What is Day Trading Buying Power?
Day Trade Buying Power, or DTBP, is the amount available to the investor to use for day trades. A day trade is considered as the buying and selling of the same stock, ETF, or option in the same business day.
You are considered a pattern day trader if you have exceeded 3 or more day trades in a consecutive 5 business day period. In order to continue to trade, after being flagged as a pattern day trader, you must maintain a minimum account balance of $25,000. The $25,000 does not include Bond Accounts, High Yield Cash Accounts, Treasury Accounts, or crypto.
If you maintain balances in equities and cash over $25,000, you are able to day-trade in the amount up to your day trading buying power.
Your DTBP is calculated using a multiple on your account’s margin available, or the regulatory maintenance excess of margin, or margin available, at the previous day’s close. The maintenance margin excess is the amount by which the equity held in the margin account exceeds the required minimum. Generally, the DTBP is four times, or 4X the regulatory maintenance margin excess.
For example, if your margin account holds shares of a marginable security worth $50,000, the margin available is $25,000, and the DTBP would be $100,000 ($25,000 × 4). If your account holds $30,000 in cash, not held in a cash sweep, the margin excess is $30,000 and the DTBP would be $120,000 ($30,000 x 4).
Margin Account Balance | $50,000 ABC |
Margin Requirements | $25,000 |
Margin Excess | $25,000 |
DTBP | $100,000 |
At the start of day, you can find your initial day trading buying power on the ‘Margin Management’ screens. If you make a large deposit or sale during the day, this will not increase your day trade buying power until the subsequent market day.
How is My DTBP Usage Calculated?
We use the Time and Tick method to calculate how much of your DTBP is used in a given day and if a day trade margin call should be issued against a margin account. With this method, only open positions are used to calculate a day trade margin call. This is different from (and allows for a greater volume of trading in a day) than simply counting the total value of all day trades made.
Let's try an example, assuming your account has day trade buying power of $50,000. If you traded in the following sequence, you would not incur a day trade margin call:
Buy $50,000 of AAPL (the open position).
Sell it for $50,000 (close the position).
Then, buy $50,000 of AAPL again.
Then, sell $50,000 of AAPL again.
In this scenario, you have closed $100,000 of day trade positions for the day, but you have no exceeded your DTBP because in each closed transaction, the initial purchase price is credited back to your DTBP.
However, if you bought $10,000 of GOOG while the $50,000 AAPL position was open, you would have $60,000 in open positions, which would exceed your buying power. If both of these positions are closed that same day, this would result in a day trade call being issued.
If you exceed your DTBP, a day trade margin call is issued. Learn more about Day Trade Calls here.