02/10/2024
How intraday stock trading works
Intraday trading in stocks means buying and selling stocks on the same trading day. In the US stock market, traders who use that method are subject to the pattern day trading rules — a set of rules that govern day trading in the US stock market put in place by the Financial Industry Regulatory Authority (FINRA).
The FINRA, a self-regulatory organization that regulates member brokerage firms and exchange markets in the US, designates a pattern day trader as one who executes four or more “day trades” within five business days — as long as the number of day trades represents more than six percent of the total trades in the margin account for that same five business day period.
In other words, if you make four or more trades within five trading days and they amount to 6% of your trading account, you would be designated a pattern day trader. You must meet the requirements for such trading — maintain minimum equity of $25,000 in your margin account on any day that you day trade.
However, the $25,000 minimum equity can be a combination of cash and eligible securities but must be in the trading account before engaging in any day-trading activities. But any time your account falls below the $25,000 requirement, you will not be permitted to day trade until you restore your account to the $25,000 minimum equity level. Apart from the maintenance margin requirement, you cannot exceed your day-trading buying power — which is generally up to four times the maintenance margin excess as of the close of trading the day before. In other words, you are only allowed a maximum of 4x leverage.
If you want to trade with a smaller amount and use a higher leverage, you may have to trade stock CFDs, but in that case, you must not be in the US, as CFD trading is prohibited in the US. Outside of the US, you can trade CFDs on US stocks