Robinhood Day Trading Rules

Learn about Robinhood day trading rules, and how to play safely by these rules.

With its commission-free trading app, Robinhood revolutionized the finance world about a decade ago. Most other bargain brokerage firms later followed suit because it was such a groundbreaking concept. However, even without the commissions, day trading on Robinhood is still subject to a slew of rules.

This low-cost brokerage service has quickly accumulated a user base of more than 22 million people. And they’re a rambunctious bunch. An estimated 50% of users who have completed a deal use the app on a daily basis. And 90% of customers open Robinhood at least once a week.

However, there is a significant difference between checking in on your investment and actively trading on a regular basis.

Day trading used to be reserved for those with huge pockets and a lot of free time. After all, changing jobs numerous times a day could mean racking up some hefty commission costs. However, now that commission fees are no longer a factor, both young and senior investors are becoming more active traders.

Before you start playing with daily pivots or movement trading on Robinhood, there are a few things you should know about day trading. We’ll start with the many sorts of accounts offered by this low-cost brokerage and how they may affect your preferred trading strategy.

There are three(3) different types of Robinhood accounts:

  • Instant: Robinhood Instant is the default. Anyone who creates a Robinhood account begins here. This is a margin account, which means investors will have immediate access to their money. This makes it possible for people to begin investing right away.
  • Gold: A $5 fee is charged every 30 days for this sort of account. Increased purchasing power comes with that cost (higher levels of instant margin are available). It also gives you access to advanced market research and level II data. To trade on margin, Robinhood users must have at least $2,000 in their account.
  • Cash: Cash, like Instant, lets users make commission-free trades at any time during the day or night when the markets are open. However, it does not allow for instant deposits. People who don’t want to trade on leverage can switch to this account at any moment.

Robinhood Pattern Day Trading Rules

To safeguard investors, Robinhood follows a set of rules. The pattern day trading (PDT) rule is one of them. A Robinhood user cannot make three-day trades in five days, according to this guideline. Unless they have a balance of at least $25,000 in their account.

This does not apply to overnight deals, just to be clear. Over the course of five business days, you can’t purchase and sell a stock or options contract more than three times in a single day. This isn’t your ordinary Robinhood. This is true for traders who use any brokerage business. However, there are several exceptions when it comes to day traders on Robinhood.

There’s no problem if the trades make up less than 6% of the total deals in your margin account. But that’s a long shot. Downgrading to Robinhood Cash is another way to get around the $25,000 limit. These users aren’t using margin to invest. As a result, they are free to do whatever they want.

Keep this in mind if your account is close to $25,000 and you’re ready to push it over the line to day trade… Until the deposit clears, the account balance is not considered “officially” over $25,000. In Instant accounts, the margin granted by Robinhood does not contribute toward the total.

Let’s say your Robinhood account balance is $24,000. So you decide to put $1,001 into it just to get it over the hump. Just because it indicates you have $25,001 to invest doesn’t mean you’re free to day trade as you want. You’ll have to wait till the funds settle and you’re not filled up with Robinhood’s margin. It could take up to five business days for this to happen. However, as soon as your deposit has cleared, Robinhood will send you an email.

So, You’ve Been Classified as a PDT.

One of Robinhood Day Trading Rules is the pattern day trading, This is one of Robinhood Day Trading Rules that you really must understand.

People who try to go around Robinhood’s rules are frowned upon. Anyone who engages in PDT with a Robinhood Instant or Gold account that is less than the requisite $25,000 will risk a significant penalty.

An investor’s account will be labeled as a pattern day trader if they make four-day trades in five days. This designation is for a period of 90 days. As a result, you won’t be able to make any day trades for the next few days.

If someone tries to beat the system by continuing to day trade during their 90-day probation period, they will face harsher consequences. Anyone who uses Robinhood to day trade with less than $25,000 in their account and has the scarlet PDT letters on their account will have their account restricted even more.

PDT users’ accounts may be locked for up to 90 days at Robinhood’s discretion. For the duration of the 90-day probation period, the user is unable to buy or sell any stocks or options.

Conclusion.

Day trading is currently more popular than ever before. On their journey to financial independence, people are exchanging tips, touting their favorite stocks, and talking a lot of trash on Twitter, Reddit, and Discord. Day trading, on the other hand, is fraught with dangers. So, before you open up your Robinhood app, it’s a good idea to practice your methods.

However, if you’re certain you’re ready and want to get started, keep in mind that day trading on Robinhood is a serious business. Missing out on 90 days in the world of investing might feel like an eternity.

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