By Alexander Osipovich
Starting Thursday, you may find it easier to place rapid-fire trades in stocks and options as a rule dating back to the dot-com era officially goes off the books.
The "pattern day trader" rule has long prompted complaints from investors, often after they unexpectedly stumbled upon it by buying and selling stocks too much. Robinhood Markets and Webull are among the brokers that plan to remove the PDT rule's restrictions immediately. Others, such as Charles Schwab, are due to follow suit in coming days.
Here's what to know about the change.
What was the pattern day trader rule?
Regulators implemented the rule in 2001, following concern over the steep losses of some day traders during the dot-com bubble and its ensuing bust. By requiring traders to hold more capital to back their positions, the idea was to curb reckless trading and reduce the risk of costly blowups.
Under the rule, brokerages had to flag customers who were especially active traders and force them to hold more capital -- at least if they wanted to place trades using borrowed money.
Customers deemed "pattern day traders" were required to maintain a minimum of $25,000 of equity -- a combination of cash and securities -- in their margin accounts. A margin account is a type of brokerage account where you can borrow money from your broker to buy securities, amplifying potential gains -- but risking sharper losses too.
The rule, originally implemented by the forerunner of the Financial Industry Regulatory Authority, Wall Street's self-regulator, defined pattern day traders as investors who executed four or more "day trades" within five business days . A day trade was defined as buying and selling a security during the same day.
In practice, the rule caused small traders who jumped in and out of stocks often, without having big enough account balances, to get flagged as pattern day traders and face restrictions, such as being able to sell stocks but not buy new ones, or in some cases, getting suspended from doing leveraged trades for 90 days.
Why is the rule going away?
Brokers had grumbled for years that the rule was too heavy-handed. Their complaints gained momentum after the pandemic-era boom in retail trading, and prompted a review by Finra.
In December, Finra proposed new provisions to replace the rule, calling it outdated and overly burdensome. The Securities and Exchange Commission signed off on Finra's plan in April. Shares of both Robinhood and Webull surged more than 10% the day of the SEC's decision.
"Retail investors have proven they are smart, resourceful, and capable of managing their own exposure," said Anthony Denier, U.S. chief executive of Webull.
What is the rule being replaced with?
Instead of a fixed $25,000 minimum equity requirement for pattern day traders, brokerages will need to monitor their customers' trading throughout the day and alert them to any deficits.
In the event of a shortfall, where there isn't enough collateral to back a customer's leveraged bets, the customers will need to top up the funds as soon as possible.
What effect will the rule's end have on markets?
It will become easier for smaller, less-capitalized traders to make leveraged trades and to do them more often.
In a survey of more than 1,000 active retail traders commissioned by Tastytrade, an options brokerage, 43% of respondents said they had changed their behavior to avoid triggering the PDT rule. Respondents said they traded less frequently or held positions overnight instead of closing them out the same day.
Brokerages -- especially those catering to small investors -- are expected to benefit as the rule change encourages more trading activity.
Some critics worry that the change will encourage newbie investors to engage in riskier trades at a time when zero-commission, smartphone-based apps have already eliminated many traditional barriers to stock and options trading.
In an apparent coincidence, the pattern day trader rule is ending just as the artificial-intelligence rally has raised fears of a new bubble in technology stocks, an echo of the dot-com frenzy that gave rise to the rule in the first place.
Write to Alexander Osipovich at alexo@wsj.com
(END) Dow Jones Newswires
June 04, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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