Definition of a Day Trade

FINRA rules define a day trade as the opening and closing of the same security on the same day in a margin account, except for:

A long security position held overnight and sold the next day prior to any new purchase of the same security; or

A short security position held overnight and purchased the next day prior to any new sale of the same security.

This definition encompasses any security, including options.

Day Trade Examples

Example #1:

Trade 1- Buy to open (BTO) 10 QQQ Jan 70 calls

Trade 2- Sell to close (STC) 10 QQQ Jan 70 calls

Making these trades on the same day would constitute a day trade.

Example #2:

Trade 1 – 01/07/13 – BTO 50 IBM

On 01/08/13 Customer comes into the day with a long position of 50 shares of IBM

Trade 2- 01/08/13 – STC 50 IBM

Trade 3- 01/08/13 – BTO 50 IBM

This would not be a day trade. The STC is treated as a liquidation of the overnight position, and the subsequent repurchase (BTO) is treated as the establishment of a new position.

Example #3:

Trade 1 – 01/07/13 – BTO 50 IBM

On 01/08/13 Customer comes into the day with a long position of 50 shares of IBM

Trade 2- 01/08/13 – BTO 25 more IBM, making the customer long 75 shares.

Trade 3- 01/08/13 – STC 25 IBM.

The day trade here is the BTO of 25 and the STC of 25 shares. First-In-First-Out (FIFO) is not used in day trading calculations. In this case, the STC of the 25 shares is not applied to the overnight position.