Pattern Day Trading

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Pattern day trading rules were put in place to protect individual retail investors from trading in a potentially risky way. We’ve gone a step further and provided you with tools you can use to make sure you’re trading responsibly.

 

Before You Begin

  • These rules don’t apply to Cash accounts, only Instant and Gold accounts.

Defining a Day Trade

When you buy and then sell the same stock on the same trading day, you’ve made a day trade.

Keep In Mind

Buying and then selling the same options contract on the same day also counts as a day trade.

Understanding day trading can be really complicated, so here are some examples of what is and what isn’t a day trade:

One Day Trade

 One Buy, One Sell

You start with 0 shares of ABC stock.

Buy 1 ABC

Sell 1 ABC

This is one day trade because you bought and sold ABC in the same trading day.  

Day Trade: (Buy 1 ABC, Sell 1 ABC).

 Leading Sell

You start with 10 shares of ABC stock.

Sell 10 ABC

Buy 5 ABC

Sell 5 ABC

This is one day trade.

Since your first transaction for ABC was selling ABC that you already owned from a previous day, it doesn’t count toward your day trades.

Day Trade: (Buy 5 ABC, Sell 5 ABC).

 Non-Leading Sell

You start with 10 shares of ABC stock.

Buy 1 ABC

Sell 10 ABC

This is one day trade. Though you already own 10 shares of ABC, you opened a new position in ABC with the initial purchase.

Day Trade: (Buy 1 ABC, Sell 10 ABC).

 Multiple Buys & Sells

You start with 0 shares of ABC stock.

Buy 1 ABC

Buy 2 ABC

Buy 7 ABC

Sell 1 ABC

Sell 5 ABC

Sell 4 ABC

This is one day trade because there is only one change in direction between buys and sells. 

Day Trade: (Buy 1 ABC, Buy 2 ABC, Buy 7 ABC, Sell 1 ABC)

Two Day Trades

   2x Buy And Sell

You start with 0 shares of ABC stock.

Buy 50 ABC

Sell 15 ABC

Sell 35 ABC

Buy 10 ABC

Sell 10 ABC

This is two day trades because there are two changes in directions from buys to sells.

Day Trade 1: (Buy 50 ABC, Sell 15 ABC, Sell 35 ABC).

Day Trade 2: (Buy 10 ABC, Sell 10 ABC).

Understanding the Rule

You’re limited to no more than three day trades in a five trading day period, unless:

  • You have a Cash account.
  • You have at least $25,000 of equity in your Instant or Gold account at the previous day’s regular market hours close.

The five-trading-day window doesn’t necessarily align with the calendar week. For example, Wednesday through Tuesday could be a five-trading-day period.

If you place your fourth day trade in the five-day window, your account will be marked for pattern day trading for ninety calendar days. However, if you qualify for either of the exceptions above, the flag will have no impact on your trading abilities unless you upgrade to an Instant or Gold account, or your account equity drops below $25,000.

If you don’t meet the exceptions above and continue to place four or more day trades in five days, you won’t be able to place any day trades for ninety days unless you bring your account equity above $25,000 or downgrade to a Cash account.

Your status is determined at market close, so if you end the day below $25,000, you won’t be able to place day trades the following day if your account is marked for pattern day trading.

Note: Your instant deposits won’t count towards meeting the $25,000 minimum. For example, if you’ve initiated a bank transfer of $1,000 that will arrive in your Robinhood account in five days, your buying power will immediately increase by $1,000, but the actual funds that count towards your overall equity (for pattern day trading purposes) won’t change until the funds are settled in five days’ time.

Order versus Execution

When you place an order, it won’t actually count as a day trade unless it executes. However, you’ll notice that an open order that you’ve placed but hasn’t been executed will appear as a day trade in your Day Trade Counter. We designed this feature to let you know that if your order executes, you’ll have made another day trade.

Multiple Executions

Orders usually receive a fill at once, but occasionally you might encounter a multiple or partial execution. This sometimes happens with large orders, or with orders on low-volume stocks. For regulatory purposes, each execution counts towards your day trade count, so trading low-volume stocks or placing especially large orders may increase your chances of executing a day trade.

Example

An order to buy 10,000 shares of XYZ may be split into separate orders:

Buy 1,000 shares

Buy 2,000 shares

Buy 3,000 shares

Buy 1,500 shares

Buy 2,500 shares

Placing a sell order before your buy order has been completely filled puts you at risk of executing multiple trades that would pair with each sell order, resulting in multiple day trades.

If you place a sell order before all 10,000 shares are purchased, every sell order (up to five) that you place on this stock on this day would count as a separate day trade. 

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