Pattern Day Trader Definition and $25,000 Minimum Equity Rule
Under FINRA Rule 4210, an investor is designated as a 'pattern day trader' if she executes:
A pattern day trader executes 4 or more day trades within 5 rolling business days in a margin account, representing >6% of total trade activity. Pattern day traders must maintain a minimum of $25,000 in equity at all times.
Complete Analysis & Legal Rationale
If equity falls below $25,000, day trading buying power is frozen and day trading is restricted to cash-on-hand until equity is restored.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Accurately cites 4 day trades in 5 business days and the >6% threshold.
Threshold is 4 in 5 business days, not 3 in a month.
Day trading rules specifically govern margin accounts; IRAs cannot be standard margin.
A single day trade does not establish a pattern day trader status.