A Pattern Day Trader (PDT) is a trader who executes four or more day trades within a five business day period in a margin account, with the number of day trades being more than 6% of the total trades in the account during that period. A day trade is defined as the purchase and sale, or the sale and purchase, of the same security on the same day in a margin account.The term "pattern day trader" is used by the U.S. Securities and Exchange Commission (SEC) to regulate the amount of leverage that individual traders can use in the stock market. Under SEC rules, pattern day traders are required to maintain a minimum account balance of $25,000, which is known as the "pattern day trader minimum equity requirement." This requirement is intended to ensure that pattern day traders have sufficient capital to absorb any potential losses from their trading activities.If a trader meets the criteria for being a pattern day trader and does not maintain the minimum account balance, their account may be restricted or closed. In addition, pattern day traders may be subject to other restrictions, such as higher margin requirements, which may limit their ability to trade on margin.It's important to note that the definition of a pattern day trader applies specifically to margin accounts and does not apply to cash accounts. In a cash account, traders are not allowed to use margin and are therefore not subject to the same requirements as pattern day traders.
