If you buy and sell the same security on the same day in a margin account, you’ve made a day trade. Do this often enough, and you might get a special designation: a pattern day trader (PDT).

The Financial Industry Regulatory Authority (FINRA) created this rule to protect traders from the risks of frequent trading. The rule is quite specific. An account is flagged as a PDT if a trader makes four or more day trades within a rolling five-business-day period.

There's a second condition, though. Those day trades must also make up more than 6% of your total trading activity for that same five-day window. If you make a dozen trades in five days and four of them are day trades, you're likely a PDT. But if you make a hundred trades and only four are day trades, you probably won't be flagged.

This rule isn’t just for stocks. It applies to options trading, too. Buying a call option in the morning and selling the exact same call option in the afternoon counts as one day trade. The same logic applies to puts.

Because options can be volatile, it's easy to rack up day trades quickly without realizing it. Each distinct opening and closing transaction pair on the same day adds to your count.

Once your account is flagged as a pattern day trader, a significant rule kicks in: you must maintain a minimum account balance of $25,000. This isn't just a one-time requirement. Your account equity must be at or above $25,000 at the start of any day you wish to make a day trade.

If your account value drops below $25,000, your ability to place day trades will be restricted until you deposit more funds to bring the balance back up. You can still place trades that don't qualify as day trades, but your day trading activities will be on hold.

This rule is designed to ensure that only traders with sufficient capital, who can presumably better withstand potential losses, are engaging in high-frequency trading strategies.