Pattern Day Trader Protection (PDT) 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).
A day trade is defined as a round-trip pair of trades within the same day. A buy must be occur first and then a sell of the same security must come later in the day. The inverse does not make a day trade. While selling short and covering the short on the same day is also considered a day trade, Alpaca does not currently support short selling so we will not cover short selling in this document.
An account is designated as a Pattern Day Trader if it makes four (4) day trades within five (5) business days. Day trades less than this criteria will not flag the account for PDT.
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 order if it could potentially result in the account being flagged for PDT. This protection triggers only when the 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.
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 read FINRA website.