 Hey everyone, welcome to another video lesson from navigationtrading.com. In this video I want to talk about what happens if I get flagged as a pattern day trader. So let's jump in and talk about what this means. To start with let's define what is considered a day trade and that would be if you buy and then sell the same security on the same day that's considered a day trade or conversely if you short that security and then buy it back on the same day that's considered a day trade. If you hold the trade overnight that would not be considered a day trade. Now when we talk about securities we're talking about stocks, ETFs and options when it pertains to day trading. So what is a pattern day trader? Well if you day trade four or more times within five business days then your broker will flag you as what's called a pattern day trader. Now even if you stop day trading for five days your account will still be coded as a pattern day trader. So basically you can trade three times up to three times per five business days and get in and out of a trade in the same security within the same day and not be flagged as a pattern day trader but once you hit that fourth or fifth or over four or more then you're automatically going to be flagged by your broker as a pattern day trader. Now this really matters if your account is under $25,000 because if your account is over $25,000 you can day trade theoretically as much as you want your account will still be flagged as a pattern day trader account but you're not restricted to just three trades within that five business days. However if your account is under $25,000 then you will be halted from trading anymore until your balance goes above $25,000. Now they will still allow you to close trades but you won't be able to open any new trades if you've gone over that three threshold within five business days you won't be able to enter any new positions if your accounts under $25,000 and you must maintain that balance on every day. If your accounts above that and then you fall below $25,000 then you won't be able to enter and open any new trades. Now the whole pattern day trading rule with the $25,000 minimum in my opinion is just completely ridiculous. This went into effect there used to be no minimum balance or I think it used to be $2,000 minimum balance until early 2000 and if you were trading or investing in early 2000 you know that was the dot-com craze and there was a lot of just all sudden new brand new genius day traders because the market was going up in just leaps and bounds and just unbelievable so all the so-called day traders came out of the woodwork and that's when the brokers and FINRA the SEC came out and set these rules that you had to have a $25,000 minimum. Again it's just for the brokers to cover themselves but the reality is anytime that they restrict you from doing what you want with your money in my opinion is ludicrous but regardless of my opinion we have to play by their rules otherwise you can't trade so that is the situation. Now the other thing that's crazy about this and it's a completely different governing body but futures and futures on options do not have these restrictions so you could literally have $5,000 in an account and get in and out of the same futures or futures options all day long and it's no big deal you can do that with futures. Now the crazy thing is futures are much larger contracts so the fact that they allow you to do that with futures but not with stocks and options and ETFs it's kind of a little bit backwards right but that is the rules but just keep in mind those rules do not apply to futures or futures options only stocks ETFs and equity options. Now in navigation trading we do not do a lot of day trading the only time that we will actually enter a position and exit it within the same day is for example if we put on a spread and the underlying symbol that we're trading explodes in our direction and we want to go ahead and close that and book in that profit. Now most of our trades take several days to several weeks and if we're rolling sometimes several months but there are times when we do get in and out of positions on the same day and so if your account balance is under 25,000 you just need to understand that that will be counted as a day trade against your three that you have in a five-day period. Now the other key thing to remember is we're trading typically multi-leg spreads so a vertical is two legs an iron condor is four legs so if you get in and out of an iron condor within the same day that's four different legs that's four different options that you entered and exit so you would be prohibited from doing any future trades and your account would be flagged as a pattern day trade account if that happens so you've got to be real cognizant of that situation especially if your accounts under 25,000 dollars or near that level if it's quite a bit over then you don't really need to worry about it because you can get in and out of trades as much as you want. So what if you do this by accident what if you accidentally trade in and out more than three times in a five-day period and your account is under 25,000 the first thing you do right away call your broker just call them let them know what happened you're not going to sneak one by them just let them know what happened let them know it happened by accident and many brokers will give you a one-time exception if it's done by accident your account will still be coded as a pattern day trader but they won't restrict you from entering new trades as long as you you know let them know hey I'm not trying to get in and out I just accidentally did it and so can you please lift that restriction this one time now typically they're not going to do it a second time so if you trade in and out more than three times in a five-day period again then your account is going to be restricted from not being able to open any new day trades until that period's up so keep that in mind so those are the basics of the pattern day trading rules if you have any questions let us know if you want to see what else we're doing here just check us out at navigationtrading.com talk to you in the next video