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. 

Alternatively, if you do not engage in any pattern-day trading activities for 90 days, the PDT flag will fall off your account.


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


Was this article helpful?
7 out of 10 found this helpful