What is the Pattern Day Trading (PDT) rule and how to avoid account restrictions?

Pearler is designed for long-term investing, not frequent short-term trading. If you’re US investing with Pearler, it’s important to understand the Pattern Day Trading (PDT) rule, as it can place temporary restrictions on your account if triggered.

If you’re planning frequent short-term trading, Pearler may not be the right platform for your needs.

This article explains what PDT is, how it works, and how to avoid unexpected trading restrictions.

What is day trading?

Under U.S. regulations set by FINRA (the U.S. financial regulator), a day trade occurs when you buy and sell the same security within the same calendar day, including extended hours trading.

Examples of day trades:

• Buy shares of a stock and sell them later the same day

• Sell a stock short and buy it back on the same day

Even if trades occur minutes apart, or outside standard market hours, they still count as a day trade if they happen on the same calendar day.

What is the Pattern Day Trading (PDT) rule?

You are considered a Pattern Day Trader (PDT) if your account executes:

• Four (4) or more day trades

• Within a rolling five (5) business-day period

Once this threshold is reached, special regulatory requirements apply.

PDT protection (why trades can be blocked)

To protect customers from being automatically classified as Pattern Day Traders, U.S. brokers (including our broker, Alpaca) apply PDT protection:

• If your account has less than USD $25,000 in end-of-day equity,

• You will be restricted from placing a 4th day trade within a five-business-day period.

  • You can still buy and sell other stocks, as long as it doesn't turn into another day trade (e.g. buy 10 MSFT shares would be fine, but then selling 10 MSFT might be blocked)

This means:

• Your 4th buy order may go through, but

• A same-day sell order can be automatically blocked if it would exceed the PDT limit.

These restrictions are regulatory, automatic, and cannot be overridden by Pearler.

What happens if my account is flagged as a Pattern Day Trader?

To continue investing without restrictions:

• Your account must maintain at least USD $25,000 in end-of-day equity (cash + eligible U.S. securities).

Restrictions will remain in place until:

• Your equity is restored above USD $25,000, or

• The PDT flag is removed by the broker (on the next business day).

Important things to know

✔ Trade size doesn’t matter

Day trades are counted regardless of share quantity or how many partial orders you place.

✔ Multiple buys + one sell can still be one day trade

FINRA counts round trips, not individual order count.

Examples of how day trades are counted

Example 1 (1 day trade)

• 9:30 Buy 250 ABC

• 9:31 Buy 250 ABC

• 13:00 Sell 500 ABC

Example 2 (2 day trades)

• 9:30 Buy 100 ABC

• 9:31 Sell 100 ABC

• 9:32 Buy 100 ABC

• 13:00 Sell 100 ABC

Example 3 (1 day trade)

• 9:30 Buy 500 ABC

• 13:00 Sell 100 ABC

• 13:01 Sell 100 ABC

• 13:03 Sell 300 ABC

These examples show how buy/sell pairs, not individual orders, determine the day-trade count.

Why does this rule exist?

Day trading carries significant risk for both investors and brokers. Because trades may not settle immediately, regulators require brokers to maintain safeguards to manage intra-day risk. The PDT rule is designed to:

• Protect investors from rapid losses

• Reduce systemic risk

• Ensure brokers can meet settlement obligations

If you have more questions, feel free to reach out our live chat function or help@pearler.com :)