What is the day trade Rule

The day trade rule is a regulatory designation applied by the Financial Industry Regulatory Authority (FINRA) to traders who execute four or more day trades within a span of five business days in a margin account. This rule is aimed at pattern day traders who use margin to increase leverage and potentially enhance profits, but it can also lead to significant losses. Here are the key points of the day trade rule:1. Day Trades: A day trade is defined as entering and exiting a position in a security on the same day, including pre- and post-market trading. It applies to both long and short trades.2. Pattern Day Trader (PDT) Designation: If a margin account makes four or more day trades within five business days, and those trades represent more than 6% of the account's total trade activity, the account will be flagged as a PDT. This designation places restrictions on further trading.3. Restrictions: Pattern day traders are restricted to trading up to four times their excess equity, whereas non-PDTs can only trade up to two times their excess equity. If a margin call is triggered, PDTs have five business days to meet it or face restricted trading and a potential 90-day cash-restricted account status.4. Minimum Equity Requirement: PDTs must maintain a minimum of $25,000 in equity in their account to day trade securities. If their account balance falls below this threshold, restrictions may be imposed.It's important for investors to understand the day trade rule and its implications to manage their trades effectively and avoid potential restrictions or penalties.