Mutual Funds Margin Requirements

Mutual Funds Margin Overview

US Mutual Fund Margin Requirements

For residents of the United States trading mutual funds:

Rules-based margin

The complete margin requirement details are listed in the sections below.

The following calculations apply only to Margin and Cash Accounts.

FINRA and the NYSE have imposed rules to limit small investor day trading. Customers that these organizations classify as Pattern Day Traders are subject to special Day Trading Restrictions for US securities.

The following table shows mutual fund margin requirements for initial (at the time of trade) and maintenance (when holding positions).

	Margin Account: Initial Margin	Margin Account: Maintenance Margin	Reg T End of Day	Cash Accounts
Mutual Fund Long Position
First 30 days:	100% * Net Asset Value	100% * Net Asset Value	100% * Net Asset Value	100% * Net Asset Value
After 30 days:	25% * Net Asset Value¹	25% * Net Asset Value¹	50% * Net Asset Value¹	100% * Net Asset Value
Money Market Fund Long Position
	1% * Net Asset Value ^1,2 Cannot borrow against for 30 days (no debit balance)	1% * Net Asset Value^1,2 Cannot borrow against for 30 days (no debit balance)	1% * Net Asset Value^1,2 Cannot borrow against for 30 days (no debit balance)	100% * Net Asset Value
Short Positions
N/A		N/A		N/A

Overview of Pattern Day Trading ("PDT") Rules

FINRA and the NYSE have instituted regulations intended to limit the amount of trading that can be done in accounts with small amounts of capital, specifically accounts with less than USD 25,000 Net Liquidation Value.

Pattern
Day Trader

Mon

Tues

Wed

Thurs

Fri

Buy XXZ
Sell XXZ

Buy ZZX
Sell ZZX

Buy YYZ
Sell YYZ

Day Trade: any trade pair wherein a position in a security (Stocks, Stock and Index Options, Warrants, T-Bills, Bonds, or Single Stock Futures) is increased ("opened") and thereafter decreased ("closed") within the same trading session.
Pattern Day Trader: someone who effects 4 or more Day Trades within a 5 business day period. A trader who executes 4 or more day trades in this time is deemed to be exhibiting a ‘pattern’ of day trading and is thereafter subject to the PDT restrictions.

In order to day trade, the account must have at least USD 25,000 in Net Liquidation Value, where Net Liquidation Value includes cash, stocks, options, and futures P+L.
We have created algorithms to prevent small accounts from being flagged as day trading accounts. We implement this by prohibiting the 4^th opening transaction within 5 days if the account has less than USD 25,000 in equity.

Adjustments to Previous Day's Equity and First Day Trading

The previous day's equity is recorded at the close of the previous day (4:15 PM ET). Previous day's equity must be at least USD 25,000. However, net deposits and withdrawals that brought the previous day's equity up to or greater than the required USD 25,000 after 4:15 PM ET on the previous trading day are handled as adjustments to the previous day's equity, so that on the next trading day, the customer is able to trade.

For example, suppose a new customer's deposit of USD 50,000 is received after the close of the trading day. Even though his previous day's equity was 0 at the close of the previous day, we handle the previous day's late deposit as an adjustment, and this customer's previous day equity is adjusted to USD 50,000 and he is able to trade on the first trading day. Without this adjustment, the customer's trades would be rejected on the first trading day based on the previous day's equity recorded at the close.

Special Cases

Accounts that at one time had more than USD 25,000, were identified as accounts with day trading activity, and thereafter the Net Liquidation Value in the account dropped below USD 25,000, may find themselves subject to the 90 day trading restriction. The restrictions can be lifted by increasing the equity in the account or following the release procedure located in the Day Trading FAQ section.
The proceeds of an option exercise or assignment will count towards day trading activity as if the underlying had been traded directly. Deliveries from single stock futures or lapse of options are not considered part of a day trading activity.

Additional details relating to PDT regulations and our implementation of these rules can be found in the FAQ section.

Day Trading FAQs

FINRA defines a Pattern Day Trader (PDT) as one who effects four or more day trades (same day opening and closing of a given equity security ("stock") or equity option) within a five business day period.

Note that Futures contracts and Futures Options are not included in the SEC Day Trade rule.

A potential pattern day trader error message means that an account has less than the SEC required USD 25,000 minimum Net Liquidation Value AND the number of available day trades (3) has already been used within the last five days.

The system is programmed to prohibit any further trades to be initiated in the account, regardless of the intent to day trade that position or not. The system is programmed to protect the accounts with less than USD 25,000 so the account would not "potentially" be flagged as a day trading account.

If an account receives the error message "potential pattern day trader", there is no PDT flag to remove. The account holder will need to wait for the five-day period to end before any new positions can be initiated in the account.

The customer has the following options:

Deposit funds to bring the account's equity up to the SEC required minimum of USD 25,000
Request a PDT account reset (if available)

If the intraday situation occurs, the customer will immediately be prohibited from initiating any new positions. Customers should be able to close any existing positions in his account, but will not be allowed to initiate any new positions.

The customer will have the same options listed above, however, if at any time the Net Liquidation Value figure goes back above the threshold amount (USD 25,000), then the account will once again have day trades available.

FINRA has provided brokerage firms the ability to remove the PDT flag from a customer's account once, upon a good faith determination that the customer will no longer engage in pattern day trading. If an account was erroneously flagged, and the customer's intent is not to day trade in his/her account, we have the ability to remove this flag.

FINRA defines a Pattern Day Trader (PDT) as one who effects 4 or more day trades (same day purchase and sale of a given equity security ("stock") or equity option) within a five-day period, and FINRA rules place certain restrictions on those who are deemed to be pattern day traders. If a customer account effects three (3) day trades involving stocks or equity options within any five (5) day period, we will require that such account satisfy the minimum Net Liquidation Value requirement of USD 25,000 before we will accept the next order to purchase or sell a stock or equity option. Once the account has effected a fourth day trade (in such 5 day period), we will deem the account to be a PDT account.

Pattern Day Trading regulations allow a broker to remove the PDT designation, one time only, if the client acknowledges that she/he does not intend to engage in day trading strategies, and requests that the PDT designation be removed. If you wish to have the PDT designation for your account removed, provide us with the following acknowledgement using the online PDT request tool.

I agree to the following:
- I do not intend to engage in a day trading strategy in my account.
- I hereby request that you the broker no longer designate my account as a "Pattern Day Trading" account under FINRA rules.
- I understand that if, following this acknowledgement I engage in Pattern Day Trading, my account will be designated as a Pattern Day Trading" account, and you the broker will apply all applicable PDT rules to my account.

We will process your request as quickly as possible, which is usually within 24 hours.

For example, if the window reads (0,0,1,2,3), here is how to interpret this information:

If today was Wednesday, the first number within the parenthesis, 0, means that 0-day trades are available on Wednesday. The 2^nd number in the parenthesis, 0, means that no day trades are available on Thursday. The 3^rd number within the parenthesis, 1, means that on Friday 1-day trade is available. The 4^th number within the parenthesis, 2, means that on Monday, if 1-day trade was not used on Friday, and then on Monday, the account would have 2-day trades available. The 5^th number within the parenthesis, 3, means that if no day trades were used on either Friday or Monday, then on Tuesday, the account would have 3-day trades available.