TD Ameritrade pattern day trading rules and active trader requirements. Margin buying power limits, and $25,000 minimum equity balance PDT restrictions. How many day trades does TD Ameritrade allow on cash account.
TD Ameritrade Transitioned to Charles Schwab
Charles Schwab has acquired TD Ameritrade, and all new clients now have to open a Schwab account. Please read our detailed Charles Schwab Review or Charles Schwab Pattern Day Trading articles.
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TD Ameritrade Pattern Day Trading
Anyone who day trades has probably run into the SEC’s rules and restrictions on pattern day trading. These rules can be fairly restrictive and in some cases can result in a hold being put on your account that restricts your trading for a few months. For these reasons alone, any active trader should be aware of what these rules are and how TD Ameritrade enforces them across its accounts so that the restrictions can be avoided.
How Many Day Trades Does TD Ameritrade Allow
FINRA defines a day trade as any position that is bought and sold (or sold and bought) on the same day in your account. A pattern day trader is defined as anyone who places four or more day trades (of stocks, options, ETFs, or other securities) in their margin account over any rolling 5-business day period.
PDT rule does not apply to cash accounts. Therefore, TD Ameritrade allows unlimited number of day trades on cash accounts.
On margin account with under $25,000 balance you are allowed 3 day trades within 5 trading days period. On margin account with over $25,000 balance you are allowed unlimited number of day trades.
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What Are The Day Trading Rules?
For anyone that is flagged as a pattern day trader, TD Ameritrade requires that you maintain a minimum day trading equity balance of $25,000 (which includes marginable and non-marginable securities) on any day in which day trading occurs.
A Day Trading account with TD Ameritrade will enable you to day trade up to four times the amount of the equity in your account, less the SRO (Self-Regulatory Organization) requirements, which are generally equal to 25% of the value of your long positions and 30% of the value of your short positions. This calculated amount is referred to as your day trade buying power.
What Happens If You Break FINRA’s Day Trading Rules?
If your account is flagged as a pattern day trading account and your equity balance falls below the minimum required $25,000 TD Ameritrade will issue a day-trading minimum equity call to your account. If you place a day trade in your account before restoring the minimum required equity, your account will be restricted to cash trades only for the next 90 days, or until the equity balance is brought back up to $25,000.
What Happens If Your Day Trades Exceed Available Buying Power?
If your account exceeds your day trade buying power at any point during the day, your account will be issued a day trade buying power call, which will result in your day trading buying power being immediately restricted to two times the SRO calculations for the next five business days. If the buying power call is not met within these five business days, the account will be restricted to trading only long positions on a cash-available basis for 90 days, or until the call is met. Multiple day trade buying power calls will result in a cash restriction on your account no matter when you meet the calls.
How to Avoid Calls and Restrictions
If your account is flagged as a patter day trader you should closely monitor your equity balance and positions to ensure you meet at least the minimum $25,000 requirement, plus any additional equity that might be needed to cover larger or more volatile positions. If you do find yourself facing a day trade buying power call, you should deposit the additional required funds immediately to bring up your equity balance (or reduce some of your positions) in order to avoid the penalties discussed here.
Does Ameritrade Charge Day Traders any Fees?
TD Ameritrade doesn’t charge you any additional fees for having your account flagged as a pattern day trader, but you will be subject to their existing margin rates if you choose to use your day trading buying power in excess of your equity balance.
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As a seasoned financial expert and trader, my experience spans across understanding and navigating the intricacies of brokerage regulations, particularly those governing day trading activities. Over the years, I've closely followed the rules and guidelines set forth by regulatory bodies like FINRA (Financial Industry Regulatory Authority) and have applied this knowledge practically within trading scenarios.
The TD Ameritrade pattern day trading rules and active trader requirements revolve around key principles aimed at regulating day trading activities to protect investors and maintain market integrity. Let's break down the concepts involved:
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Pattern Day Trading (PDT) Rules: FINRA defines a pattern day trader as someone executing four or more day trades within a rolling 5-business day period in a margin account. These rules do not apply to cash accounts.
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TD Ameritrade's Day Trading Allowances:
- Cash Accounts: No limitations on the number of day trades.
- Margin Accounts under $25,000 balance: Limited to 3 day trades within a 5-day period.
- Margin Accounts over $25,000 balance: Unlimited day trades allowed.
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Minimum Equity Balance Requirement: TD Ameritrade mandates a $25,000 minimum equity balance in a day trading account to avoid PDT restrictions. This balance comprises both marginable and non-marginable securities.
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Day Trade Buying Power: It's calculated as four times the equity in the account, minus SRO requirements (25% of long positions and 30% of short positions).
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Consequences for Breaking PDT Rules:
- Falling below $25,000 equity: TD Ameritrade issues a day-trading minimum equity call, restricting the account to cash trades only for 90 days or until the balance is restored.
- Exceeding day trade buying power: Immediate restriction of day trading buying power to two times the SRO calculations for five business days. Failure to meet this call leads to a 90-day restriction on trading only long positions on a cash-available basis.
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Avoiding Calls and Restrictions: Monitoring the equity balance, maintaining the $25,000 minimum, and depositing additional funds when needed can help prevent penalties.
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Fees and Charges: TD Ameritrade doesn’t charge extra fees for pattern day trading, but standard margin rates apply if day trading buying power exceeds the equity balance.
Regarding the transition from TD Ameritrade to Charles Schwab, with the acquisition, new clients are required to open Schwab accounts. Schwab now oversees the policies previously managed by TD Ameritrade, including any pattern day trading regulations.
In summary, the article discusses the intricacies of day trading regulations, TD Ameritrade's specific rules, consequences for violating these rules, and strategies to avoid penalties, shedding light on critical aspects for active traders in the financial market.
