Day Trading Rules: PDT, Intraday Margin, and Cash Accounts

If you want to day trade U.S. stocks, you need to understand three separate rulebooks: the margin rules that decide how often you can trade and how much equity you must keep in your account, the settlement rules that govern cash accounts, and the tax rules that treat frequent traders differently from long-term investors. The biggest of these is changing right now. On April 14, 2026, the SEC approved a FINRA proposal that eliminates the pattern day trader designation and its $25,000 minimum equity requirement, replacing both with a new intraday margin standard that takes effect in June 2026.¹ Brokerages have up to 18 months to implement the change, so your account may still be running under the old rules. The tax rules and cash-account rules are unchanged.

What Counts as a Day Trade

A day trade is opening and closing a position in the same security on the same business day. Buying shares in the morning and selling them in the afternoon is a day trade. Selling short and buying to cover before the close is a day trade. Each completed round trip counts as one, and the count is what determines whether the margin restrictions below apply to you.

Pattern Day Trader Rules (Still in Force During the Transition)

Under FINRA Rule 4210, your margin account gets flagged as a pattern day trader (PDT) if you execute four or more day trades within any rolling five-business-day period and those trades make up more than 6% of your total activity in that window.² Both conditions have to be met. Someone who places four day trades among hundreds of other transactions won’t trip the classification.

Once flagged, you must maintain at least $25,000 in account equity at all times. Cash and eligible securities both count toward that number. If your equity falls below $25,000 at the close of any business day, your broker will block new day trades until you deposit enough to clear the threshold. A standard margin account only requires $2,000.²

Buying Power and Margin Calls

Pattern day traders get intraday buying power of up to four times their maintenance margin excess, based on the previous day’s closing balance.³ With $30,000 in the account and a $25,000 maintenance requirement, your $5,000 excess times four gives you $20,000 in day-trading buying power. Standard margin accounts only offer two-to-one leverage, so the PDT allowance is significantly more permissive for intraday positions.

Exceed the four-times limit and your broker issues a day-trading margin call. You have five business days to deposit cash or securities to cover the shortfall. Miss the call and your account is restricted to cash-only trading for 90 days.⁴ Buying power during that restriction drops to two times your maintenance margin excess.³

Removing a PDT Flag

The PDT designation sticks, but your broker can remove it one time if you certify in writing that you understand what pattern day trading is and agree not to do it going forward. The broker has to make a good-faith determination that you’ll actually stop. If you get flagged again after the one-time removal, the classification is essentially permanent.⁴

The New Intraday Margin Framework

The SEC’s approval of SR-FINRA-2025-017 eliminates the entire PDT structure. No more counting day trades, no more pattern designation, no more $25,000 minimum for frequent traders.¹ In its place, new paragraph (d)(2) of Rule 4210 creates an intraday margin standard that applies to every margin account rather than singling out active traders.

Your broker will calculate an intraday margin level throughout the trading day. If a transaction reduces that level below the required maintenance margin, the gap between what you owe and what you have is an intraday margin deficit.⁵ Brokers can monitor this in real time and block trades that would create a deficit, or they can run one check at the end of the day.

You need to cover any deficit as quickly as possible. Deficits stay outstanding until you satisfy them or until the close of business on the 15th business day after they occur. The real consequences arrive if you make a practice of ignoring them. If you repeatedly fail to cover deficits promptly and one is still open on the fifth business day, your broker must restrict your account for 90 calendar days, and during that period you can’t open new positions or increase margin borrowing.¹ Small deficits that don’t exceed the lesser of 5% of account equity or $1,000 don’t count toward that “practice of failing” standard.

When Your Account Switches Over

The new rules take effect in June 2026, 45 days after FINRA published Regulatory Notice 26-10. Brokerages that need more time can phase in the requirements over an 18-month window, pushing the outer deadline into late 2027.⁵ During the transition, your broker is applying either the old PDT rules or the new intraday margin standard. Ask which one governs your account.

Day Trading in a Cash Account

Cash accounts sit outside the PDT framework entirely because there’s no borrowed money involved. You trade only with funds you’ve deposited. No $25,000 minimum, no leverage, and no pattern classification to worry about. The constraint is settlement: you can’t recycle the same dollars freely throughout the day.

T+1 Settlement

Since May 2024, U.S. equity and option trades settle on a T+1 basis, one business day after the trade date.⁶ In a cash account, you must wait for sale proceeds to settle before using those specific funds to buy something else. The one-day cycle is faster than the two-day system it replaced, but violating the timing still carries real penalties.

Freeriding

Freeriding is the most serious cash-account violation. It happens when you buy a security and sell it before you’ve actually paid for the purchase with settled funds. A single freeriding violation triggers a 90-day account freeze under Regulation T.⁷ During the freeze you can still buy, but you must pay in full on the trade date. Pending sale proceeds and the standard settlement window don’t count.⁸

Good Faith Violations

A good faith violation is a lesser offense. It occurs when you buy a security and sell it before the funds that paid for the purchase have settled, even without any intent to fund the buy with the sale proceeds. Freeriding involves a circular loop of unsettled money; a good faith violation just means you didn’t wait for settlement. Most brokerages treat three good faith violations in a rolling 12-month period as the threshold for a 90-day restriction, during which you can only buy with settled cash already in the account.

