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Day trading is considered a risky trading style, and regulations require brokerage firms to ask whether the clients understand the risks of day trading and whether they have prior trading experience before entering the market.

Pattern day trader

In addition, in the US the Financial Industry Regulatory Authority and SEC further restrict the entry by means of “pattern day trader” amendments. Pattern day trader is a term defined by the SEC to describe any trader 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 being that in order to engage in pattern day trading in a margin account, the trader must maintain an equity balance of at least $25,000. It is important to note that this requirement is only for day traders using a margin account.

Learn now about The best Day-Trading Techniques

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