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I am new to the stock market and the Day Trade. I need your help to clarify some definitions (from Fidelity):

  1. "A Day Trade is defined as an opening trade followed by a closing trade in the same security on the same day in a Margin account."

"the same security" ---- means the same stock? or it means all different stocks. For example, if I sell stock A and buy A again on the same day will be treated as a Day Trade pattern action, how about if I buy stock A and sell stock A on the same day?

If I sell stock A and buy stock B and buy stock C on the same day, do these actions will be treated as a Day Trade pattern?

  1. "A Pattern Day Trader designation requires a minimum Margin equity plus cash in the amount $25,000 at all times."

"minimum Margin equity" ---- what is this? Does this number come from the broker and tell me how much I can borrow?

"a minimum Margin equity plus cash in the amount $25,000" ---- how to read this section? it is "minimum Margin equity" + "$25,000 cash" or "minimum Margin equity + cash" = $25,000 ?

Another post said: The $25,000 amount is for equity in your brokerage account (cash and investments).

The investments here includes the existing settled stocks/mutual funds I bought? For example, If I have an account with $30,000 worth of stocks/mutual funds (on a specific day.) and $20,000 cash, does this meet the $25,000 requirement?

  1. I have two accounts (A1 and A2) in the same broker, can I maintain $35,000 cash in A1 and use A1 to meet the $25,000 requirement for A2?
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    If you are new to the stock market, Day trading may be a very risky proposition. Proceed with extreme caution and avoid leverage. – JohnFx Jan 13 at 15:55
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First, I will point you to FINRA's page Day-Trading Margin Requirements: Know the Rules. It covers all of your questions and more.

To answer each of your questions:

  1. A day trade is when you buy and sell the same stock on the same day, or if you sell short and then buy on the same day. If you open a position for Stock A and then close at least part of that position on the same day, that is a day trade.

    It needs to be for the same stock. If you buy shares of stock A and sell shares of stock B in the same day, that is not considered a day trade.

    Related question: Will this trading activity flag my account as PDT (Pattern Day Trader)?

  2. The day trading minimum equity requirement comes from the Federal regulations. Once your account is flagged as a pattern day trading account, you will be required to maintain $25,000 in equity in the account. This amount can be in cash or in "eligible securities."

    In your example, if you held $20,000 in cash and $30,000 in stocks and mutual funds, you would meet this requirement.

    Related question: Pattern Day Trade - $25,000 Margin Account Rule

  3. You cannot combine the equity in different brokerage accounts to meet the requirements; each account that is flagged as a pattern day trading account must meet the equity requirement in order to be allowed to trade.

    From FINRA's page:

Can I cross-guarantee my accounts to meet the minimum equity requirement?

No, you can't use a cross-guarantee to meet any of the day-trading margin requirements. Each day-trading account is required to meet the minimum equity requirement independently, using only the financial resources available in the account.

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  • Thank you very much for your answers. In your answer #2, the "eligible securities." also count the stock I just bought? If an account is flagged as Day Trade and almost all values come from the stocks, one day the market goes down and causes the account's total market value to go below $25,000. Then the account will get a call/warning about this? – peterB Jan 12 at 23:21
  • My understanding was that you had to close at least part of a position on the same trading day you opened it and, in that case, a sell followed by a buy would not count because it doesn't do that. This is the position taken by the other answer to this question and all the answers I scanned in the questions you linked. Are you sure you have this right? – David Schwartz Jan 14 at 11:02
  • @DavidSchwartz I think you are right. I have tweaked the wording in my answer to be more precise. Thank you. – Ben Miller - Remember Monica Jan 14 at 12:22
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Ben Miller provided a lot of good information in his answer. I'd add a few additional points:

  • A day trade is a round trip in an equity or option on the same day (buy then sell or short then cover).

  • Making a day trade isn't a problem. You'll be considered a pattern day trader if you trade four or more times in a rolling five business day period (and your day-trading activities are greater than six percent of your total trading activity for that same five-day period).

  • If you are flagged as a day trader, you must maintain $25k in cash and/or marginable securities at all times. If your account value falls below $25k, it's a violation and you will be restricted from day trading until you deposit cash or marginable securities, restoring the $25k level.

  • Traditionally, Reg T intraday margin for pattern day traders has been 25% (brokers can choose to offer less margin). You could theoretically buy $100k of securities with $25k but that's not a good idea because of the leveraged risk as well as a small fluctuation could lower your account value below $25k. With the expectation of pre-election volatility, a number of brokers increased their pattern day trader margin requirements circa September.

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