Why is the minimum equity requirement for pattern day traders higher than the current minimum equity requirement of $2,000?
The minimum equity requirement of $2,000 was established in 1974, before the technology existed to allow for electronic day trading by the retail investor. As a result, the $2,000 minimum equity requirement was not created to apply to day-trading activities Rather, the $2,000 minimum equity requirement was developed for the buy-and-hold investor who retained securities collateral in his/her account, where the securities collateral was (and still is) subject to a 25% regulatory maintenance margin requirement for long equity securities. This collateral could be sold out if the securities declined substantially in value and were subject to a margin call. The typical day trader, however, is flat at the end of the day (i.e., he is neither long nor short securities). Therefore, there is no collateral for the brokerage firm to sell out to meet margin requirements and collateral must be obtained by other means. Accordingly, the higher minimum equity requirement for day trading provides the bro
Related Questions
- Does the $25,000 minimum equity requirement have to be 100 percent cash or could it be a combination of cash and securities?
- Why is the minimum equity requirement for pattern day traders higher than the current minimum equity requirement of $2,000?
- What is the minimum equity requirement for a pattern day trader?
