The SEC is unwinding a rule born from the wreckage of the dotcom crash.

On Tuesday, regulators approved a change that will get rid of the so-called Pattern Day Trader rule, a two-decade-old requirement that forced active margin traders to keep at least $25,000 in their brokerage account if they wanted to make frequent trades.

The rule came out of the early 2000s, when regulators worried that small investors were taking excessive risks by buying and selling stocks with borrowed money. Under the old rule, anyone who made four or more day trades in five business days was labeled a “pattern day trader.” Once that happened, the trader had to keep at least $25,000 in the account at all times.

Critics said the rule never made much sense. They argued it acted more like a wealth test than a safety measure. A person with $24,000 could be blocked from making trades, while someone with $25,001 could keep going. Regulators also noted that the rule was written for a different era, before zero-commission trading apps, real-time data and easy access to market research.

The change could be good news for retail investors who want more flexibility. It could also be a win for brokerage firms, like Robinhood and Webull, that have courted novice investors with lower balances. They are likely to see more trading activity.

Critics say the old rule existed for a reason. They argue that younger unsophisticated investors are trading more aggressively, often influenced by social media, online personalities and options speculation. They worry that removing the $25,000 requirement could make it easier for inexperienced traders to take on too much risk.

Webull, the St. Petersburg, Florida based retail broker which had $564 million in revenue in 2025, says the rule had become outdated. Anthony Denier, the company’s U.S. CEO, says retail investors are now “more informed” and have better tools than they did when the rule was first created and that the changes better reflect how modern markets work and remove limits that can feel arbitrary.

The new system will focus less on how many trades a person makes and more on whether the account actually has enough money to support the risk at any given moment.

Brokerages will now be able to monitor accounts in real time and block trades that would create a margin deficit. Firms that don’t want to build those systems can instead calculate whether a customer fell short at the end of the day. If a trader does not fix that shortfall within five business days, the brokerage can freeze the account from taking on more borrowed-money trades for up to 90 days. Small shortfalls under $1,000 or 5% of the account size can be ignored.

FINRA said the changes should be easier for customers to understand and cheaper for brokers to enforce. Firms will have 45 days after FINRA publishes its formal notice before the rule takes effect, though brokerages can phase in the changes over the following 18 months.

Whether the change ultimately helps retail traders will take years to answer. The next time a meme stock implodes or a wave of small investors blows up on options, critics will almost certainly point back to this decision. One thing is already clear, though. The rule change is good for retail brokers. Shares of Robinhood and Webull were both up more than 10% on Wednesday.

© Forbes