Q:

What are day trader rules?

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Quick Answer

Both official and unofficial rules impact the actions of day traders; the Securities and Exchange Commission (SEC) has strict rules in place for pattern day traders, stipulating that these traders must have at least $25,000 in their trading account at all times, notes Investopedia. A pattern day trader is a trader who buys or sells the same security four or more times each day over the course of 5 consecutive days. The $25,000 account minimum rule does not apply to day traders who do not fall in this category.

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Full Answer

Unofficial rules that day traders should follow for greater success include not trading for the first 15 minutes after a market opens, as reported by MarketWatch. This short waiting period helps traders avoid the somewhat erratic trades that can happen right after the market opens.

Additionally, day traders should avoid putting too much emphasis on what they plan to buy at the expense of having a good idea of when they want to sell. It is a good idea for day traders to have an idea of when they want to sell a stock in order to turn the highest profit. These rules are not official, meaning they are not law and do not necessarily have formal penalties, but are good rules of thumb for new traders to follow while adjusting to the practice.

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