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What is pattern day trading?

What is day trading?

A day trade is when an investor buys and sells a financial instrument once or multiple times during a single trading day.  

What is Pattern Day Trading?

Investors will be marked as Pattern Day Traders (PDT) if they execute four day trades in a rolling period of five trading days. If you’re marked as a Pattern Day Trader, you may be restricted from making additional buy orders for 90 days or more.

Important to Note 

PDT rules come from the U.S. regulatory body FINRA, not from Stake. If you’re designated as a PDT, your ability to place buy orders will be restricted for the allotted time. You will still be able to place sell orders during this time if you wish to exit a position. 

Investors marked as Pattern Day Traders could face further restrictions beyond the initial 90 days, these are at the discretion of FINRA and our U.S. broker-dealer, DriveWealth.

Exemptions from PDT 

Restrictions only apply to PDT account balances under US$25,000. 

Your PDT account balance consists of: 

  • Total settled cash; 

  • Unsettled stock sale proceeds; and 

  • The value of held securities 

For this exemption to apply, your total PDT account balance must be over US$25,000 at the beginning of a given trading day.

Please note that while PDT account balance is measured via the above, only settled funds/buying power can be used to place a buy order.  

**for NZ region customers only - Stock Lending may reduce your PDT account balance, it is recommended you opt out if marked as a Pattern Day Trader. Please contact our Stake Support team here should you have any queries.

What if I’m marked as a Pattern Day Trader? 

If you’re ever marked as a Pattern Day Trader and would like to remove the trading restriction, you can fund your account above US$25,000 for the above exemption to apply. All deposits to your Wall St account (including instant deposits) only count towards your PDT account balance when the cash settles. You will need to maintain this minimum PDT account balance for each trading day you intend on placing buy orders. 

Stake Day Trade Counter 

To keep our customers on the right side of the rules, we’ve built a Day Trade Counter that allows you to keep track of your day trade count at any time. You can access this on the Stake app by tapping More > Settings > Trade settings > Day trade settings > Day trade protection. 

We will also notify you as you place consecutive day trades up to and including your fourth.  You’ll be alerted of the potential impact of placing a fourth day trade, however, you’ll always retain the right to place it if you choose to.

Day trading examples 

We know day trading can get confusing, so here are some practical examples.  

One Day Trade

Example 1: Buy, Sell 

You start a trading day with 0 shares of AAPL and place the following trades. Buy 1 AAPL and Sell 1 AAPL 

This constitutes a day trade, because you bought then sold AAPL on the same trading day.

Day trade = Buy 1 AAPL, Sell 1 AAPL 

Example 2: Sell, Buy, Sell

You already own 100 shares of AAPL. Sell 20 shares AAPL, then Buy 10 shares AAPL, and then Sell 10 shares AAPL 

This constitutes one day trade. Since you already owned positions, the first sell doesn’t count towards a day trade. 

Day trade = Buy 10 AAPL to then Sell 10 AAPL 

Example 3: Buy, Buy, Buy, Sell, Sell, Sell 
You currently hold 0 shares of AAPL. Buy 5 AAPL, Buy 3 AAPL, Buy 2 AAPL, Sell 1 AAPL, Sell 4  AAPL, Sell 2 AAPL 

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

Day trade = Buy 5 AAPL, Buy 3 AAPL, Buy 2 AAPL, Sell 1 AAPL, Sell 4 AAPL, Sell 2 AAPL

More Than One Day Trade 

Example 1: One stock. You currently hold 0 shares of AAPL. 

Buy 100 AAPL 

Sell 20 AAPL 

Sell 40 AAPL 

Buy 10 AAPL 

Sell 10 AAPL 

This constitutes two day trades, as there were two changes in direction. 

Day trade 1 = Buy 100 AAPL, Sell 20 AAPL 

Day trade 2 = Buy 10 AAPL, Sell 10 AAPL 

Example 2: Two stocks. You currently hold 0 shares of AAPL or NFLX.      

Buy 100 AAPL 

Buy 20 NFLX 

Sell 40 AAPL 

Sell 10 AAPL 

Sell 10 NFLX      

This constitutes two day trades – there were two changes in direction, one per stock. 

Day trade 1 = Buy 100 AAPL, Sell 40 AAPL 

Day trade 2 = Buy 20 NFLX, Sell 10 NFLX 

Example 3: Across multiple trading days. You currently hold 0 shares AAPL or NFLX 

Buy 100 AAPL (Monday)     

Sell 40 AAPL (Monday)     

Sell 10 AAPL (Tuesday)     

Buy 20 NFLX (Wednesday)     

Sell 10 NFLX (Wednesday) 

This constitutes two day trades (one on Monday and one on Wednesday) as a change in direction within the same day occurred twice within a five trading day period.

Day trade 1 (Monday) = Buy 100 AAPL, Sell 40 AAPL 

Day trade 2 (Wednesday) = Buy 20 NFLX, Sell 10 NFLX

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