We have enabled several types of protections to enhance your trading experience.

1. Pattern Day Trader (PDT) Protection
2. Day Trade Margin Call (DTMC) Protection
3. Preventing Wash Trades
4. Limit order price away sanity check

Please note that these do not apply to crypto trading as cryptocurrencies are not marginable. Pattern Day Trading rule does not apply to crypto trading either. Preventing Wash Trades does apply to crypto trading.

Pattern Day Trader (PDT) Protection at Alpaca

In order to prevent Alpaca Brokerage Account customers from unintentionally being designated as a Pattern Day Trader (PDT), the Alpaca Trading platform checks the PDT rule condition every time an order is submitted from a customer. If the order could potentially result in the account being flagged as a PDT, the order is rejected, and API returns error with HTTP status code 403 (Forbidden).

The Rule

A day trade is defined as a round-trip pair of trades within the same day (including extended hours). This is best described as an initial or opening transaction that is subsequently closed later in the same calendar day. For long positions, this would consist of a buy and then sell. For short positions, selling a security short and buying it back to cover the short position on the same day would also be considered a day trade.

An account is designated as a Pattern Day Trader if it makes four (4) or more day trades within five (5) business days, and the number of day trades represents more than six percent (6%) of the total trades within the same five (5) business days window. Day trades less than this criteria will not flag the account for PDT.

Cryptocurrency trading is not subject to the PDT rule. As a result, crypto orders are not evaluated by PDT protection logic and round-trip crypto trades on the same day do not contribute to the day trade count.

Day trades are counted regardless of share quantity or frequency throughout the day. Here are some FINRA-provided examples:

Example A:

09:30 Buy 250 ABC
09:31 Buy 250 ABC
13:00 Sell 500 ABC
The customer has executed one day trade.

Example B:
09:30 Buy 100 ABC
09:31 Sell 100 ABC
09:32 Buy 100 ABC
13:00 Sell 100 ABC
The customer has executed two day trades.

Example C:
09:30 Buy 500 ABC
13:00 Sell 100 ABC
13:01 Sell 100 ABC
13:03 Sell 300 ABC
The customer has executed one day trade.

Example D:
09:30 Buy 250 ABC
09:31 Buy 300 ABC
13:01 Buy 100 ABC
13:02 Sell 150 ABC
13:03 Sell 175 ABC
The customer has executed one day trade.

Example E:
09:30 Buy 199 ABC
09:31 Buy 142 ABC
13:00 Sell 1 ABC
13:01 Buy 45 ABC
13:02 Sell 100 ABC
13:03 Sell 200 ABC
The customer has executed two day trades.

Example F:
09:30 Buy 200 ABC
09:30 Buy 100 XYZ
13:00 Sell 100 ABC
13:00 Sell 100 XYZ

The customer has executed two day trades.

For further information, please visit Regulatory Notice 21-13 | FINRA.org

Alpaca’s Order Rejection

Alpaca Trading platform monitors the number of day trades for the account for the past 5 business days and rejects a newly submitted orders on exit of a position if it could potentially result in the account being flagged for PDT. This protection triggers only when the previous day’s closing account equity is less than $25,000 at the time of order submission.

In addition to the filled orders, the system also takes into consideration pending orders in the account. In this case, regardless of the order of pending orders, a pair of buy and sell orders is counted as a potential day trade. This is because orders that are active (pending) in the marketplace may fill in random orders. Therefore, even if your sell limit order is submitted first (without being filled yet) and another buy order on the same security is submitted later, this buy order will be blocked if your account already has 3 day trades in the last 5 business days.

Paper Trading

The same protection triggers in your paper trading account. It is advised to test your algorithm with the realistic balance amount you would manage when going live, to make sure your assumption works under this PDT protection as well.

For more details of Pattern Day Trader rule, please visit the FINRA website.

Day Trade Margin Call (DTMC) Protection at Alpaca

In order to prevent Alpaca Brokerage Account customers from unintentionally receiving day trading margin calls, Alpaca implements two forms of DTMC protection.

The Rule

Day traders are required to have a minimum of $25,000 OR 25% of the total market value of securities (whichever is higher) maintained in their account.

The buying power of a pattern day trader is 4x the excess of the maintenance margin from the closing of the previous day. If you exceed this amount, you will receive a day trading margin call.

How Alpaca’s DTMC Protection Settings Work

Users only receive day trading buying power when marked as a pattern day trader. If the user is designated a pattern day trader, the account.multiplier is equal to 4.

Daytrading buying power cannot increase beyond its start of day value. In other words, closing an overnight position will not add to your daytrading buying power.

The following scenarios and protections are applicable only for accounts that are designated as pattern day traders. Please check your Account API result for the multiplier field.

Every trading day, you start with the new daytrading_buying_power. This beginning value is calculated as 4 * (last_equity - last_maintenance_margin). The last_equity and last_maintenance_margin values can be accessed through Account API. These values are stored from the end of the previous trading day.

