What Is a Day Trade: US Accounts, Taxes & Rules
- Felix La Spina
- Nov 20
- 5 min read
What Is a Day Trade: US Accounts, Taxes & Rules (PDT Rule) Explained
Quick Answer
A day trade is when you buy and sell the same stock, ETF, option, or asset within the same trading day. If both the opening and closing trades occur on the same day, it is counted as one day trade.
Understanding what is a day trade is essential because the U.S. has strict regulations — especially the Pattern Day Trading (PDT) Rule, which impacts how to be a day trader and how to do day trading safely.
This guide explains day trades in simple terms, the PDT rule, U.S. tax implications, and step-by-step instructions for beginners.
What Is a Day Trade?
A day trade is:
➡️ Opening and closing a position on the same trading day ➡️ In the same security (same stock, same option, etc.) ➡️ In any order (buy then sell, or short then cover)
✔ Example of a Day Trade
Buy 50 shares of Tesla at 10:05 AM
Sell those same 50 shares at 2:15 PM= 1 day trade
✔ Example of a Short Day Trade
Short-sell Nvidia at 9:45 AM
Buy to cover at 1:30 PM= 1 day trade
❌ NOT a Day Trade
Buy Apple today
Sell Apple tomorrow= NOT a day trade
FINRA definition of a day trade: https://www.finra.org/investors/learn-to-invest/day-trading
What Is Not Counted as a Day Trade?
Some actions do NOT count toward day trading totals:
Buying then selling different stocks
Selling only part of a position
Options assignments or exercises
Trades made in a cash account with unsettled funds (treated differently)
Only same-day round-trip trades count.
Why Understanding Day Trades Matters
Because making 4 or more day trades in 5 business days can trigger the Pattern Day Trader (PDT) designation — which requires a $25,000 minimum account balance to continue day trading in a margin account.
What Is the Pattern Day Trading (PDT) Rule?
The PDT Rule applies to U.S. margin accounts and states:
➡️ If you make 4 or more day trades ➡️ Within 5 rolling business days ➡️ And they represent more than 6% of your total trading activity
…you will be flagged as a Pattern Day Trader.
Source (FINRA Rule 4210): https://www.finra.org/rules-guidance/rulebooks/finra-rules/4210
Once flagged, you must maintain:
👉 $25,000 minimum equity (Or your brokerage account may be restricted for 90 days)
Why the PDT Rule Exists
FINRA and the SEC created it to:
Reduce excessive risk-taking
Limit leverage misuse
Prevent inexperienced traders from blowing up accounts
Ensure traders understand how to do day trading safely
How to Be a Day Trader (Beginner Steps)
If your goal is to learn how to be a day trader, start here.
Step 1 — Learn Day Trading Basics
Understand:
Market hours
Order types
Price movement
Candlesticks
Momentum
Risk management
Start with the Free Stock Market Course:https://www.stockeducation.com/courses/stock-education-free-course/
Step 2 — Choose the Right Brokerage
Two account types exist:
✔ Margin Account
Allows unlimited trades
Subject to PDT rule
✔ Cash Account
No PDT rule
Limited by settlement (T+2 for stocks)
Choose based on your strategy and experience.
Step 3 — Use Scanners & Research Tools
Day traders rely on liquid, volatile stocks. Use the US Stock Screener with AI to find:
High-volume movers
Earnings catalysts
Volatility spikes
Intraday momentum stocks
Step 4 — Paper Trade Before Using Real Money
Almost every broker allows simulated trading. This lets you practice how to do day trading without risking losses.
Step 5 — Build a Risk Management Plan
Before placing real trades, define:
Maximum daily loss
Position-sizing rules
Stop-loss strategy
Trade journaling habit
Step 6 — Track Your Growth
Use the AI Portfolio Learning Tracker to improve your trading skills: https://www.stockeducation.com/ai-portfolio-learning-tracker/
How to Do Day Trading (Practical Breakdown)
Here’s a simple workflow professionals use:
1. Pre-Market Preparation
Identify catalysts
Set watchlists
Mark support/resistance levels
2. Market Open Strategy
Watch volatility
Avoid risky first-minute trades
Wait for direction
3. Trade Execution
Buy low, sell high (or short high, cover low)
Use limit orders
Respect stop losses
4. Review & Journal
Track:
Entry/exit points
Mistakes
Strategy improvements
U.S. Taxes for Day Traders
Understanding taxes is a must.
Short-Term Capital Gains
Day trades are taxed as ordinary income, not long-term gains.
Wash Sale Rule Applies
If you sell a stock at a loss and rebuy it within 30 days, the loss cannot be claimed.
High Volume = More Taxable Events
More day trades = more reporting obligations.
Always consult a licensed tax professional for personalized guidance.
Tools Traders Use for Day Trade Analysis
StockEducation provides several useful tools:
⚡ AI New Stock Analyzer
Evaluate stock quality, risk, and financial strength. https://www.stockeducation.com/ai-new-stock-analyzer/
📈 Advanced Charts
Study patterns, candles, and trends. https://www.stockeducation.com/advance-charts/
📊 ETF Overlap & Fee Drag Tool
Check exposure for ETF-based day traders. https://www.stockeducation.com/etf-overlap-and-fee-drag/
🧮 ROI Calculator
Estimate potential day-trade returns. https://www.stockeducation.com/roi-calculator/
Typical Example of a Day Trader’s Daily Routine
To understand how to be a day trader, here’s a simplified routine:
7:00 AM – Pre-Market Research
News, earnings, scanners.
9:30 AM – Market Open
Watch volatility, wait for setups.
10:00 AM – Trading Window
Execute 1–3 high-probability trades.
12:00 PM – Review
Check performance, avoid overtrading.
4:00 PM – Post-Market
Journal trades, plan for tomorrow.
Advantages of Day Trading
✔ Quick profit potential ✔ Learn market structure fast ✔ No overnight risk ✔ Good for active learners
Disadvantages
❌ High risk ❌ PDT rule limits beginners ❌ Emotional pressure ❌ Tax complexity ❌ Requires strict discipline
Paid & Free Learning Resources
For complete beginner-to-expert guidance:
✔ Free Stock Market Course (Beginner Friendly)https://www.stockeducation.com/courses/stock-education-free-course/
✔ AI-Powered Investing Course (Advanced, Full Training)https://www.stockeducation.com/courses/stock-education-ai-powered-investing-courses/
Both CTAs will now be included automatically in all future blogs.
The Golden Rule
A day trade is simple — buy and sell the same stock in one day — but the rules around it are not. Understanding the PDT rule, settlement rules, margin requirements, and taxes is essential before making your first trade.
The best day traders are not fast — they are educated, disciplined, and risk-aware.
If you understand the rules, you protect your account. If you master the basics, you protect your future.
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