Final answer:
The PDT rule applies to margin accounts and restricts day trading for accounts with less than $25,000. It does not apply to cash accounts where traders must pay for securities in full and cannot borrow funds for purchasing, thus enabling them to day trade without restriction so long as they abide by settlement rules.
Step-by-step explanation:
The PDT rule, or Pattern Day Trader rule, is specific to United States stock market regulations and is enforced by the Financial Industry Regulatory Authority (FINRA). The rule applies to margin accounts and dictates that traders with accounts holding less than $25,000 may not execute four or more 'day trades' (buying and selling the same security within the same market day) within five business days.
However, it is important to note that the PDT rule does not apply to cash accounts. A cash account is one where you must pay for your securities in full at the time of purchase and you cannot borrow funds from the broker to pay for transactions.
In essence, with a cash account, since you're not using borrowed funds, the risks that the PDT rule is designed to mitigate are not present. Therefore, while traders are still subject to settlement period rules, they can make as many day trades as they like, so long as they have the cash to cover their trades and adhere to the settlement times.