Since the pandemic moved people inside, everyone has been looking for new ways to make money. Maybe it’s the extra cash from the stimulus packages, or maybe the lack of sports that have people needing a little gambling rush.
Whatever it is, this year everyone has become a day trader. The trading platform E-trade recorded more new accounts in March than any full year in its history. Robinhood also posted a quarterly sign up record this year with 3 million new sign-ups in Q1.
Can you make money day trading with Robinhood? Robinhood is a popular investing platform that lets everyday people invest their money with ease. The platform has some day trading rules and limits, but, if you invest with cash you can day trade with Robinhood. It’s just up to you whether you make money doing it or not...
What is Robinhood?
Robin Hood was a legendary character in the 14th century who stole from the rich and gave money to the poor. The investing platform, Robinhood is trying to replicate some of what its namesake did. The platform is giving more investing power to everyday people, helping them to invest their money easily, with no transaction costs.
One of the best things about Robinhood is the ability to invest dollar amounts in stocks and cryptocurrencies. You can buy a portion of a share rather than purchasing full shares.
This is a great way for investors with a small amount of capital to get into investing and learn how to trade on Robinhood. You may not have $1500 for a tesla stock or $3000 for an Amazon, but you can invest anywhere from $1 in these companies and still earn a return.
What is Day Trading?
Day trading is when you buy and sell a financial instrument in one day or even multiple times in one day. When day trading, the main goal is to profit from short-term price fluctuations. Leverage helps day traders amplify returns, which can also amplify losses.
If you are serious about making money as a Day Trader, you can’t just treat it like a hobby, doing it every once in a while. It needs to be a consistent and disciplined activity that you do every day.
There is no guarantee of success in day trading, it is a volatile and risky activity. But, with the right strategies, you can give yourself the best chance of minimizing losses and locking in gains.
In order to be a successful day trader, you need to be disciplined, patient, and manage risk well. You also need capital. In day trading, gains from one transaction are often tiny. Traders with a lot of capital have the potential to leverage those trades more and earn more with each bet. This also means they risk more each time they trade.
For further advice on investing, read this summary of The Smartest Investment Book.
Is Day Trading with Robinhood Allowed?
Let’s say you are a small-time investor looking to make some quick money flipping stocks. Before you dive into day trading with Robinhood, you need to know some rules.
Day trading is not allowed if you are using money on margin. The FINRA (Financial Industry Regulatory Authority) has a law that says “If you have less than $25k in your account, you are allowed 3-day trades within 5 trading days”
After that, Robinhood marks you as a pattern day trader. This means that you can not make a day trade for 90 days or until your account reaches $25k. You can trade, just no more day trading on Robinhood.
The loophole here is that this rule does not apply to cash investing. If you are investing your own cash, you can use Robinhood for Day trading.
Instant Deposit and Robinhood Gold are both considered investing on margin. So be sure you know what money you are investing with or you will be blocked. It takes 24-48 hours for your instant deposit to be turned to cash.
Get your portfolio started with a FREE stock - worth up to $500 by signing up to Robinhood here.
What is the Robinhood Day Trade Limit?
Use the Day Trade Counter on the Robinhood App. Here you are able to see how many day trades you’ve made in the current five-day trading period.
How to Find the Robinhood Day Trade Limit Counter:
Tap the account icon in the bottom right corner of your app
Tap Investing
Scroll down to Day Trades
The Robinhood day trading limit is 3 trades in 5 days if you are trading on margin. There is no limit if you are trading on cash. Keep an eye on the Robinhood Day Trade Limit Counter to prevent your account from getting blocked.
Aside from this rule, there are very few Robinhood Day trading rules. So, if you have more than $25k in your account or you trade on cash, you are not breaking any rules day trading with Robinhood.
Is Day Trading with Robinhood a Good Idea?
You don’t want to invest money Day trading in Robinhood without a solid investing strategy and a decent knowledge of financial markets.
You also need to be in a financially secure enough position to afford day trading with Robinhood. Only risk the amount of money that you can afford to lose.
The risk of day trading comes from the fact that there is really no way to predict for certain what will happen in the market or with any particular stock. Investors have been trying to do this for years. If there was a formula, we’d all know it by now. We’d all be getting rich off of this.
What Counts as a Day Trade in Robinhood?
Buying and selling the same stock or options contract in one trading day, is considered a day trade in Robinhood. Remember, you are only allowed to do this 3 times every 5 days if you are trading on margin. Here are some examples of day trades to help clarify your understanding:
1 Day Trade on Robinhood
Buy 1000 shares of XYZ
Sell 1000 shares of XYZ
This is the most simple example of a day trade. Buying and selling the whole potion of your shares in one transaction each.
Buy 1000 shares of XYZ
Sell 500 shares of XYZ
Sell 500 shares of XYZ
Technically this is still 1 daytrade, even though the shares were sold in two separate transactions.
2 Day Trades on Robinhood
Buy 500 shares of XYZ
Buy 500 shares of XYZ
Sell 1000 shares of XYZ
This is 2 Day Trades, as you opened two transactions, and closed them both in one sell transaction.
Buy 500 shares of XYZ
Buy 500 shares of XYZ
Sell 600 shares of XYZ
Even though only a portion of the second transaction was closed. This is still deemed as 2-day trades on Robinhood.
Top 10 Most Popular Stocks on Robinhood
These are ranked in order of popularity on Robinhood. You can find more in-depth stats at Robintrack.
1. Ford
2. GE
3. American Airlines
4. Disney
5. Delta Air Lines
6. Apple
7. Microsoft
8. Tesla
9. Carnival
10. GoPro
Remember, you can only day trade on Robinhood with these stocks if you have a cash account or more than $25k in your account. Otherwise, hold the stock for more than one trading day, and it would not be considered day trading with Robinhood.
Good luck if you do try day trading with Robinhood, let me know if you have any good investment suggestions below.
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