you are a day trader if you execute at least four day trades (trades that are open and closed at the same calendar day) within five business days.
Pattern Day Traders must maintain a minimum account balance of $25,000 in their margin accounts plus there are some margin requirements. This will allow them to engage in unlimited day trading.
Note – this pattern applies also to fractional stocks – you won’t avoid this by trading in fractions.
Check the Alpaca.Markets help for complete documentation: https://docs.alpaca.markets/docs/user-protection
In short – if you have an account of less than $25,000 you must be aware of some trading limitations, so that you don’t trigger this pattern.
If you do trigger it – it will be automatically recognized by your broker – some of your orders will be refused and your trading will be limited.
This would create a difference between your real trading and your strategy backtests, so you should be extra careful to not trigger this pattern unless you have adequate capital.
It looks complicated, but it really isn’t that bad. There is no problem trading a smaller account under $25,000.
There are strategies and their variations that don’t trigger the day trading pattern and so you are perfectly safe trading them without fear.
Remember – the pattern recognizes only day trades – trades must be opened and closed on the same calendar day.
AlgoCloud offers you a variety of entries and exits – to avoid the pattern simply use them smartly to never close the trade at the same day as it was opened.
All our strategy examples that don’t trigger PDT rule have a tag 
– you can see what kind of exits they use.
Every broker is different, and some of them might have special requirements above what is required by the financial authorities.
There are also special margin requirements if you are recognized as a day trader (see PDT above). Please read about it in the broker documentation:
This website is operated by AlgoWizardCloud LLC.
AlgoCloud.com is a technology platform and publisher, not a registered broker-dealer or registered investment adviser, and does not provide investment advice.
Investing involves risk and investments may lose value. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not indicative of future results. Seek appropriate financial, taxation and legal advice before making any investments.
Risk Disclosure:
Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
Risk Disclosure:
Broker disclaimer:
Interactive Brokers, Alpaca, XTB brokers are not affiliated with AlgoCloud.com and do not endorse or recommend any information or advice provided by AlgoCloud.com
