Day trading involves a degree of risk. Day traders are buying then selling or selling then buying the same security on the same day. The high-risk, high-frequency traders known as pattern day traders warrant regulatory scrutiny all their own. A pattern day trader makes four or more day trades during five business days. Here’s what a pattern day trader is, how they operate, and what kind cash they need to keep trading.
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Pattern Day Trader Defined
A day trader is a person who buys then sells the same security on the same day. It could also be someone who sells short then buys the same security in the same day.
A pattern day trader is someone who makes four or more of those day trades in a five-day time span. Those trades represent more than 6% of a pattern day trader’s total trades during a five-day period. They also can include stock options and short sales that occur on the same day.