Robinhood is the top online broker for many pro and beginner traders. More than 20 million investors use Robinhood, and many of them are day traders. If you use Robinhood for day trading or are considering joining the platform, you would do well to get familiar with Robinhood day trading rules before you run into problems.

Robinhood offers stocks, cryptos, exchange-traded funds, option contracts, and other investment products. One of its greatest appeals is commission-free trading, which significantly lowers trading costs for users.

Robinhood also supports fractional share purchases, which allow you to begin investing on the platform with small amounts of money. Moreover, the broker offers extra trading hours, giving you more time in the market to make money.

Depending on the account type, Robinhood users may also access loans or margins in industry parlance to increase their buying power. Moreover, the broker offers its users the opportunity to earn interest on their idle cash and stocks through its cash sweep and stock lending programs.  

While Robinhood offers many exciting features for investors, breaking its day trading rules can cause you a bad experience. Read on to learn about Robinhood’s day trading rules, the consequences of breaking the rules, and how you can avoid running afoul with the broker over day trading practices.

Does Robinhood Allow Day Trading?

Robinhood allows day trading as long as you observe the rules.

Day trading, according to Robinhood, occurs when you buy and sell the same stock, exchange-traded fund, or options contract in a single trading day.

It would be something like this: Let’s say it is a Monday, and you decide to purchase 100 shares of the Coca-Cola stock. Your hope is that the stock price will appreciate at some point during the day to allow you to sell your shares at a profit.

True to your expectation, the Coca-Cola stock price goes up after the soda company reports strong earnings results. You now decide to sell your 100 shares of the Coca-Cola stock, close the trade, and pocket your profit before the day ends.

With that transaction, you’re considered to have done a day trade. While Robinhood allows day trading, you need to watch out.

What Are Day Trading Rules On Robinhood?

Day trading on Robinhood follows a set of rules. In fact, these rules actually apply across the brokerage industry since they come from the industry regulator FINRA.

To be clear, Robinhood offers two account types: margin account and cash account. Day trading rules only apply to Robinhood’s margin accounts. These are the accounts that allow you to access trading margins or loans to use toward your trading. The broker offers several margin account options with varying features.

It means that those using the Robinhood cash account don’t have to worry about day trading rules.

What exactly are Robinhood day trading rules? These rules specifically limit the number of day trades you can execute on the Robinhood platform. The broker allows you to execute up to three day trades in a week. For your information, a week here refers to a period of 5 trading days.

If you make more than three day trades in a week, Robinhood will mark you as a “pattern day trader.”

While that may sound like a fancy description, it actually means that you have become someone who should be reined on. Therefore, the day trading rules come into force on your account once Robinhood determines you are a pattern day trader.

What Happens To Robinhood Pattern Day Trader?

Robinhood Day Trading Rules

If Robinhood labels you a pattern day trader, you can’t make further day trades on the platform, except if you’ve more than $25,000 in your account.

If you continue executing day trades even after the broker raises the red flag over your activities and your account is below $25,000, further restrictions may apply. For example, the broker may block you from opening additional trades on your account. It means you may only close your existing positions and not purchase anything more.

Accounts flagged for pattern day trading can’t participate in Robinhood’s cash sweep program. With this program, Robinhood lets you earn interest on unused cash in your brokerage account. It works like an interest-bearing bank account, except that the broker manages this one on your behalf.

Also, a pattern day trader is excluded from Robinhood’s stock lending program. Robinhood allows its users to lend out their stocks to other traders who want to borrow them. That way, you earn interest like you would if you loaned out money to someone. The stock lending program powers the stock shorting industry.

The cash sweep and stock lending programs are additional money-making opportunities that Robinhood offers its users.

Can Robinhood Remove Pattern Day Trader Restriction?

Robinhood offers a number of tools to help you avoid getting into the pattern day trader situation. Whether you use the app or web platform, Robinhood lets you enable alerts to warn you before you execute a trade that would mark you as a pattern day trader. These settings are called “pattern day trader protection.”

If you’ve already been marked as a pattern day trader, Robinhood offers a chance to clean your profile. You can ask Robinhood to remove the pattern day trader label from your account.

But you can only request the Robinhood pattern day trader removal once in a lifetime. Therefore, a repeat violation of the day trading rules means you would be permanently marked as a pattern day trader.

Can You Day Trade Without $25,000 On Robinhood?

If Robinhood has marked you as a pattern day trader and you want to continue day trading, you would need to have more than $25,000 in your account. But there is an opportunity to avoid this restriction.

The easiest solution is to switch to a cash account, which is exempt from day trading rules. As long as you’re using the Robinhood cash account type, you can execute day trades as many times as you want, even without $25,000 in your account.

But there is a catch in this maneuver. Cash accounts cannot access trading loans to increase your buying power. Moreover, cash accounts don’t allow you to trade with unsettled funds from investment sales. When you sell a stock or crypto on Robinhood, it usually takes some days before the funds reflect in your brokerage account balance. It takes two days for funds from stock sales to settle on your Robinhood cash account. But funds from crypto sales settle after one day.

Finally, Robinhood day trading rules can frustrate you if you break them. Luckily, the broker offers tools to help users avoid getting into the pattern day trader situation. But if you’ve already got that mark, you can raise your account value to $25,000 or switch to a cash account to continue day trading.