The Wash Sale Rule

Day traders run into the wash sale rule constantly because they trade the same names over and over. Under 26 U.S.C. § 1091, you can’t deduct a loss on a security if you buy a substantially identical one within a 61-day window that spans 30 days before the sale, the sale date, and 30 days after.⁹ The point of the rule is to stop you from harvesting a tax loss while immediately reestablishing the same position.

When a wash sale occurs, the disallowed loss is added to the cost basis of the replacement security. The deduction isn’t lost; it’s deferred until you sell the replacement without triggering another wash sale. For active traders, disallowed losses can cascade across dozens of trades and turn year-end reporting into a mess.

Brokerages report wash sale adjustments on Form 1099-B when the sale and repurchase happen in the same account and involve covered securities with the same identifier.¹⁰ They aren’t required to track wash sales across accounts at different firms. If you sell a stock at a loss at one broker and buy it back within 30 days at another, the rule still applies, but no one is going to flag it. That responsibility is yours.

“Substantially identical” is narrower than most traders assume. Two securities are substantially identical when they carry the same legal rights and entitlements. A stock and an option on that stock are generally not substantially identical.

The Mark-to-Market Election

If you trade often enough to qualify as a “trader in securities” under the tax code, a Section 475(f) election changes how your gains and losses are reported and eliminates the wash sale problem for the securities it covers. The IRS considers you a trader in securities if you seek to profit from daily price movements rather than dividends or long-term appreciation, your activity is substantial, and you carry it on with continuity and regularity.¹¹ The IRS weighs how long you hold positions, how often you trade, how much time you spend on it, and whether trading is a significant source of your income.

Under mark-to-market, every security you hold at year-end is treated as if you sold it for fair market value on the last business day of the tax year.¹² Gains and losses become ordinary rather than capital, so the $3,000 annual cap on net capital loss deductions no longer applies to your trading activity, and the wash sale rule and certain other capital-loss limitations stop applying to securities covered by the election.¹¹

The catch is timing. To elect mark-to-market for 2026, you had to attach a statement to your 2025 return, or extension request, by the filing deadline, not counting extensions. Miss it and you’re locked out until the next year. The election, once made, applies to that year and every year afterward unless you get IRS consent to revoke it.¹² You can designate specific securities as held for investment and keep them out of mark-to-market treatment, but you must identify them in your records before the close of the day you acquire them.

Short Selling Rules

Shorting stocks intraday adds another layer under SEC Regulation SHO. Before your broker executes a short sale, it must locate shares available to borrow so the trade can be delivered on settlement, and the locate must be documented before the order goes through.¹³ For heavily shorted or hard-to-borrow names, the locate requirement can delay or prevent your trade.

Regulation SHO also has a circuit breaker. When a stock drops 10% or more from the prior day’s close, short sales in that security can only execute at a price above the current national best bid for the rest of that day and the entire following day.¹⁴ If your strategy is to short momentum breakdowns, the circuit breaker shuts you out of exactly those setups.

Fees on Every Sell Order

Commission-free trading doesn’t mean free trading. Two regulatory fees apply to every sell. The SEC’s Section 31 transaction fee, as of April 4, 2026, is $20.60 per million dollars of securities sold.¹⁵ FINRA separately assesses a Trading Activity Fee of $0.000195 per share on covered equity sales, capped at $9.79 per trade.¹⁶ Trivial on any single trade. At day-trader volume, they show up on your statement. Build them into your breakeven alongside spread and slippage.

1
FINRA. Regulatory Notice 26-10
2
Financial Industry Regulatory Authority. FINRA Rule 4210 – Margin Requirements
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FINRA. Day Trading
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Financial Industry Regulatory Authority. FINRA Rule 4210 – Margin Requirements
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U.S. Securities and Exchange Commission. Release No. 34-105226, File No. SR-FINRA-2025-017
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U.S. Securities and Exchange Commission. Shortening the Securities Transaction Settlement Cycle
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Investor.gov. Freeriding
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eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T) – Section 220.8
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Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
10
Internal Revenue Service. Instructions for Form 1099-B (2026)
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Internal Revenue Service. Topic No. 429, Traders in Securities
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Office of the Law Revision Counsel. 26 USC 475 – Mark to Market Accounting Method for Dealers in Securities
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U.S. Securities and Exchange Commission. Key Points About Regulation SHO
14
eCFR. 17 CFR 242.201 – Circuit Breaker
15
U.S. Securities and Exchange Commission. Section 31 Transaction Fee Rate Advisory for Fiscal Year 2026
16
FINRA. Section 1 – Member Regulatory Fees