FINRA is working to lower the $25,000 minimum equity requirement for Pattern Day Traders (PDT). Currently, investors with less than $25,000 in their account are limited to three day trades — buying and selling the same stock in one day — within five rolling business days. If they exceed that limit, brokers flag the account and restrict trading until the balance is brought above $25,000.
Many news outlets covering FINRA’s proposed changes focus solely on margin borrowing — but for active retail traders, the real win is flexibility.
While margin accounts do allow traders to borrow funds, they also help avoid Good Faith Violations (GFVs).
What Is a Good Faith Violation (GFV)?
A GFV occurs in a cash account when a trader sells a stock and uses the unsettled funds to buy another — then sells that second stock before the original trade settles. Under T+1 settlement rules (recently changed from T+2), buying power isn’t restored until the next business day.
With too many violations, brokers can restrict the account for up to 90 days, requiring all trades to be fully settled in advance, blocking short-term trading.
Why Margin Accounts Matter
Using a margin account instead of a cash account allows traders to place trades with unsettled funds without violating settlement rules. Even if no actual borrowing takes place, the broker technically fronts the funds using margin until trades settle.
However, traders are still regulated. If that margin account is under $25,000 and a fourth day trade is placed within five business days, the account is flagged as a PDT and restricted. That’s why many small-account traders avoid margin accounts entirely — leaving them vulnerable to GFVs.
What the New Rule Could Change
FINRA is finalizing a proposal to lower the PDT threshold from $25,000 to just $2,000, with individual brokerages setting their own risk controls and margin policies. If approved, the change could unlock margin accounts’ core advantage — flexibility — for smaller retail traders.
A trader with $5,000 or $10,000 could:
- Avoid GFVs while trading more actively
- Bypass T+1 settlement delays
- Use a margin account for flexibility, not just leverage
Break Out Insight
I generally don’t encourage new or inexperienced traders to use leverage. Cash accounts have guardrails — you can’t lose more than you invest, and you’re limited from trading futures or shorting stocks.
Margin accounts, however, can amplify losses beyond your original investment, leading to serious financial and emotional consequences. There have been several cases where unexpected losses drove traders to take their own lives.
That said, FINRA’s proposed change could genuinely benefit smaller traders, offering greater access, more flexibility, and fewer restrictions. I believe it is up to the individual investor — not FINRA — to make the right call on margin.