Traders who make 3 or more day trades within a 5 day period will be labeled pattern day traders. Traders who are labeled Pattern Day Traders must maintain at least $25,000 in equity in their account on any day that they place a day trade.
For anyone who does not already know, a day trade is referred to as any trade that is opened and closed within the same trading day. As a side note here, if a trader opens a position and then uses two orders to close that same trade, then this is counted as 1 daytrade.
If a pattern day trader exceeds the day-trading buying power limitation, the firm will issue a day-trading margin call to the pattern day trader. The pattern day trader will then have, at most, five business days to deposit funds to meet this day-trading margin call. Until the margin call is met, the day-trading account will be restricted to day-trading buying power of only two times maintenance margin excess based on the customer’s daily total trading commitment. If the day-trading margin call is not met by the fifth business day, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met.