Day Trade : Executing a buy order and a sell order on the same stock within the same day.
The National Association of Securities Dealers (NASD) has implemented account requirements for accounts that actively day trade. The amendment updates NASD Rule 2520.
This rule will set the guidelines for investment accounts that use a trading strategy commonly known as Day Trading.
The amendment establishes new requirements for customers who actively day trade (known as pattern day traders).
The newly updated rules will only affect customers who are classified as pattern day traders.
The NASD definition under rule 2520, defines a pattern day trader as "any customer who executes four or more day trades within five business days, provided the number of day trades is more than 6% of the total trades in the account during that period�.
In addition to this new definition of a pattern day trader, the following amendments will be in effect on Friday September 28th, 2001:
Higher equity requirement. The minimum equity requirement for pattern day traders will be $25,000.
Clarification on the term day trade. Redefines the term "day trade" to treat the sale of an existing position held from the previous day as a liquidation, and the subsequent repurchase of that position as the establishment of a new position not subject to the day trading margin requirements.
Day Trading Buying Power. Day trading buying power is calculated based on the customer's account position as of the close of business on the previous day. The amendments limit day trading buying power to four times the day trader's maintenance margin excess.
Margin account requirement. All patterned day trades must be placed in a margin account. Trading in a cash account is limited to available settlement date balances in accordance with Regulation T and NASD Rule 2520.
