Updated: May 16, 2020
In this article, we will go over the meaning of what PDT is, how it works and we will also go over potential outcomes that happen when someone breaks the PDT rule while day trading in their stock trading account without the proper day trading education to know how to work with the PDT rule and their stock trading broker. When it comes to day trading or trading stocks and options in general PDT stands for the "Pattern Day Trader" rule this rule is applied in the margin and instant settlement trading accounts when you take more than 3-day trades in a 5 day rolling period. For example, if today you opened a position in a stock (bought or shorted the stock or option) and closed it by the end of the day (sold or bought the stock or option) that is one day trade if you repeat this tomorrow and the day after that in a margin or instant settlement stock trading account then you have taken 3-day trades within 5 business days and are flagged as a day trader in that specific stock trading account. If your account has a balance of less than $25,000 in it then you will be restricted to those 3-day trades until 5 days pass. This is why researching and studying your day trading education before you start trading is absolutely essential! If you do not know the rules because you did not get any day trading education then you can easily find yourself in the 4th trade and flagged and now you could potentially be penalized for exiting that position on the same day since you do not have $25,000 balance in your stock day trading account. You should always speak to your broker because sometimes they will forgive the first infraction. You could still swing trade with the account but would not be allowed to take another day trade until the 5 days pass. You might be asking what happens if "I break the pattern day trader rule (PDT)" Well if you broke the PDT rule the first thing that can happen is the most common which is the broker could restrict your account for 90 days which means they will not allow you to trade in the account for 90 days at all OR they will restrict day trades and not allow you to day trade for 90 days. Every broker has its own approach to how they handle clients when the PDT rule is broken and you should always ask them for information on this topic. I hope you found this post useful in regards to how the PDT rule works and what potential issues you could face if you break the PDT rule while day trading. Now that you know what the meaning of PDT is we can follow up with another article on how to get around the PDT rule and all the options you might have for your day trading adventure and continue with day trading education.