Are you currently battling the dreaded "Pattern Day Trader" (PDT) status on E*TRADE and feeling like your trading wings have been clipped? You're not alone! Many aspiring and active traders encounter this regulatory hurdle. Don't despair, because this comprehensive guide will walk you through everything you need to know about what PDT status means, why it happens, and most importantly, how to remove it from your E*TRADE account, step by detailed step.
Let's dive in and get you back to trading freely!
Understanding the Pattern Day Trader (PDT) Rule
Before we get to the "how to remove" part, it's crucial to understand what a Pattern Day Trader is and why this rule exists. The PDT rule is mandated by the Financial Industry Regulatory Authority (FINRA) and applies to margin accounts. It's designed to protect less experienced traders from excessive risk by limiting how often they can day trade with insufficient capital.
You are designated a Pattern Day Trader if you execute four or more day trades within a rolling five-business-day period in a margin account, and these day trades represent more than 6% of your total trading activity during that same period.
A day trade is defined as opening and closing the same security (stock, ETF, or options contract) within the same trading day.
What happens if you're flagged as a PDT?
If your account is flagged as a PDT and your equity drops below the $25,000 minimum required, your account will be restricted to closing-only transactions. This means you can only sell positions you already hold, but you cannot open new ones. This restriction can last for 90 calendar days or until you meet the $25,000 equity requirement.
Why the $25,000 Minimum?
The $25,000 minimum equity requirement for Pattern Day Traders in a margin account is a core part of the FINRA regulation. This threshold is intended to ensure that individuals engaging in frequent day trading have sufficient capital to absorb potential losses and meet margin calls. If your account falls below this amount, your ability to day trade will be severely restricted.
Step 1: Confirm Your PDT Status on E*TRADE
First things first, let's make sure you actually have PDT status on your ETRADE account. There might be in-app notifications or messages from ETRADE alerting you to this.
To check your day trade counter in the E*TRADE app:
Open the E*TRADE mobile app.
Navigate to Account (represented by a person icon) or Settings.
Select Investing.
Look for Day trades or a similar option.
This section should display how many day trades you've made within the current rolling five-business-day period and whether your account is currently flagged. If it shows you're marked as a PDT, proceed to the next steps!
Step 2: Options for Removing PDT Status on E*TRADE
Once confirmed, you have a few primary avenues to explore for removing the PDT flag. Each has its own implications and eligibility criteria.
Sub-heading 2.1: The One-Time PDT Flag Removal Request
This is often the quickest and most straightforward option if you're eligible. E*TRADE, like other brokers, typically offers a one-time pattern day trading flag removal for accounts that have been designated PDT. This is usually granted with the understanding that you acknowledge the rules and will strive to avoid repeated day trading violations.
How to Request the One-Time Removal:
Log in to your E*TRADE account. This can usually be done through the E*TRADE website or the mobile app.
Navigate to the relevant section. While the exact path might vary slightly with app updates, look for sections related to:
Accounts
Day Trading
Risk Monitoring (if available)
Support or Tools
Look for an option like "Request to Remove PDT Status" or "PDT Reset." On some platforms, it might be found under a "Yes" next to "Marked as PDT."
Follow the on-screen prompts. You will likely need to attest that you understand the definition of pattern day trading and that you do not intend to engage in day trading strategies moving forward.
Important Considerations for the One-Time Reset:
Eligibility: This is generally a one-time per account lifetime waiver. If you've used it before, you likely won't get another.
Timing: Some sources suggest this can be done 1-2 business days after the flag is added.
Effect: Once removed, you will typically be allowed the standard three-day trades in a rolling five-business-day period again. However, if you are re-flagged after using this waiver, ETRADE will generally not be able to remove it again, barring extraordinary circumstances.*
Sub-heading 2.2: Increase Your Account Equity to $25,000 or More
This is the most effective and long-term solution if you intend to continue day trading. If your margin account maintains an equity balance of $25,000 or higher at the close of business, you can engage in unlimited day trades without being flagged with PDT restrictions.
How to Increase Your Account Equity:
Make a Deposit: The most direct way is to deposit additional funds into your E*TRADE margin account.
This can be done via electronic funds transfer (ACH) from your bank account (may take a few business days to settle).
Wire transfer (faster, often same-day availability once received).
Check deposit (can take several business days to clear).
Transferring an account from another firm.
Ensure Funds Settle: It's crucial that the funds settle and bring your account's net liquidation value (cash plus market value of securities) above $25,000. Intraday fluctuations above $25,000 will not meet the call; it must be at or above $25,000 at the close of business each day you wish to day trade without restriction.
Monitor Your Equity: Continuously monitor your account balance to ensure it stays above the $25,000 threshold. If it drops below, you will once again be subject to PDT restrictions.
Sub-heading 2.3: Wait Out the 90-Day Restriction Period
If you're unable to meet the $25,000 equity requirement or have already used your one-time reset, the PDT flag will typically remain on your account for 90 calendar days. During this period, your account will be limited to closing-only transactions.
What to do during the 90-day period:
Avoid Opening New Positions: Resist the urge to open any new positions as your account is restricted. Focus on managing existing trades.
Plan Your Future Trading: Use this time to refine your trading strategy, practice in a simulated environment (if E*TRADE offers one, or a third-party platform), and plan how you will avoid future PDT flags.
Consider a Cash Account (See Step 3): If day trading with less than $25,000 is your goal, a cash account is the alternative.
Step 3: Alternative Strategies to Avoid Future PDT Flags
Once you've removed your PDT status (or while you're waiting for it to be removed), consider these strategies to avoid being flagged again, especially if you have less than $25,000 in your margin account.