Throughout the day, each time you enter a new position, your daytrading_buying_power is reduced by that amount. When you exit that position within the same day, that same amount is credited back, regardless of position’s P/L.

At the end of the trading day, on close, the maximum exposure of your day trading position is checked. A Day Trade Margin Call (DTMC) is issued the next day if the maximum exposure of day trades exceeded your day trading buying power from the beginning of that day.

The buying_power value is the larger of regt_buying_power and daytrading_buying_power. Since the basic buying power check runs on this buying_power value, you could be exceeding your daytrading_buying_power when you enter the position if regt_buying_power is larger than your daytrading_buying_power at one point in the day.

The following is an example scenario:

1. Your equity is $50k
2. You hold overnight positions up to $100k
3. Your maintenance margin is $30k (~30%), therefore your day trading buying power at the beginning of day is $80k using the calculation of 4 * ($50k - $30k)
4. You sell all of the overnight positions ($100k value) in the morning, which brings your regt_buying_power up to $100k
5. You now buy and sell the same security up to $100k
6. At the end of the day, you have a $20k Day Trade Margin Call ($100k - $80k)

By default, Alpaca users have DTMC protections on entry of a position. This means that if your entering order would exceed daytrading_buying_power at the moment, it will be blocked, even if regt_buying_power still has room for it. This is based on the assumption that any entering position could be day trades later in the day. This option is the more conservative of the two DTMC protections that our users have.

The second DTMC protection option is protection on exit of a position. This means that Alpaca will block the exit of positions that would cause a Day Trading Margin Call. This may cause users to be unable to liquidate a position until the next day.

Neither of the DTMC protection options evaluate crypto orders since crypto cannot be purchased using margin.

One of the two protections will be enabled for all users (you cannot have both protections disabled). If you would like to switch your protection option, please contact our support.

We are working towards features to allow users to change their DTMC protection setting on their own without support help.

Equity/Order Ratio Validation Check

In order to help Alpaca Brokerage Account customers from placing orders larger than the calculated buying power, Alpaca has instituted a control on the account independent of the buying power for the account. Alpaca will restrict the account to closing transactions when an account has a position that is 600% larger than the equity in the account. The account will remain restricted for closing transactions until a member of Alpaca’s trading team reviews the account. The trading team will either clear the alert by allowing opening transactions or will notify the client of the restriction and take corrective actions as necessary.

Paper Trading

he same protection triggers in your paper trading account. It is advised to test your algorithm with the realistic balance amount you would manage when going live, to make sure your assumption works under this DTMC protection as well.

For more details of Pattern Day Trader rule, please read FINRA’s margin requirements. For more details on day trade margins, please read FINRA’s Mind Your Margin article.

Preventing Wash Trades at Alpaca

At Alpaca, we want to help our customers avoid making unintentional wash trades. A wash trade happens when a customer buys and sells the same security at the same time, which can be seen as a form of market manipulation. To prevent this, the Alpaca Trading platform checks for potential wash trades every time a customer places an order. If we detect a possible wash trade, we reject the order and send back an error message with the HTTP status code 403 (Forbidden).

The Rule

A wash trade occurs when a customer's two orders could potentially interact with each other. Here are a couple of examples:

• A customer places an order to buy 1 share at $10 (a limit order). Then, the same customer places an order to sell 100 shares at $10 (another limit order). These orders could potentially interact, which would be a wash trade.

• A customer places an order to sell 100 shares at the market open (a market order). Then, the same customer places an order to buy 100 shares at $10 (a limit order). Again, these orders could potentially interact, which would be a wash trade.

How Alpaca Handles Potential Wash Trades

The Alpaca Trading platform is always on the lookout for potential wash trades. If we determine that an order could result in a wash trade, we trigger our protection measures, reject the order, and send back an error message with the HTTP status code 403 (Forbidden).

If a customer wants to set up a 'take profit' and a 'stop loss' situation, we recommend using a bracket or OCO (One Cancels the Other) order. These complex orders and trailing stop orders are exceptions to our wash trade protection.

Here's a table that shows when we would reject an order to prevent a potential wash trade:

Paper Trading

Our wash trade protection also applies to your paper trading account. We recommend testing your trading algorithm with a realistic balance amount. This way, you can make sure your strategy works under our wash trade protection rules before you start live trading.

For more details of wash trade rule, please read
FINRA's self-trades requirements.

Limit order price away sanity check

Alpaca rejects limit equity orders that are too far from the current market price
and outside of a certain price range.
The following thresholds are set for buy-side and a sell-side:

Buy Orders

• Rejected if less than 30% of the current bid

Sell Orders

• Rejected if more than 500% from current ask

The reference price is latest quote, if that is not available then it is the official closing price of the asset.

Examples:

• Let's say the stock is 20 x 22.
  A buy limit order for 5.99 would be rejected, whereas an order to buy at 6.01 would be accepted.
• Let' say the stock is 35 x 37.
  If the order is to sell at 184.99, then it would be accepted. However, if it is to sell at 185.01, it would be rejected.