What is the minimum amount required to be classified as a pattern day trader?

To be classified as a pattern day trader, an individual must maintain a minimum account equity of $25,000. This requirement is established by the Financial Industry Regulatory Authority (FINRA) to help ensure that individuals engaging in frequent buying and selling of securities have the necessary funds to absorb potential losses.

Pattern day trading refers to the practice of executing four or more day trades within a rolling five-business-day period. This aggressive trading strategy can expose traders to heightened risks and volatility, which is why the regulatory authorities have set this minimum equity threshold. If an account falls below $25,000, the trader may be subject to restrictions on day trading activities until the account is funded to meet this requirement again.

Maintaining this minimum balance not only reflects the seriousness and potential capital commitment of day traders but also provides a buffer to handle the risks associated with such trading strategies.