Day trading

Day trading is the practice of buying and selling the same security within the same day in order to profit from short term movement of the stock. Pattern day trading is done in margin rather than cash accounts.

Settlement dates

Proceeds from sales of securities do not "settle" for three days. Unsettled funds can be used for purchases in cash accounts but the purchases must not be sold until the funds originally used to make them settle. Doing otherwise is known as "free riding" and is prohibited by Federal Reserve Board rules. This prohibition limits the amount of day trading that can occur in a cash account.

Penalties

Violations of the free riding prohibitions found in the Federal Reserve's Regulation T can result in the restriction of a cash account's ability to use unsettled funds for 90 days.

Avoiding a free ride

Free riding violations in cash accounts can be avoided by not purchasing securities with unsettled funds, holding securities until funds used to pay for them have settled or depositing monies to cover the amount of the original unsettled purchase.

Other restrictions

Making four day trades in five business days will result in an account being labeled a pattern day trader. Pattern day trading must be done in margin accounts and adhere to certain other restrictions.

Conclusion

Although very limited day trades are possible in cash accounts, investors wishing to engage in day trading as a regular strategy must obtain a margin account to do so.

Source:

Marketrade: Cash Accounts

FINRA: Cash Accounts

ETrade: Cash Accounts