DO YOU KNOW ?
The Day-Trading Rules Change
In our Do or Did You Know? blogs we provide readers with useful information that generally is not realized by inexperienced investors. In Chapter 6 of our publication, When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), we differentiate between Day, Swing, and Long-term investing/trading.
Traditionally, anyone who opens a brokerage account has the ability to invest long-term and swing trade short-term, by buying shares of company stock, or Bullish and BearishExchange Traded Funds (ETFs). There are restrictions, however, concerning options and day-trading, which usually requires certification or permission. As Yahoo Finance recently posted…
The Pattern Day Trader (PDT) was labeled as any individual who completed 4 day-trades (opened and closed on the same trading day), within a 5-business day span, with over 6% of his/her account utilized in those trades. Once that occurred, as per the rule established in 2001, they were then required to maintain at least $25,000 in the account at all times, as a preventative measure. For their own protection, if the balance slipped under the $25,000 mark, the account holder would only be allowed to liquidate positions, and could not add a position until the amount exceeded the minimum again. A PDT was also allowed to utilize larger intra-day funds, known as “Buying Power,” based on the size of the account, open positions, and available cash.
However, this will all change as of June 4, 2026, as FINRA (the Financial Industry Regulatory Authority) has reduced the minimum requirements to only $2,500, though brokerages will have 18 months to fully integrate the new rule. As a result, more inexperienced “retail” traders will become involved in day-trading, many of whom could suffer heavy losses. Professional traders will no doubt take advantage when possible, making the markets more vulnerable to added volatility and wider price swings. For those who utilize “margin” (borrowed funds above their actual account value), it is extremely dangerous to highly leverage any position, as a loss may multiply if the funds are not available to cover that loss. The account holder will still be responsible for making up the difference within a set number of days by the broker, to maintain the minimum required amount. The reason for the change has been reported that it allows the smaller investor the opportunity to engage in trading the markets, rather than only the wealthier. One argument for the change was that younger investors are much more informed than before, though safety measures remain at lower levels.
There are a few steps to take to avoid being a victim of what is known as exit liquidity, a term used for the money/investments that come in late to an equity (after a major rally), just before a selloff/reversal, that is used for the professionals to close their position(s)…
The first, and most important, is Pre-trade preparation. This should include determining catalysts for the day (discussed in our Do You Know – The Catalyst blog, dated 1-24-26) and a review of technical charts with a concise strategy regarding entry and exits points, and mental stop-losses to avoid allowing any losing positions to become too big. Remember to ALWAYS follow your rules and be disciplined. You WILL have losing trades, and they need to be managed properly.
The second, for those considering entering the day-trading arena, it is suggested that one start with paper-trading (most platforms offer this option). This allows for an adjustment to the pace of the stock market, and how well one can react to changing conditions, before risking real money. Assimilating that real money is being used is also suggested, as the emotional factor is much different than when treated as just “practicing.” When deciding to go “live” with actual funds, one should start with smaller share sizes, again to adjust for, and control, the emotion of gaining or losing money. It takes some time to adjust to the speed of intraday price action, with 1, 5, and 15-minute charts, even for those who understand chart patterns.
Also, understand that the first half hour of trading often has the highest volume and volatility, and should be left to the highly experienced. Waiting for some type of direction/pattern to develop prevents the normal whipsaw price action at the opening to draw in trades destined to be stopped-out, and is a wise decision for beginners. And, as always, prevent risking more than you can afford to lose!
*** This information is not intended to be financial advice, and should be considered or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of the financial markets.