Sub-heading 3.1: Switch to a Cash Account (if applicable)
This is a significant change, but entirely removes PDT restrictions. The PDT rule only applies to margin accounts. If you switch to a cash account on E*TRADE, you can make unlimited day trades regardless of your account balance.
Key Differences with a Cash Account:
Settlement Times: The primary drawback of a cash account for day trading is the settlement period. When you sell a security, the funds from that sale typically take two business days (T+2) to settle before they are available for new purchases. This means you cannot use the proceeds from a sale immediately for another day trade.
No Margin Borrowing: You cannot borrow funds from E*TRADE to amplify your trading power. You can only trade with the cash you have settled in your account.
How to Switch to a Cash Account:
You'll likely need to contact E*TRADE customer service directly to request this change. This may involve filling out forms or confirming your understanding of the implications. It's not typically a self-service option within the app.
Sub-heading 3.2: Carefully Manage Your Day Trades
If you want to keep your margin account but stay below the PDT threshold, you must diligently track your day trades.
Utilize E*TRADE's Day Trade Counter: As mentioned in Step 1, E*TRADE provides a counter in their app to help you track your day trades within the rolling five-business-day period. Pay close attention to this!
Limit to 3 Day Trades: Plan your trades so that you execute no more than three day trades within any rolling five-business-day period.
Hold Positions Overnight: To avoid a day trade, simply hold your position overnight and sell it the next business day or later. Even if you buy on Monday and sell on Tuesday, it's not considered a day trade.
Sub-heading 3.3: Consider Trading Other Instruments (Futures/Forex)
The PDT rule specifically applies to securities (stocks, options, ETFs) in margin accounts. It does not apply to:
Futures Trading: Futures contracts have different margin requirements and are not subject to the PDT rule. E*TRADE offers futures trading.
Forex Trading: Trading foreign currencies (Forex) is also not subject to the PDT rule.
Important Note: While these asset classes are exempt from PDT, they come with their own unique risks and leverage considerations. Ensure you thoroughly understand the mechanics and risks involved before venturing into futures or forex trading.
Step 4: Proactive Communication with E*TRADE Customer Service
If you're unsure about your PDT status, eligibility for a reset, or the exact steps to take, don't hesitate to contact E*TRADE customer service. They are the best resource for personalized guidance regarding your specific account.
How to Contact E*TRADE Customer Service:
Phone: Call their customer service line (typically available on their website under "Contact Us"). Their general customer service number is 800-387-2331.
Secure Message: Log into your E*TRADE account and send a secure message. This creates a written record of your communication.
Live Chat: Some brokers offer live chat support, which can be convenient for quick questions.
When you call, be prepared to explain your situation clearly and concisely. Ask about your eligibility for a one-time PDT reset, the process for increasing your equity, or the steps to convert to a cash account if that's your preference.
Conclusion: Taking Control of Your Trading Account
Being flagged as a Pattern Day Trader can be frustrating, but it's not the end of your trading journey. By understanding the rules, leveraging E*TRADE's available options, and implementing smart trading practices, you can successfully remove the PDT status and regain control over your trading activity. Whether you choose to boost your capital, utilize the one-time waiver, switch to a cash account, or explore other markets, the key is to be proactive and informed. Good luck!
10 Related FAQ Questions:
Here are 10 "How to" FAQs with quick answers related to removing Pattern Day Trader status on E*TRADE:
How to check if I am a Pattern Day Trader on E*TRADE?
You can check your day trade counter in the E*TRADE mobile app by going to "Account" or "Settings," then "Investing," and looking for "Day trades." This section will indicate if you are flagged and how many day trades you've made.
How to request a one-time PDT reset on E*TRADE?
Log in to your E*TRADE account, navigate to "Accounts," "Day Trading," or a "Support" section, and look for an option like "Request to Remove PDT Status" or "PDT Reset." Follow the on-screen instructions to attest your understanding and submit the request.
How to avoid PDT status by increasing my account equity?
Deposit funds into your E*TRADE margin account to ensure your net liquidation value (cash + market value of securities) remains at or above $25,000 at the close of business each day.
How to switch my E*TRADE margin account to a cash account to avoid PDT?
You will typically need to contact E*TRADE customer service directly to request a conversion of your margin account to a cash account. Be aware of the T+2 settlement rule for cash accounts.
How to manage my trades to stay below the PDT threshold?
Carefully track your day trades using E*TRADE's in-app counter and limit yourself to a maximum of three day trades within any rolling five-business-day period. Consider holding positions overnight to avoid them counting as day trades.
How to trade without being subject to the PDT rule at all?
Trade in a cash account, as the PDT rule only applies to margin accounts. Alternatively, consider trading futures or forex, which are not subject to the FINRA PDT regulations.
How to understand the 90-day PDT restriction period?
If flagged as a PDT with less than $25,000 equity and you don't use the one-time waiver or add funds, your account will be restricted to closing-only transactions for 90 calendar days, starting from your last day trade.
How to contact E*TRADE customer service for PDT-related issues?
You can call E*TRADE's customer service line (800-387-2331), send a secure message through your online account, or use their live chat feature if available.
How to differentiate between a day trade and a non-day trade?
A day trade involves buying and selling (or opening and closing) the same security within the same trading day. Buying a security on Monday and selling it on Tuesday is not a day trade.
How to ensure my deposit counts towards the $25,000 PDT equity requirement?
Ensure that any funds deposited have settled and are fully available in your account. The $25,000 equity must be present at the close of business for the PDT restrictions to be lifted for the following trading day.
