Day trading is about to get easier for smaller retail investors

Regulators are making moves to eliminate a significant barrier for active retail traders – the $25,000 minimum equity rule for pattern day trading. The Financial Industry Regulatory Authority (FINRA) recently approved amendments to replace this long-standing threshold, which would make active day trading more accessible to smaller accounts. However, the change is still pending approval by the Securities and Exchange Commission.

The $25,000 minimum equity rule, established in 2001 during the dot-com bubble and crash, required traders to maintain a minimum account balance of $25,000 in a margin account to execute four or more day trades within a five-business-day period. This rule was put in place as regulators were concerned that small traders were taking excessive risks with volatile internet stocks.

FINRA is now introducing an intraday margin rule that applies existing maintenance margin rules to intraday exposure. This means that a trader’s intraday buying power will be based on the margin requirements for the positions they take on during the day, rather than a fixed equity minimum. The regulators believe that this overhaul is necessary due to the advancements in technology and market access that have transformed retail trading since the rules were first implemented.

This rule change is expected to lead to an increase in options trading and could potentially boost activity for brokers like Robinhood. In fact, following the news of the FINRA approval, Robinhood shares rebounded from an earlier loss and were up by 1% in Wednesday trading.

Overall, this shift in regulations could open up new opportunities for retail traders with smaller accounts to actively participate in day trading. It will be interesting to see how this change impacts the trading landscape and if it leads to a surge in trading activity among retail investors.