How to Day Trade on Robinhood

Wed Jan 22, 2020, 02:44 pm | by Abbey Polin | No comments

Robinhood is an app that allows traders to trade and make investments without paying commissions. There are three types of accounts within this app: Cash, Standard and Gold.The difference between these is one allows you to trade on margin and the others don’t. 

Which Robinhood Account is Right For Me?

Robinhood’s Standard account has no minimum initial deposit. It enables people to start trading with a smaller sized account. This does not mean you can trade without having money in your account. This means when you make an account, you only need as much money as you’d like to trade. With this account, you also can get instant access to withdrawals and processing trades. When signing up with Robinhood, this is the default account. 

The Gold account requires a $2,000 initial deposit, the regulatory minimum. There are monthly fees associated with this account type, depending on the account balance. The fees are determined on which tier you choose to purchase or use. For example, if a trader has more than $1000 on margin, 5% yearly interest will be charged to the account for every dollar over $1000. There is also a $5 monthly fee to have this account. 

The Cash account doesn’t require a minimum initial deposit, like the standard account. The drawback to this account is, you will have to wait for withdrawals and trades to process. That’s not necessarily a bad thing. 

The pattern day trading rule does not apply to the cash account. This is because the cash account doesn’t allow traders to have instant settlements. It may take a few business days for the cash transaction, deposit or withdrawal, or trade to go through. This prevents traders from getting flagged as a pattern day trader because of the waiting period. 

Robinhood also has a demo account that allows users to practice trading without having to use real money. This allows new traders to learn and develop their strategies without losing money. 

Does Robinhood Have Educational Content For New Traders? 

In addition to the demo account to help new traders, Robinhood also has a large amount of educational content in their Help Center. The Help Center content ranges from how to get started with your new account, to explaining what the pattern day trading rule is and everything in between. 

The Help Center also gives traders straightforward answers to a variety of different questions and issues that may arise. 

How it Works

The Robinhood app is available for download on Apple products, Android, and is also accessible through the internet. Since Robinhood is available on multiple platforms, it allows traders to utilize whenever and wherever is convenient for them.  

When you are setting up your account and choosing your account type, you will also need to link a bank account to make deposits into your Robinhood account. 

There is no minimum deposit required to join Robinhood and start your account, but in order to start trading, you will need to put enough money into your account to purchase at least one share of your preferred stock. 

Robinhood allows traders to trade up to $1000 of stock instantly after you deposit the money into your account. There is no waiting period. This is convenient because it allows traders to keep having the potential to profit if the market is hot. This however, also provides some risk to traders because it’s easy to go above the allowed amount of trades before you’re marked as a pattern day trader.

The pattern day trader rule does not allow a trader to make more than three day trades within a five day trading period without a minimum of $25,000 in their brokerage account at any given time. 

Robinhood has a feature that tracks the number of day trades a trader has made in efforts to prevent traders from getting flagged as a pattern day trader. This provides a level of protection to the trader.

Conclusion

Robinhood is a great platform for trading, especially if you are a new trader. The commission free service enables a diverse variety of traders to use it. Robinhood offers many resources for traders to get educated on the platform and trading in general. It also gives traders tools to protect themselves from being flagged as a pattern day trader. 

Disclaimer: Benzinga is a news organization and does not provide financial advice and does not issue stock recommendations or offers to buy stock or sell any security. Benzinga Pro is for informational purposes and should not be viewed as recommendations. Benzinga Pro will never tell you whether to buy or sell a stock. It will only inform your trading decisions. You can find our full disclaimer located here.