Robinhood Day Trading in 2024

Robinhood day trading rules, active trader platform, buying power limits, and $25,000 minimum equity balance SEC/FINRA restrictions. Can you day trade on Robinhood (ROTH) IRA?

Can you day trade on a Robinhood?

Robinhood is a popular choice for day traders due to its low fees, user-friendly interface, and accessibility. The broker offers a range of features, investment options, and account types that align well with many day trading strategies.

One particularly exciting feature is the broker's generous IRA contribution match program. But can Robinhood IRAs be used for day trading?

The short answer is yes, but there are some things to know before doing so.

Day Trading in a Robinhood

Robinhood offers two types of retirement accounts: Traditional and Roth. Both types allow for day trading and are available in limited margin and cash formats.

By default, Robinhood's IRA accounts are margin accounts. This means trading in these accounts will be similar to trading in a standard brokerage account. However, the margin available for trading in IRA accounts is limited, which may restrict specific trading strategies.

Can I Day Trade on Robinhood IRA

Robinhood IRA Account Details

At Robinhood, your day trading experience will vary based on the type of IRA account you have and the amount of trading capital in your account.

Here are some details to consider.

Robinhood Incentive

Free stock up to $200 and 1% IRA match when you open an account.

Open Robinhood Account

Limited Margin vs Cash Accounts

One decision is whether to day trade from a margin or cash account. The differences between the two account types are not as significant as they are in standard brokerage accounts because the margin in IRAs is limited. Some differences do exist, however.

In a limited-margin IRA account, you can trade with unsettled funds by using the proceeds from selling stocks or options immediately for new trades. However, in an IRA cash account, you'll need to wait for the settlement period before using the funds from stock or option sales for new trades. Typically, you must wait two days for stock sales and one day for option sales to settle.

Another difference is how often you can place trades. You can place as many trades as you want in a cash account in a day without worrying about the PDT rule. The only thing to remember is that you cannot trade with unsettled funds. There is also no need to maintain an account balance of $25,000.

What Can You Trade?

In a Robinhood IRA account, you can trade stocks, ETFs, and options. However, some securities that are popular among day traders, such as cash-settled indices like the SPX, cryptocurrencies, futures, and forex, are not available.

When it comes to options trading, you can trade level 2 strategies, which include long calls, covered calls, long puts, and cash-secured puts. Level 3 strategies, such as straddles, strangles, vertical spreads, and calendar spreads, may be made available in the future, but at the moment, they are not available within IRA accounts.

Can You Day Trade on Robinhood IRA

Pros and Cons of Day Trading in IRA Accounts

As with all forms of investing, there are some pros and cons to consider if you want to day trade in a Robinhood IRA.

Benefits of Day Trading in IRAs

Trading in an IRA account offers several advantages. Here are the main ones.

IRA accounts provide tax advantages, such as tax-deferred growth for Traditional IRAs or tax-free withdrawals for Roth IRAs.

Trading in an IRA allows for long-term growth and compounding. Profits from trades can be reinvested, aligning your trading activities with your retirement goals and helping you build a robust retirement portfolio.

Considerations and Potential Drawbacks for Day Trading in IRAs

There are some scenarios where IRAs can be restrictive for day traders.

For one thing, IRA accounts are not exempt from the PDT rule (as previously mentioned). Nor are they exempt from Good Faith Violations or margin calls.

For day traders with margin-enabled IRA accounts valued under $25,000, no more than three day trades can be placed within each 5-day rolling period. There is no PDT for cash accounts, but you are also not allowed to trade with unsettled funds.

Contributions and Margin Calls

In the event of a margin call, IRAs have limitations on how you can bring the account balance back into good standing.

If you accidentally trigger a PDT flag on your retirement account because you have disabled Robinhood's Day Trade protection feature, you can deposit additional funds into your IRA to meet the margin call requirement only if the remaining contribution limit allows.

However, suppose the remaining contribution limit is smaller than the requested amount to satisfy the margin call. In that case, you must transfer another IRA from a different broker into your Robinhood account or wait 90 days before actively trading the IRA again.

Final Thoughts

Robinhood IRA accounts are very good for day trading as long as the restrictions that come with them don’t bother you.

There aren’t any lofty account minimums to keep up with, and Robinhood Gold is there for you if you need additional tools and features.

Robinhood Incentive

Free stock up to $200 and 1% IRA match when you open an account.

Open Robinhood Account