How to Avoid Day Trading Penalties

Day trading penalties can wipe out your profits.

Day traders are stock traders who buy and sell their stocks within the same business day. This can be an effective strategy, especially if you are dealing with huge sums of money, since the small fluctuations with a stock's value can rapidly change within the day. Day trading is not for the beginning stock trader since it is very risky. Additionally, there are rules regarding PDT, or pattern day traders, who specialize in this specific type of trading style.


Step 1

Meet the requirements in terms of the day trading buying limit or at least do not exceed the margin of four. Exceed this margin and you will be required to deposit the funds to meet the margin call, usually within five business days. During this time you are limited to buying only twice within a day. Should you fail to deposit the funds during the margin call period, you will be restricted to trading with whatever cash you have available within 90 days.


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Step 2

Keep your equity fund's value to at least $25,000 so you can continue with your day trading activities. This amount must be maintained at all times and can be a combination of cash and secured equities. If your money falls below this $25,000 margin, you will be forced to stop your trading operations until you can secure the amount again.


Step 3

Avoid penalties and lawsuits by registering your firm as a day trader in the state where it does business, much like how regular traders should register before operation. There are regional regulators who can help you with the process, especially if you are having problems with the records. The North American Securities Administration Association ( can help you contact the correct regulator within your area.



Step 4

Let your new sell settle for three business days if you are not a registered pattern day trader. The Securities and Exchange Commission has a rule that the money you used to buy or sell the day trade must be kept for three days before you engage in another day trade.

Step 5

Avoid court penalties by not giving improper loans to yourself or to the rest of your trading team just to finance a day trade. Make sure that trades have financial support by trading only what you have in hand in cash or in secured equities. Do not make false claims by promising your customers instant profit or income with the day trades.



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