How does being a pattern day trader affect you?
If your account is flagged as a pattern day trader, you’ll be required to maintain minimum equity of $25,000 in your account on any day you place a trade. This can be in any combination of cash and securities, but if your account falls below $25,000, you won’t be allowed to day trade until the equity in the account is brought back above the threshold. Brokers can (and often do) have their own minimum equity requirements that are significantly higher.
Pattern day traders are also limited in their trading volume to a number known as their day trading buying power. This is generally as much as four times the amount by which the account’s equity exceeds the required margin. If your account has been flagged as a pattern day trader and you meet the $25,000 equity requirement, this number should be displayed, perhaps on the “balances” section of your account.
If you exceed your day trading buying power, it will trigger a margin call, and you’ll have a set period of time to deposit more funds, and your trading ability will be limited until it’s met.
Once your account has been labeled as a pattern day trader account, it will generally stay that way indefinitely, even if you don’t continue to make intraday round-trip trades. Meeting the “four trades in five business days” criteria is generally enough to qualify as a reasonable belief that you’ll day trade in the future.