How To Day Trade On Robinhood |Tips, Rules, And Restrictions

Are you interested in day trading? If so, you may want to know which trading and investment platform is the most suitable and what the rules are. You may even need some guidance on understanding what day trading is and some tips on how to trade day successfully.

Day trading on Robinhood is popular among many investors. Its easy-to-use page and convenient mobile application make it a good choice for beginners and those engaged in day trading.

Is Robinhood suitable for day trading? What rules apply? Is $25,000 required to start day trading? These are all important questions.

In this article, we will introduce how to do day trading on Robinhood, inform you about Robinhood's day trading rules, commission-free trading, and provide you with a practical entry plan.

What is Day Trading?

Day trading means the act of purchasing and selling (or selling and purchasing when short-selling is applicable) financial products like stocks, futures, foreign exchange, cryptocurrencies, etc. within the same trading day. That is to say, the holding time usually doesn't exceed one trading day.

We all know that the market fluctuates greatly. Through day trading, one can take advantage of such fluctuations... provided that the timing of the trades is right.Otherwise, there may be a risk of losses, for example, due to the short trading hours of day trading, leaving insufficient time to buffer market fluctuations and other factors. In other words, day trading is the opposite of long-term investment.

You are conducting day trading in the following situations:

• You buy and sell the same stock or exchange-traded product (ETP) on a single trading day (or open and close the same position).

• You open and close the same options contract on a single trading day.

Due to frequent trading, day trading is exposed to various risks. Price volatility risk is the most significant one. Even within a single trading day, the prices of financial products may experience sharp fluctuations, leading to trading losses. You must understand the risks and be ready to make quick decisions. Therefore, we don't recommend day trading for beginners.

After understanding the basic concept of day trading, let's take a look at the specific rules and requirements regarding day trading on the Robinhood platform.

Day Trading Limits on Robinhood

Pattern day trading is a specific type of day trading. There have been reports claiming that Robinhood does not allow day trading. This is not entirely accurate. What they restrict is what's known as pattern day trading.

You will be flagged as a pattern day trader by Robinhood if:

• You execute four or more day trades within five trading days

• The number of day trades accounts for over 6% of your total trading volume within the same five-day period.

Once identified as a pattern day trader, your account must maintain a minimum net asset value of $25,000 (maintenance margin requirement). If your account balance falls below this threshold, you may receive a margin call and even face trading restrictions until the funds are replenished to the required level.

If your brokerage account balance exceeds $25,000 at the end of a trading day when you are flagged as a pattern day trader, no penalties will be imposed. However, if you violate the rules and your account balance remains below $25,000, you will be prohibited from trading on Robinhood for 90 days.

These rules are set by FINRA and apply to Robinhood as well as other trading platforms. This is an industry-wide regulatory requirement, not unique to Robinhood.

Should You Choose Robinhood for Day Trading?

Should you choose Robinhood for day trading? Among numerous trading platforms, Robinhood is one of the more well-known and popular ones. Here is a detailed analysis of its advantages and disadvantages:

Robinhood Day Trading Guide——Step by Step

To start day trading on Robinhood, please follow the steps below:

Create and Set Up Your Account

• Download the Robinhood app or visit its website to create an account. Provide your personal information, link your bank account, and complete the verification process. Select your account type based on your trading needs and experience level.

Familiarize Yourself with the Platform

• Explore the dashboard to understand its layout, including portfolio balance, market movers, and news updates. Learn how to navigate features such as charts, order placement, and account settings.

Research and Analyze Stocks

• Use Robinhood's news feed and analyst ratings to research stocks. For Gold users, access secondary market data to evaluate bid-ask spreads and market depth for better decision-making.

Execute Day Trades

• Select the stock or security you want to trade and click “Trade”. Choose the order type (market, limit, or stop). Enter the number of shares or the amount you want to trade and confirm the order.

Monitor and Execute Trades

• Use real-time price charts to track price movements. Utilize Robinhood's watchlist feature to track multiple stocks in search of potential trading opportunities.

Manage Risk

• Set stop-loss orders to prevent significant losses. Limit the amount of capital you invest in each trade to manage risk.

Track Your Performance

• Use the portfolio overview to analyze your trading history and performance. Keep a trading journal to record your decisions, results, and lessons learned. Leverage Robinhood's tools, such as enabling the day trading counter to track your trades and avoid exceeding the PDT limit. For advanced users, utilize professional research reports to refine your trading strategies.

Robinhood Trading Fees

Using a Robinhood investment account to invest in stocks, ETFs, and their options is commission-free. Robinhood does not charge fees for account opening or maintenance. However, certain regulatory fees mandated by self-regulatory organizations (SROs) such as the Financial Industry Regulatory Authority (FINRA) are passed on to users.

