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- Jun 4, 2026, 3:00 AM
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- For many years, day trading was reserved for professionals and the wealthy — not just figuratively, but because of a restriction known as the pattern day-trading rule.
Essentially, individual investors with less than $25,000 in their margin brokerage account couldn’t place four or more day trades — which involves opening and exiting a position the same day — within five trading days. If they did, their brokerage would label them as a “pattern day trader” and restrict them from placing any more trades for weeks or months.
Now, the pattern day-trading rule is going away. The Financial Industry Regulatory Authority and the Securities and Exchange Commission both voted to remove the restriction, with the change taking effect on Thursday. Brokerages have up to 18 months to adopt these changes, but some will eliminate the day-trading restriction within days.
The rule first took effect in 2001 in response to the dot-com bubble. At the time, not only did new internet technologies cause the stock market to rise and crash, but they also drove a new wave of retail investors into the market and made it a lot easier for them to trade actively. The pattern day-trading rule was meant not only to protect retail investors from overtrading, but also to protect brokerages, which had to meet certain cash balance and margin requirements.
By having the limit on day trading at $25,000, regulators intended to preserve brokerage balances and protect traders with less money, while allowing investors with more money to day trade if they want.
“To me, the two intentions of rule were quite logical,” James Kostulias, head of trading services at Charles Schwab, told MarketWatch. “We want to extend to some of the more sophisticated investors additional intraday buying power, because there’s different risks associated with intraday versus overnight trading. And two, we want to make sure we’re not extending those risks to less sophisticated, less affluent investors who aren’t ready to handle it.”
However, Kostulias said, the rule ended up creating confusion among retail traders.
Read more at the link in bio.