Firstrade is a U.S.-based online brokerage that provides commission-free trading for stocks, ETFs, options, and mutual funds. For active traders, understanding Firstrade’s day trading rules is crucial to avoid account restrictions, margin violations, or unexpected trading halts. This article explains the key rules, margin requirements, and best practices for day trading on Firstrade.
What Is Day Trading?
Day trading involves buying and selling the same security within a single trading day, aiming to profit from short-term price movements. In the United States, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) define a pattern day trader (PDT) as someone who executes four or more day trades within five business days in a margin account, provided those trades represent more than 6% of total trades.
Firstrade Day Trading Rules
1. Pattern Day Trader (PDT) Rule
- Firstrade, like all FINRA-regulated brokers, enforces the PDT rule.
- If your account is flagged as a pattern day trader, you must maintain a minimum equity of $25,000 in a margin account.
- Falling below this threshold restricts you from executing further day trades until the balance is restored.
2. Cash Accounts vs. Margin Accounts
- Cash Account: Trades must be made with settled funds. Day trading is allowed but constrained by settlement periods (T+2 for stocks, T+1 for options). No margin leverage is available.
- Margin Account: Allows borrowing against your account balance, increasing buying power. Subject to PDT rules and margin maintenance requirements.
3. Good Faith Violations
- Buying a stock with unsettled funds and selling it before settlement can trigger a good faith violation.
- Firstrade tracks this carefully; multiple violations can lead to account restrictions or conversion to a cash-only account.
4. Intraday Buying Power
- Pattern day traders in margin accounts can typically trade up to 4x the maintenance margin excess.
- For non-PDT accounts or cash accounts, buying power is limited to available cash.
5. Settlement Times
- Stocks and ETFs: T+2 (trade date plus 2 business days)
- Options: T+1 (trade date plus 1 business day)
- Traders must account for settlement to avoid trade restrictions or violations.
Tips for Day Trading on Firstrade
- Monitor Account Equity
- Keep track of account balance to avoid PDT restrictions. If approaching $25,000 in margin accounts, consider adjusting trade size.
- Use Cash Accounts for Smaller Balances
- If your account is under $25,000, consider a cash account. Day trading is possible, but trades must use settled funds.
- Leverage Trading Tools
- Firstrade offers real-time quotes, advanced charting, and technical indicators. Use these tools to confirm setups and manage risk.
- Risk Management
- Limit risk per trade to a small percentage of account balance. Set stop-loss orders to minimize potential losses.
- Avoid Overtrading
- Even if cash is available, trading too frequently increases the risk of mistakes and violations. Focus on high-probability setups.
- Track Settled Funds
- Keep an eye on the available settled cash to prevent good faith violations. Firstrade provides account summaries showing settled vs. unsettled funds.
Practical Example
- Account: $20,000 in a cash account
- Stock ABC trades at $50, intraday spike to $52
- Entry: Buy 100 shares at $50 (uses $5,000 of settled funds)
- Exit: Sell at $52
Funds from this trade settle in 2 business days, limiting the ability to reuse for another day trade until then.
Brokers’ Compliance Measures
Firstrade monitors accounts for:
- Pattern day trading frequency
- Good faith violations
- Margin maintenance in margin accounts
- Real-time trade alerts for PDT and cash violations
Violations can result in:
- Conversion to a cash-only account
- Temporary restrictions on day trading
- Warnings or account suspension for repeated infractions
Conclusion
Day trading on Firstrade is fully allowed but governed by PDT rules, margin requirements, and settlement regulations. Traders with margin accounts must maintain at least $25,000 to avoid PDT restrictions, while cash accounts can trade only with settled funds. By understanding these rules, monitoring equity, managing risk, and using Firstrade’s trading tools, active traders can safely navigate intraday opportunities without violating regulatory requirements. Proper planning and discipline are essential to maintaining flexibility and profitability in day trading within Firstrade accounts.