What is meant by the term “Pattern Day Trader” (PDT)?

A Pattern Day Trader is a trader who makes four or more “day trades” within a period of five business days while using a margin account. A day trade is considered to have occurred when, using a margin account, a position in a U.S. or non-U.S. security (stocks, stock and index options, warrants, T-bills, bonds, or single stock futures) is opened and then closed within the same trading day. If your margin account holds more than USD 25,000, you are not considered a Pattern Day Trader. If your account holds less than USD 25,000, then you are limited to three day trades in a period of five business days.

Should you not be familiar with the term, “margin” is the leverage your broker gives you to trade with. For example, if your leverage is 4:1 and you have USD 25,000 in your account, your buying power to trade with is USD 100,000. It is important to remember though that margin is like a double-edged sword, it allows you to buy more but it also exposes you to more risk.