The PDT Rule was implemented to protect traders from excessive risk-taking, as day trading can be a high-risk activity that requires a significant amount of capital to sustain potential losses. The rule is designed to ensure that traders have sufficient capital in their accounts to cover the risks associated with day trading.

 

Under the PDT Rule, traders who exceed the maximum number of day trades in a five business day period may be subject to additional requirements, such as having a minimum account balance of $25,000 or being restricted from making further day trades until they meet the minimum balance requirement.

 

The PDT Rule applies to traders who hold a margin account, which allows them to borrow money from their broker to trade securities. It does not apply to traders who hold a cash account, which requires that all purchases be paid for in full at the time of the trade.