Thinkorswim Day Trading

Thinkorswim Pattern Day Trading (PDT) Limit. Can I Day Trade on Thinkorswim (TOS)?


Pattern day trading rules at Thinkorswim. Active trader PDT requirements and limits for margin and cash accounts above/below $25,000 balance. How many day trades does Thinkorswim allow.


Pattern Day Trading at Thinkorswim


FINRA, the Financial Industry Regulatory Authority, mandates that brokers enforce the pattern day trading (PDT) rule. This rule was not created by Thinkorswim, but they must enforce it. There are, however, several completely legal methods to get around this policy.


How Many Day Trades Does Thinkorswim Allow


The Pattern Day Trade rule is rather simple: if you are identified as a pattern day trader, you are required to maintain a minimum of $25,000 in equity in your account. This can be in the form of cash or securities.

An account will be flagged as a pattern day trader account if it meets the following criteria:

- The account trades equities in a margin account
- The account executes at least 4 day trades within a rolling 5-business-day period
- The account has day trades totaling more than 6% of it’s total trading activity within the 5-day rolling period

Because of how specific the criteria are it is fairly simple to avoid being flagged. If, however, you end up getting flagged as a PDT, your account may be frozen for up to 3 months.


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Methods to Circumvent the PDT Rule


There are a few options to get around the PDT rule. The simplest is to just ensure that you make fewer than 4 day trades within any 5 business day period. If you remain below this limit, your account will not meet all the criteria and thus will not be flagged as a PDT account. Therefore you will have no requirement to maintain $25,000 in your account.

If you are looking to practice making trades and seeing what it is like to day-trade, you can, just ensure you place less than 4 trades in a week. You could place lots of trades throughout the year as long as you adhere to this rule.


Thinkorswim Day Trading


The next way to avoid the PDT flagging of your account is to target the “6%” of total trading criteria. If you are able to day trade and ensure that your trades add up to less than 6% of all of your total trading activity in your account, then by definition you will not be flagged as a PDT account. To bypass this criteria you would need to do a significant amount of trading other than your day trading so it is likely a difficult path to take.

You can also avoid the PDT flagging of your account by swing trading as opposed to day trading. Swing trading is when you buy an asset and then sell that asset in less than 2 weeks, but you hold it for at least 1 day. This is different than day trading where you are buying and selling in the same day.

Finally, instead of utilizing a margin account, you could choose to trade in a cash account. If you do this, you cannot trade on margin and it will take some time for all of your trades to settle, but by not using a margin account you are no longer at risk of being flagged as a PDT.

If you choose to take this option you will need to be sure you do not “free-ride” on your cash account, which means trading with funds that have not yet settled. Typically stocks settle two days after you make the trade, so as an example, if you sold a position on Monday, you would not be able to trade with those funds until Wednesday.


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About the Author
Chad Morris is a financial writer with more than 20 years experience as both an English teacher and an avid trader. When he isn’t writing expert content for Brokerage-Review.com, Chad can usually be found managing his portfolio or building a new home computer.