Pattern Day Trading

What is a Day Trade?

Simply put, we define a Day Trade as the purchase and sale of the same security on the same trading day. So, if you sell and then buy a security, or buy and then sell a security in the same day, you’ve executed one day trade.

This applies to both Robinhood and Robinhood Gold accounts; the rule does not apply to cash accounts. Your Robinhood or Robinhood Gold account is limited to no more than three day trades in a sliding five day window, unless you have an equity balance of at least $25,000 in your account. 

What is Pattern Day Trade Protection?

Exceeding the trading limit will cause you to be marked a Pattern Day Trader, which will prevent you from day trading for 90 days if your account balance is less than $25,000.

But not to worry! Our PDT Protection will notify you when you’ve made three day trades in a five day period; and we’ll double-check with you before you place your fourth. However, if you do decide to execute your fourth day trade, and do not deposit enough funds to meet the $25,000 equity threshold, we will have to restrict your account from placing any day trades for the industry-mandated 90-day period. Unfortunately, we cannot make any exceptions to this rule.

It’s important to note that the Robinhood app will consider all the orders you’ve placed when our PDT Protection notifies you of a possible PDT designation. For example, if you’ve purchased a stock and then set a Sell Limit Order on that same stock in the same day, regardless of whether or not it gets executed, our PDT Protection will count that order as a day trade and notify you accordingly if it causes you to approach the threshold. However, if the trade does not execute, it will not actually count as a day trade.

We’ve decided to design our PDT Protection this way as an added precaution in the event that all of your placed trades do execute. This is also why we give you the option to override it and move forward with your trade. Please note that PDT Protection should be used as a guideline, as we do not guarantee that it will prevent you from being labeled a pattern day trader in every circumstance. Please keep track of your day trading activity if you wish to avoid the PDT designation.    

Is my Buying Power the same as my Equity Balance?

Moreover, if you use a Robinhood Instant account, please keep in mind that any funds we’ve advanced to your account while awaiting a transfer will not count towards your $25,000 equity minimum threshold. For example, if you’ve initiated a bank transfer of $1,000 that will arrive in your account in three days, your buying power will immediately increase by $1,000, but the actual funds that count towards your overall equity (with regards to PDT) will not change until the funds are settled in three days’ time.  

Why does it matter?

So why do we care about pattern day trading? The Financial Industry Regulatory Authority (FINRA), has determined “The primary purpose of the day-trading margin rules is to require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks associated with day-trading activities.”

How do I turn off Pattern Day Trade Protection?

And if you’d like to turn off our PDT Protection, you can do so at any time in the app by going to Account → Day Trade Settings:

 

Examples of Day Trades

Two day trades:

You make one day trade by buying 100 shares of ABC and then you sell 50 shares of ABC later the same day.

The next day you make one day trade by selling 50 shares of ABC and then you buy 200 shares of ABC later the same day.

Three day trades:

You make two day trades by buying 200 shares of ABC in two orders and then you sell 200 shares of ABC in three separate orders.

The next day you make one day trade by buying 100 shares in two orders and then you sell 200 shares of ABC in one order.

Flagged as a pattern day trader:

You make one day trade on Thursday, and two day trades on Friday. You make a fourth day trade on the following Wednesday, flagging you as a pattern day trader starting the next trading day.

For more information about Pattern Day Trading, please visit:

http://www.sec.gov/investor/alerts/daytrading.pdf

http://www.sec.gov/answers/patterndaytrader.htm

 

 

 

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