Understanding the Pattern Day Trading Rule

Please make sure you fully understand how the PDT rule works before trading.

Overview

You’re generally limited to no more than three day trades in a five trading day period, unless you have at least $25,000 of equity in your CenterPoint Lite account at the end of the previous day. This sounds tricky, but it just means that if you want to day trade today, you had to have an account value of more than $25,000 at the end of yesterday.

Your portfolio value may fluctuate above $25,000 at some point during the trading day, but we only take into account the closing balance of the previous trading day. To verify whether you are restricted from day trading or not on any given day, by clicking the Day Trade Counter button in your Account Report under the TRADE tab section of your trading platform. If the popup reads “No round trip limitation” and your balance is above $25,000 you are free to day trade.

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. This means you won’t be able to place any day trades for ninety days unless you bring your account equity above $25,000.

Day Trade Counter

You can see how many day trades you’ve made in the current five-trading-day period:

  1. Tap the TRADE tab in the top left corner of your trading software
  2. Tap Account Report
  3. Tap Day Trade Counter

Examples

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

 

Examples of One Day Trade

One Buy, One Sell

You start with 0 shares of ABC stock.

  1. Buy 1 ABC
  2. 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).

Non-Leading Sell

You start with 10 shares of ABC stock.

  1. Buy 1 ABC
  2. 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).

Leading Sell

You start with 10 shares of ABC stock.

  1. Sell 10 ABC
  2. Buy 5 ABC
  3. 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).

Multiple Buys and Sells

You start with 0 shares of ABC stock.

  1. Buy 1 ABC
  2. Buy 2 ABC
  3. Buy 7 ABC
  4. Sell 1 ABC
  5. Sell 5 ABC
  6. 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).

Examples of Two Day Trades

2X Buy and Sell

You start with 0 shares of ABC stock.

  1. Buy 50 ABC
  2. Sell 15 ABC
  3. Sell 35 ABC
  4. Buy 10 ABC
  5. 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 1 = (Buy 10 ABC, Sell 10 ABC).

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.

  1. Buy 1,000 shares
  2. Buy 2,000 shares
  3. Buy 3,000 shares
  4. Buy 1,500 shares
  5. 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.