What is Pattern Day Trading?

A day trade occurs when you buy and sell the same stock on the same day.

For example, if you purchase 5 shares of Apple and then decide to sell 3 shares of Apple on the same day, that is considered a day trade. The number of shares is irrelevant, as long as you are buying and selling one particular stock within one trading day, it is considered a day trade. If you then proceed to buy then sell another stock, such as Amazon, that will be considered as another day trade. 

You become designated as a pattern-day trader (PDT) once you have completed 4 day trades within a rolling five-business-day period. As per the Financial Industry Regulatory Authority (FINRA), we restrict you from becoming a pattern-day trader unless you hold a $25,000 minimum equity balance (non-crypto) in your Sarwa Trade account. This must be deposited in the account one day prior to any day trading activities and maintained in your account at all times.

If you have completed 3 day trades within a five-business-day period, you will not be able to complete the 4th unless you hold the minimum equity balance in your account. When you are attempting to complete your 4th day trade, you will receive a “Pattern-day Trading Restriction” message that will not enable you to complete the order. That being said, you would be able to place the order the following day, as it would then not be considered a day trade.

If you have the minimum $25,000 equity balance in your account, and have completed 4 or more day-trades within any five-business-day period, your account will be flagged as PDT. Following this, if the closing balance of your account dips below the $25,000 on a given day, your account will be restricted to liquidation until it is topped up to reach the minimum required balance. 

Please note that Alpaca Trading platform monitors the number of day trades for the account for the past 5 business days and rejects a newly submitted order on exit of a position if it could potentially result in the account being flagged for PDT. This protection triggers only when the previous day’s closing account equity is less than $25,000 at the time of order submission. In addition to the filled orders, the system also takes into consideration pending orders in the account. In this case, regardless of the order of pending orders, a pair of buy and sell orders is counted as a potential day trade. This is because orders that are active (pending) in the marketplace may fill in random orders. Therefore, even if your sell limit order is submitted first (without being filled yet) and another buy order on the same security is submitted later, this buy order will be blocked if your account already has 3-day trades in the last 5 business days.


Important: You can check your day trade count on the app by going to the Trade tab then clicking on 'Total Cash' which will open a 'Cash Breakdown' page that shows your total deposits, total withdrawals, cash available to withdraw, equities buying power, crypto buying power, funds held against orders and pattern day trading count for Sarwa Trade.

The below visual explains what Pattern Day Trading could look like:


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