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Regulators are moving to dismantle one of the most controversial barriers for active retail traders — the $25,000 minimum equity rule for pattern day trading.
The Financial Industry Regulatory Authority on Tuesday approved amendments that would replace the long-standing threshold, making active day trading more accessible to smaller accounts. The change is pending approval by the Securities and Exchange Commission.
The $25,000 minimum equity rule mandates that traders must 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. The rule was put in place in 2001 amid the dot-com bubble and crash as regulators grew worried that small traders were taking excessive risks with volatile internet stocks.
FINRA is replacing this mandate with an intraday margin rule that applies the existing maintenance margin rules to intraday exposure. In other words, one’s intraday buying power will be based on the margin requirements for the positions they take on during the day, not a fixed equity minimum.
The regulators said the overhaul reflects how technology and market access have transformed retail trading since the rules were first adopted.
The rule change could lead to more options trading and boost activity for brokers like Robinhood.
Robinhood shares rebounded from an earlier loss and were higher by 1% in Wednesday trading following the FINRA news.
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