The End of an Era
Since 2001, day traders in the U.S. have been required to maintain a balance of $25K in their accounts. If these traders failed to do that, they would only be permitted to execute three day trades over a five-day period. Making a fourth trade in five days would flag them as pattern day traders and they would then be locked out of their accounts. The pattern day trading rule was adopted by FINRA in 2001 in response to the collapse of the dot-com bubble. These requirements were implemented in order to cut excessive risk-taking and reduce speculative activity.
Under a new system, effective today, the $25K minimum balance has gone the way of the blacksmith. So has the rule that counts trades and so has the “Pattern Day Trader” moniker. Instead, broker-dealers will utilize new tools to assess the actual risk of any one trader’s activity.
By the way, existing margin requirements aren’t going anywhere. I, for one, am in favor of this development, as at times, I have had one smaller account or another become more active. The system did not adjust for traders with several accounts that might hold a larger balance in aggregate who needed to be active for a short time in a smaller account.
Position: None
