Who Qualifies as a Pattern Day Trader?
In September 2001 the NASD passed a rule that requires any active pattern day trader to hold $25,000 of trading capital. This is in contrast to the old ruling in which smaller traders were able to operate with only $5,000 of capital. Many smaller traders now have fewer options for surviving the trading business. What other new rules apply to this kind of trading? Here is some insight into what qualifies traders for this distinction.
What is a Pattern Day Trader
?
* A pattern day trader watches the trends of a specific security. He tries to time buying and selling the stock perfectly to make big short-term gains. Pattern day trading is done within a single trading day at least four times over five days.
* A pattern day trader is subject to special rules, for example 6% or more of his trades within the five day period have to be 'same-day' trades. This criteria must be fulfilled to qualify as a pattern day trader.
* If a pattern day trader has equity of below $25,000.00 he is required to deposit the difference in order to continue trading.
* If a stock is sold the previous day and subsequently bought back by the pattern day trader it is not considered to be a day trade.
If you are considering becoming a pattern day trader, do bear in mind that the academics suggest that it is impossible to beat the market by pattern day trading, in fact someone won a Nobel prize trying to prove it. However people do make money pattern day trading, perhaps not consistently!
But no one told that to your buddy who made a fortune pattern day trading! Several different approaches can be used by a pattern day trader to make big profits. The key to making money is finding a technique that works for you, whether you are timing the market, or buying and selling your favorite company repeatedly. If you fall outside of the above regulations you may need to adjust your portfolio to qualify.