The following are the possible fees you may encounter when trading on Robinhood:

• The Financial Industry Regulatory Authority (FINRA) charges regulatory trading fees and transaction activity fees on sell orders. All brokers are required to pay these fees.

• The issuing bank may charge custodian fees for American Depositary Receipts (ADRs).

• The Options Clearing Corporation (OCC) charges option regulatory fees and trading fees.

Regulatory Trading Fees

According to law, FINRA is required to pay fees to the Securities and Exchange Commission (SEC). To raise funds, FINRA passes these fees on to its members (such as Robinhood), and the members then pass them on to customers. These fees are used to cover the government's regulatory expenses for the securities market and practitioners. The rates are adjusted annually and semi-annually.

As of May 22, 2024, the SEC fee is $27.80 per $1 million principal for sell orders (rounded to the nearest cent). Robinhood does not pass on this fee for stock sales with a nominal value of $500 or less.

Transaction Activity Fees

FINRA charges brokerage firms like Robinhood for covering its supervision and management costs, and Robinhood passes these fees on to customers (except for sales of 50 shares or less).

Starting from January 1, 2024, the TAF fee schedule is as follows: $0.000166 per share for stock sales; $0.00279 per contract for option sales. This fee is rounded to the nearest cent, and the fee charged per transaction does not exceed $8.30.

However, please note that you may be charged more than $8.30 in some cases. This is because the fee limit is determined based on your order execution, and order execution may be completed in multiple transactions.

American Depositary Receipt (ADR) Fees

ADRs represent foreign stocks that can be traded on the US stock market. Banks that issue these receipts may charge custodian fees, typically ranging from $0.01 to $0.03 per share.

Option Regulatory and Exchange Fees

The OCC charges option regulatory fees (ORF), which are fees charged by US option exchanges for option trades of their members. These fees are industry standards. The purpose of these fees is to recover part of the costs associated with the OCC's supervision and regulation of the options market.

Starting from January 10, 2025, Robinhood will charge a comprehensive fee of $0.04 per traded option contract to cover the cost of these fees.

Futures Fees

The fixed costs per traded contract for Robinhood commissions are as follows:

• Non-Gold customers: $0.75 per contract

• Gold customers: $0.50 per contract

• NFA regulatory fee: $0.02 per contract

The variable costs per traded contract for trading fees range from $0.20 to $7.50.

Consolidated Audit Trail Fee

Starting from March 3, 2025, a trading fee will be charged for all stock and option orders:

• Option contracts: $0.0035 per contract

• NMS stocks: $0.000046 per share

• OTC stocks: $0.00000046 per share

These fees are used to support the maintenance of FINRA's CAT system. If the total CAT fee is less than $0.01, Robinhood will round it to $0; if it exceeds $0.01, it will be rounded to the nearest cent (e.g., $1.056 → $1.06, $1.494 → $1.49).

Index Option Trading Fees

If you are a Robinhood Gold customer, your contract fee is $0.35 per contract. Without a Gold subscription, the contract fee is $0.50 per contract.

Example of Index Option Fee Calculation

Assume you close 12 SPXW contracts, and the premium for each contract is less than $1:

• Gold subscription: Robinhood contract fee $4.20 (0.35 x 12) + Exchange trading fee $6 (0.50 x 12) + Regulatory fee (ORF and OCC) $0.48 (0.04 x 12) = Total $10.68

• Without Gold subscription: Robinhood contract fee $6 (0.50 x 12) + Exchange trading fee $6 (0.50 x 12) + Regulatory fee (ORF and OCC) $0.48 (0.04 x 12) = Total $12.48

Essential Techniques for Successful Day Trading with Robinhood

Use Research Services

Robinhood has basic tools, but for deeper stock analysis, consider additional research services.

Review Market in Evening

Since day trading is tough, prepare well. After market close, check stocks with big gains and pick ones to focus on next day.

Limit Watchlist

Keep your watchlist to 10 stocks or fewer to avoid being overwhelmed.

Set Daily Risk Limit

Decide how much risk you're willing to take each day and plan trades accordingly.

Start Small

Begin with small trades or fractional shares until you're familiar with day trading basics.

Control Emotions

Stay disciplined and consistent in day trading.

Avoid Gambling Mindset

1. Don't change stop-loss limits or risk more than you can afford, even on good trading days.

Frequently Asked Questions

Can I do day trading on Robinhood?

Yes, you can do day trading on Robinhood, but you need to be aware of the rules. As long as you maintain a balance of $25,000 or more, you can engage in pattern day trading using a margin account. If you use a cash account, a $25,000 balance is not required.

Is Robinhood a good day trading platform?

Yes, Robinhood is a great day trading platform, but there are some caveats. There isn't a large amount of research material on Robinhood. Therefore, we recommend using other tools to monitor the market at the start and end of each day and select the stocks you want to buy. We like that Robinhood offers options such as stop-loss and stop-limit orders, which allow day traders to manage their trades.