New FINRA margin trading rules
In April the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority) approved changes to Rule 4210, which modernize how intraday trading on margin will be handled. The existing PDT rules will be replaced with an intraday margin framework that offers greater trading flexibility while ensuring accounts maintain equity levels that appropriately reflect their intraday exposure. The new rules go into effect on June 4, 2026, and firms will have up to 18 months to implement.
Fidelity expects to implement changes to align with the new requirements soon after June 4, and will include benefits such as:
More flexibility:
- No $25,000 minimum equity requirement to day trade in margin.
- Your account may no longer be labeled as a PDT, regardless of how often you trade. No more counting day trades.
Simpler balances:
- Your account will no longer be subject to day trade requirements for intraday trades.
- Exceeding your intraday exchange surplus or ending the day in an exchange call may result in an intraday margin deficit (IMD).
Fewer restrictions:
- Existing pattern day trading accounts will have any related PDT restrictions and/or calls dropped.
- Margin accounts will still have a $2,000 minimum equity requirement.
You can also learn more by reading this publication from FINRA.
Existing day trading rules
Anytime you use your margin account to purchase and sell the same security on the same business day, it qualifies as a day trade. The same holds true if you execute a short sale and cover your position on the same day. Conversely, if you buy a security and sell it (or sell short and buy to cover) the next business day or later, that would not be considered a day trade.
The following transactions would all be considered day trades:
- A purchase of 100 shares of ABC stock at 10 a.m. ET, followed by a sale of 100 shares of ABC stock at 1 p.m. ET
- A purchase of 250 shares of ABC stock at 10 a.m. ET, followed by a purchase of another 250 ABC shares at 11 a.m. ET, followed by a sale of 500 ABC shares at 3 p.m. ET
- A short sale of 250 shares of ABC stock at 9:30 a.m. ET, followed by a buy to cover of 250 shares of ABC stock at 3:59 p.m. ET
If you are a trader who occasionally executes day trades, you are subject to the same margin requirements as non-day traders. This means you must have a minimum equity of $2,000 to buy on margin. You also need to meet the initial Regulation T margin requirement of 50% of the total purchase amount and maintain a minimum of 25% equity (or more) in your margin account at all times.
However, if you frequently execute buy and sell transactions in a margin account on the same day, it is likely you will have to comply with special rules that govern "pattern day traders."
Understanding what it means to be a pattern day trader
The term "pattern day trader" was coined by the National Association of Securities Dealers (now called FINRA, the Financial Industry Regulatory Authority). FINRA enacted Rule 4210, the Pattern Day Trader Rule, in 2001. Rule 4210 defines a pattern day trader as anyone fitting the following criteria:
- Any margin customer who executes 4 or more day trades in a 5-business-day period.
- The number of day trades must comprise more than 6% of total trading activity for that same 5-day period.
- Any margin customer who incurs 2 unmet day trade calls within a 90-day period. You can locate this information for a specific account on the Trading Profile page.
It's important to note that some securities and trading patterns can significantly impact your ability to day trade on margin. For instance, leveraged ETFs have much higher exchange requirements than typical equity securities. A 3x-leveraged ETF would have a 75% exchange requirement. If you began the day with a $10,000 exchange surplus, the total amount available for day trading would be $13,333 ($10,000 ÷ 0.75), rather than $40,000 ($10,000 ÷ 0.25) for a non-leveraged equity.
Another thing to consider when day trading is that securities held overnight (not sold by the end of the trading day) can be sold the following business day. However, the proceeds from the sale of these positions cannot be used to day trade. If you do day trade positions held overnight, it will create a day trade call that will reduce your account's leverage. For example, if you purchased $50,000 of XYZ company on Tuesday and held on to the position overnight, you could sell all $50,000 of XYZ company at the market open on Wednesday. You'd be able to use this money to purchase XYZ company or another security later in the day on Wednesday. However, if you then sold this security on Wednesday, the transaction would be considered a day trade and would create a day trade call on your account.
Managing day trade calls for pattern day traders
Just as regular margin accounts are subject to margin calls when you fail to meet margin maintenance requirements, there are consequences for pattern day traders who fail to comply with the margin requirements for day trading. For example, if you place opening trades that exceed your account's day trade buying power and close those trades on the same day, you will incur a day trade call. As a result:
- While in a day trade call, your account will be restricted to day trading buying power of only 2 times maintenance margin excess.
- You have 5 business days to deposit cash or marginable securities to meet the call. If you fail to meet the call within this period, your account will be further restricted to trading 1 times your maintenance margin excess only for a minimum of 90 days.
- You can sell securities to meet a call (a day trade liquidation). But if you incur 3 day trade liquidations within a 12-month period, your account will be restricted to 1 times your maintenance margin excess.
- The margin buying power on a restricted account is limited to the exchange surplus (without the use of time and tick) for a period of 90 days.
Time and tick is a method used to help calculate whether or not a day trade margin call should be issued against a margin account. With this method, only open positions are used to calculate a day trade margin call. For example, assume your account had a day trade buying power of $90,000. If you traded in the following sequence, you would not incur a day trade margin call:
- Buy $90,000 of IBM (the open position).
- Sell it for $90,000 (close the position).
- Then, buy $90,000 of IBM again.
However, if you bought $80,000 of Microsoft while the $90,000 IBM position was open, you would have $170,000 in open positions, which would exceed your buying power. If both of these positions (Microsoft and IBM) are closed, this would result in a day trade call being issued.
The account's day trade buying power balance has a different purpose than the account's margin buying power value. If you are intending to day trade, then the day's limits are prescribed in the day trade buying power field. If you do not plan to trade in and out of the same security on the same day, then use the margin buying power field to track the relevant value. You can find more information on these values on the Balances page.
Learn more about margin and day trading, which requires an in-depth knowledge of margin requirements, as well as a solid understanding of day trading strategies. Therefore, be sure to do your homework before you embark upon any day trading program.