🚦 The rules every trader runs into

🎯 In 30 seconds: In a cash account you must pay for a stock with settled money before you sell it, and trades settle one business day after the trade (T+1). Break that rule and your broker may have to freeze the account for 90 days. Pattern day trader rules apply to margin accounts and changed in 2026. Exchanges can pause a single stock that moves too fast (Limit Up-Limit Down) and halt the whole market if the S&P 500 falls 7%, 13% or 20% in a day. Knowing these rules ahead of time prevents nasty surprises.

Settlement: when a trade is really finished

When you click buy, the trade is executed right away, but it is not finished. Settlement is when the money and the shares actually change hands. US stock trades settle one business day after the trade date, called T+1. A trade on Monday settles Tuesday. A trade on Friday settles the following Monday (or Tuesday if Monday is a market holiday).

In a margin account, settlement rarely matters day to day, because the broker can lend you money in the meantime. In a cash account it matters a lot. A cash account cannot borrow, so under the Federal Reserve's Regulation T you must pay in full for what you buy. Money from a sale only counts as fully yours once that sale settles.

Freeriding, good faith violations and the 90-day freeze

The SEC's investor bulletin on cash accounts states the core rule: in a cash account you must pay for a purchase before you sell it. If you buy and then sell a security before paying for it, that is freeriding. Freeriding is not permitted under Regulation T and may require your broker to freeze the account for 90 days. During a freeze you can still buy, but only with cash fully in the account on the trade date.

Brokers use a second term you will see on screen: a good faith violation. It generally means you bought with money from a sale that had not settled yet, then sold the new position before that money settled. Brokers set their own policy on how many of these they allow before restricting the account. Check your broker's rules.

Three examples, adapted from the SEC bulletin (all hypothetical), with $10,000 of fully paid, settled stock ABC and nothing else in a cash account:

The easy way to stay clear: in a cash account, only buy with settled cash, or do not sell a new position until the money that paid for it has settled. Many brokers show "settled cash" or "cash available to trade without violation" on the balances screen.

Pattern day trader rule (changed in 2026)

Under the old FINRA rule, a customer who made four or more day trades within five business days in a margin account, when those were more than 6% of their trades in that period, was a pattern day trader and needed at least $25,000 of equity.

As of October 2026: FINRA's new intraday margin requirements took effect on June 4, 2026 and replace the pattern day trader rules, including the $25,000 minimum. Brokers that need more time can keep operating under the old rules during a transition period until October 20, 2027. So depending on your broker, either rule might apply to your account today. Ask.

The pattern day trader designation applied to margin accounts. In a cash account, day trading is limited instead by settlement: you can day trade with settled cash, but each dollar can only be used for one buy-and-sell round until the next settlement. Full details on the new standard are in Day trading and Margin.

Single-stock halts

Exchanges, not the SEC, decide when to halt trading in a stock. The most common regulatory halt is news pending: the company is about to release important news, and the halt gives everyone time to read it. A stock can also be halted when there is doubt about whether it still meets the exchange's listing standards. When the primary exchange halts a stock, all other US markets honor the halt.

During a halt you cannot trade the stock. It reopens through an auction, often at a very different price. See Trading news and events.

Limit Up-Limit Down (LULD)

Limit Up-Limit Down stops trades from happening outside a price band around a stock's recent average price. The band is set above and below the stock's average price over the previous five minutes, and it applies during regular hours, 9:30 a.m. to 4:00 p.m. Eastern.

The bands double during the last 25 minutes of the regular session (3:35 p.m. to 4:00 p.m.) for Tier 1 stocks and Tier 2 stocks priced at $3.00 or less. If a stock reaches the band and does not come back inside within 15 seconds, trading pauses for five minutes.

Example (hypothetical): a Tier 1 stock has averaged $40.00 over the last five minutes. Its band is 5%, so $38.00 to $42.00. Trades cannot print outside that range. If buyers keep bidding at $42.00 for 15 seconds without the price coming back inside, a five-minute pause follows. Your stop or market order cannot fill during the pause.

Market-wide circuit breakers

If the whole market drops sharply, all US stock trading can stop. The triggers are based on the S&P 500's decline from the prior day's close:

Level 1 and Level 2 can each trigger only once per day. After a Level 1 halt, a further fall does not trigger another halt until the decline reaches 13%.

Worked example: if the S&P 500 closed yesterday at 6,000 (a round number for easy math), today's trigger levels are:

These halts are rare but real. They exist to give everyone time to absorb information in a panic, not to stop prices from falling. When trading resumes, prices can keep falling.

Other rules you will meet

• Short sale restriction. After a stock falls 10% in a day, short sales are only allowed above the national best bid for the rest of that day and the next. See Short selling.
• Wash sales. A tax rule, not a trading rule, but it affects anyone who sells at a loss and buys back within 30 days. See Taxes for traders.
• Extended hours. Pre-market and after-hours sessions have their own order rules and thinner trading. See Market hours and settlement.

Try it

Open your paper portfolio and pretend it is a cash account with $5,000 of settled cash. Plan a week of trades on paper: write each trade's date, its settlement date and which money paid for it. Mark any trade that would be a good faith violation. Then look at the index dashboard, take yesterday's S&P 500 close and compute today's Level 1, 2 and 3 circuit breaker levels.

Sources

• Investor.gov (SEC): Trading in cash accounts, investor bulletin (updated August 7, 2026)
• Investor.gov (SEC): Pattern day trader, with the 2026 transition note
• Investor.gov (SEC): Stock market circuit breakers
• NYSE: Market-wide circuit breakers FAQ (February 2026)
• LULD Plan: Limit Up-Limit Down price band parameters
• Investor.gov (SEC): Trading halts and delays