what is a pattern day trader pdt 
a pattern day trader pdt is a regulatory designation for those traders or investors who execute four or more day trades over the span of five business days using a margin account the number of day trades must constitute more than 6 of the margin account s total trade activity during that five business day window 1if this occurs the trader s account will be flagged as a pdt by their broker the pdt designation places certain restrictions on further trading this designation is put in place to discourage investors from trading excessively understanding pattern day traders pdts pattern day traders may trade different types of securities including stock options and short sales any type of trade will be accounted for in terms of this designation as long as they occur on the same day pattern day traders can trade amounts up to what is known as their day trading buying power this is generally equal to four times the equity they hold in excess of their maintenance margin or the minimum equity that traders need to keep in their margin account those without the pdt designation can trade only up to two times their amount of excess equity if there is a margin call the pattern day trader will have five business days to answer it their trading will be restricted to that of two times the maintenance margin excess until the call has been met failing to address this issue after five business days will result in a 90 day cash restricted account status or until such time that the issues have been resolved 1note that long and short positions that have been held overnight but sold prior to new purchases of the same security the next day are exempt from the pdt designation 1pattern day trading is limited to stock and equity options trades regulations that govern pattern day tradersthe pdt designation is determined by the financial industry regulatory authority finra it differs from that of a standard day trader by the number of day trades completed in a time frame although both groups have mandatory minimum assets that must be held in their margin accounts a pattern day trader must hold at least 25 000 in their account that amount need not necessarily be cash it can be a combination of cash and eligible securities if the trader s equity in the account drops below 25 000 they will be prohibited at this point from making any further day trades until the balance is brought back up 1finra has established a rule requiring that all pdts have a minimum of 25 000 in their brokerage accounts in a combination of cash and certain securities as a way of reducing risk if the cash equity in the account drops below this 25 000 threshold then the pdt can no longer complete any day trades until the account is back up above that point this is known as the pattern day trader rule or the pdt rule these rules are set forth as an industry standard but individual brokerage firms may have stricter interpretations of them they may also allow their investors to self identify as day traders 1example of pattern day tradingconsider the case of a pattern day trader with 100 000 in assets in her margin account the general requirements for margin accounts stipulate that she would need to have equity or ownership of at least 25 of those assets or 25 000 2 if the trader s equity comes to 30 000 instead that leaves her with 5 000 in excess of her maintenance margin as a pattern day trader she could be eligible to purchase up to four times her maintenance margin excess or 20 000 worth of stock this is double the amount that an average margin account holder with the same balance and equity could trade which is typically two times maintenance margin excess or 10 000 this capacity to make larger trades brings with it the potential for higher returns which can make the strategy of pattern day trading seem appealing for high net worth individuals hnwis however like most practices that have the potential for higher returns the potential for significant losses can be even greater 