Avoiding “Pattern Day Trader” Status

Something I’m trying to avoid now is being tagged as a “pattern day trader” by Ameritrade (or SogoTrade.)

So what does it mean to be a pattern day trader?

A pattern day trader is defined as someone who makes four or more “day trades” within five consecutive business days. The exception is if the total amount of day trades is less than 6% of the trader’s total trades. Like if I made 5 day trades in 5 days but I had a total of 100 trades then that would only be 5% and not 6% (the 6% seems really low? Doesn’t something like 50% seem more reasonable?)

A day trade is defined as buying and selling the same stock on the same day. For example today I made a day trade because I bought & sold AXL.

Why do I want to avoid having my account tagged as a pattern day trader? 

If my account is flagged as a “pattern day trader” account then my account is frozen for 90 days unless I’m able to put $25,000 into the account. Right now I’ve only got about $6,000 free for trading so that’s not possible for me. I’m assuming I would at least be able to take the money out of my account and maybe open up another account somewhere else, but even if that’s the case it would be a pain in the ass. And I’m not positive that it is.

So yes, until I have $25,000 in my trading accounts this is something I will have to consider. I’m sharing this info in case you find yourself in a similar situation. It would be a real bummer to have your account frozen and then find out about this rule.