Etrade pattern day trading rules and active trader requirements. Margin buying power limits, and $25,000 minimum equity balance PDT restrictions. How many day trades does Etrade allow on cash account.

E*Trade Pattern Day Trading

Like other brokerage houses, E*Trade enforces a pattern day trading regulation, the dreaded PDT rule. Although it’s not E*Trade’s requirement, the broker does have to enforce it because it’s a member of FINRA.

How Many Day Trades Does E*Trade Allow

FINRA’s pattern day trading rule is quite simple: any account that qualifies as a PDT account must have equity of at least $25,000.

This account equity can be in the form of cash, securities, or a combination of the two. So you could have $25,000 in low-risk short-term bond mutual funds, and you could place as many day trades as you want.

And what exactly is a PDT account? The Financial Industry Regulatory Authority defines it as follows:

A margin account that places four or more equity day trades in five market days when those day trades account for more than 6% of the account’s total trading activity.

You don’t need a law degree to understand that definition, but we’ll help break it down for you anyway.

Following the Rules While Day Trading With Less Than $25,000

Notice that the first three words say “A margin account.” Yep, that’s right. In order for an account to be flagged as a PTD account, it must be a margin account. If you have a cash account, you could place your day trades in it without worrying about FINRA’s pesky rule.

Bear in mind, however, that you won’t be able to use unsettled funds for trading purposes in a cash account. Stock trades in the United States settle two business days after the trade date. So if you place a trade on Friday, the funds would not be available until Tuesday.

Next we have “four or more.” That’s right, you can place three or fewer round-trip day trades in any rolling five-day period, and still not have to maintain $25,000 of account equity.

This is a good way to practice day trading. You can place a few trades per week and not have to bother with the PDT requirement.

Next, notice that the definition says “equity trades.” You can day trade options and futures all you want and not have to worry about the PDT rule. It only applies to the day trading of stocks.

E*Trade offers extensive options and futures trading services. To add options trading capability to your securities account, click on ‘Customer Service’ in the top menu and then click on ‘Options Upgrade.’ This link will give you the e-form to add options trading to your account.

Advanced options strategies will require a margin account. But again, as long as you’re trading just options, and not stocks, you don’t need to worry about the PDT rule.

To trade futures, you’ll need to open a discrete account because futures aren’t securities. Just head over to E*Trade’s futures trading website to open an account.

At E*Trade, you can day trade several futures contracts that are linked to the stock market, such as the Micro Dow contract (with ticker symbol /YM).

Alternative For Traders

For active traders a good alternative broker is Webull. It has a number of advantages over E*Trade: $0 commissions on options trades, lower margin rates, virtual trading, and easier to learn trading tools.

Open Account

Open WeBull Account


Continue Reading