A FINRA (NASD) rule that applies to any customer (margin or not) who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account. The required minimum equity must be in the account prior to any daytrading activities. Brokerage firms are not required under the rule to monitor the minimum equity requirements on an intra-day basis. Three months must pass without a day trade for a person so classified to lose the restrictions imposed on them.
Rule 2520, the minimum equity requirement rule was passed on February 27, 2001 by the Securities and Exchange Commission (SEC) approving amendments to National Association of Securities Dealers, Inc. (NASD).