You might have been flagged as a day trader if you've been particularly active in your trading account recently. And now you want to know how to remove pattern day trader status on your TD Ameritrade account.
If you have less than $25,000 in your brokerage account, frequent trading can result in your account being closed. And this can cost you money in a variety of ways. But this isn't simply the result of making a large number of trades in a short period of time. The rules are very precise.
How to remove pattern day trader status on TD Ameritrade account? To remove a pattern day trader (PDT) status on your TD Ameritrade account, the first thing you'll want to do is to check if your account is eligible for the PDT reset. To check your status, login to your account and navigate to Message Center >> Compose and select "Pattern Day Trader Reset".
Resetting your PDT is the best way to remove this status on your TD Ameritrade account.
Some brokers might have a more applied PDT rule than other. For instance Fidelity has a long list of Day Traders restriction for account holders. Robinhood has its own day traders restriction on the other hand. That's to say, no broker is quite merciful.
However, Robinhood also lets its traders remove the pattern day trader status from their accounts which means, — if you get flagged as a pattern day trader on Robinhood, you can also remove the pattern day trader status on your Robinhood account.
That said, if you are in this situation and want to get out of it, the you are in the right place as in this article, I will show you how to remove a pattern day trader status from a TD Ameritrade account.
CHECK ALSO: How to Transfer Stocks from Robinhood to TD Ameritrade [Complete Process]
What Happens If You Are Marked As A Pattern Day Trader On TD Ameritrade
If you make four or more day trades in a rolling five-business-day period, and those trades represent for more than 6% of your account activity during those five days, you're a pattern day trader.
What happens if you are flagged as a pattern day trader on TD Ameritrade? — It depends on your brokerage. If your brokerage has a more lenient policy for first-time offenders, the sanctions may not be as severe.
However, you will almost certainly be marked as a pattern day trader (in the sense of an offender) so that your broker may keep an eye on your activity for any consistent or repeat offenses. So proceed with caution.
Some brokerages may impose a minimum equity call if you make four day trades in a rolling five-day period, which means you must deposit enough cash to have a minimum account value of $25,000 (even if you don't plan to day trade on a regular basis).
You may be prohibited from creating new positions if you make another day trade while flagged.
This is a huge hassle, especially if you had no intention of day trading in the first place. If you made a mistake and breached the pattern day trading rules, or if you were tempted to collect profits (or close out losses) inside the same day—enough to be marked in violation—the hassle isn't worth it.
However, if you are mistakenly identified as a day trader and do not intend to do so in the future, you should contact your broker, who may be able to provide you some options to circumvent trading restrictions.
On flag removals, regulatory guidance is fairly rigorous and limited. You may get the flag removed from your account once if suitable agreements are in place.
If your future trading activity constitutes as pattern day trading, the pattern day trading flag will be re-applied to your account and will not be removed.
If you apply for a margin account and officially day trade, your buying power might be up to four times your real account balance.
You could be tagged as a pattern day trader if you tell your broker (saying "yes, I'm a day trader") or if you day trade more than three times in five days.
You can day trade as long as you have a minimum account balance of $25,000 and keep your balance above that at all times.
How to Remove Pattern Day Trader Status on TD Ameritrade
The first option is to deposit $25,000 into your margin account, allowing you to make unlimited day trades on your account. However, you can also day trade without 25K.
Another option is to wait 90 days before beginning any new positions. You can place three trades every five business days once the PDT flag is removed.
However, another great way to to request a PDT reset for your account. This can tend to be the easiest way to remove the Pattern Day Trader status on your TD Ameritrade account.
To request a PDT Reset, here is what you should do:
- Log into your account and go to "Account Management" then navigate to Support >> Message Center.
- Click "Compose" and select "Pattern Day Trader Request".
- The Pattern Day Trader Request tool will launch, select Check Status and the system will check to see if the account is eligible for a PDT Reset.
You can also check our complete guide to request a pattern day traders reset on your brokerage account.
CHECK ALSO: How to Transfer Stocks from Robinhood to Fidelity [Complete Process]
How to Avoid Pattern Day Trader Status Automatically
When we talk of automatically, the first thing that beeps into your mind is a bot. So, how do you avoid pattern day trading? You can set up a bot to automatically avoid this situation.
I Have a Little Over $25K: Can I Place Occasional Day Trades?
Before you do so, make sure you fully comprehend your account balance, as numerous factors can influence your trade equity.
- Your start-of-day equity will most likely be the same as your previous day's end-of-day equity if you have no open positions, implying no unrealized profits or losses.
- If you have unrealized profits or losses on open positions, your opening equity will be determined by how your holdings are marked-to-market at the start of the trading day. (The value of your positions if they were instantly sold or bought at current market prices is known as marked-to-market.)
- If you hold positions with unrealized losses, your trade equity may be reduced (think of them as being marked-to-market at any given time).
- If you have stocks purchased on margin, you may need to deduct the amount of maintenance margin from your total trade equity, including cash and unrealized profits, to figure out how much you have. Any pattern day trader activity that bring your account value below $25,000 may be considered a violation.
- Futures cash and positions do not count towards the $25,000 minimum account value if you trade futures.
The Best and Cheap Way to Day Trader Status
Those with cash-only accounts can day trade to their hearts' delight for the most part. However, because it takes many days for funds to move hands after a stock transaction, this might hold down the trading process. With less than $25,000 in their cash account, it's unlikely that someone will be dubbed a day trader unless they specialize in penny stocks or a tiny number of shares. However, it is possible.
There are a lot of new investors who are opening Robinhood accounts on an hourly basis. Even if they only have a few thousand dollars to trade with, they can quickly reach the pattern day trade level. The excitement of swift victors can be infectious.
Let's say an investor buys a $125 option contract on Monday morning and sells it for $175 later that day. He repeats the process on Tuesday. This time things don't go as planned. He cashes out to save his capital after his $125 contract loses $50 in value. That money in his account, on the other hand, is burning a hole in his pocket.
He discovers a $100 options contract for a company just before its earnings call on Wednesday. Expectations are shattered by the company. Before the end of the day, the contract doubles in value, and the trader cashes out, feeling very confident.
The trader has his sights set on another relatively inexpensive options contract on Thursday, just before the company's results call. He spends $100 on a contact lens. It doubles before the end of the day once more. Despite the one loss, the trader is feeling very confident, and his pockets have grown a little larger. But, whether he realizes it or not, he's reached a turning point.
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Final Thoughts on How to Remove Pattern Day Trader Status on TD Ameritrade
If you're thinking about getting into day trading, start small at least until your account has at least $25,000 in it. But, until then, it's critical that you grasp the complexities of your brokerage's margin account requirements. Also, because each brokerage's pattern day trading guidelines may differ, read the fine print. Many traders are obsessed with speed. Locking yourself out of your account might be a costly error.