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Day Trade on Robinhood, Is It a Good Idea to Trade Stocks EveryDay with Robinhood?

how to day trade on robinhood
how to day trade on robinhood

Day Trade on Robinhood, How to day trade?

A day trade is when you buy and sell (or sell and buy) the same stock or ETP on the same trading day. When you open and close the same options contract(s) on the same trading day, this is referred to as a day trade.

Robinhood lets you trade every day.

They made a big splash when Robinhood first got into the brokerage business. They were the first big Broker to offer trades without fees and made the easiest-to-use app for trading stocks on the phone.

This huge competitive advantage gave Robinhood a massive share of the millennial market, which was hard for big brokers to get in the past.

Many of Robhinhood’s young clients quickly fall in love with day trading. When you buy and sell the same security on the same day, this is called “day trading.” A day trade is when I buy Apple stock at 10 a.m. and sell it an hour later.

Day traders who use Robinhood like it because they see it as a game. Then, Robinhood tries to make trading and investing more like a mobile game by turning it into a “game.”

Robinhood traders also have small accounts, knowing that buying $2,000 worth of index funds won’t lead to significant gains. A JMP Securities study found that the average Robinhood customer has between $1,000 and $5,000 in their account, while the average Charles Schwab customer has $240,000.

Many people think that day trading is the only way for their small accounts to grow meaningfully.

Can Robinhood be used for day trading?

Yes, Robinhood lets you trade every day.

In terms of how it works, it’s the same as investing. Through the app, you buy a stock, which you then sell later in the day. The app doesn’t have a switch or button for day trading on robinhood.

Robinhood PDT Rule

The day trading rules robinhood, People who want to day trade should first know a few things, like the Pattern Day Trader (PDT) rule. The robinhood PDT is a rule that says traders with less than $25,000 in their accounts can only make three-day trades in a five-day rolling period.

Don’t forget that the five-day period keeps going. Making a day trade on robinhood on Tuesdays will count against your day trade limit until the following Tuesday.

The rule is stupid, but all US brokerages must follow it, so you’ll have to change how you trade to fit it. You can’t use strategies like scalping or actively trading with your small account.

Order Types

Order types are something else you should be aware of.

Many Robinhood day traders are still learning how to invest in stocks. They don’t understand how the different order types work.

The Robinhood app’s default order type is a “market order,” which buys any available shares. If you use a market order, you might fill your order at a price you don’t want.

Robinhood only has a few types of orders, and the limit order is the most important one. You can tell Robinhood, “I want to buy this stock for $X or less,” with a limit order. This keeps you from paying more than you planned for a share.

When trading large-cap stocks like Amazon or Apple, you won’t notice a big difference between limit orders and market orders. Still, limit orders are significant when trading penny stocks because the bid-ask spreads can be huge.

Day trading in Robinhood: The Pros and Cons

Even though Robinhood has a friendly user interface and is popular, you should remember the old saying, “If it’s free, you’re the product.” In other words, “you can’t get something for nothing.”

First, let’s look at some of the good things about day trading on Robinhood.

User Friendly

People say that Robinhood made investing and trading easier for everyone. They made an easy interface for almost anyone to understand and use. This removes a lot of the paperwork that has always been needed to trade stocks.

With this low-friction approach, Robinhood has made the stock market accessible to many people who might one day run hedge funds.

Even though this feature is on the list of pros, it can also be a con.

Many people think it’s easy to make money by trading because it’s easy to make a trade. Many people have said bad things about the company because of this.

There are no fees.

Before, the best thing about Robinhood as a platform was that there were no trading fees.

But the rest of the industry has since cut their commissions in response to Robinhood’s actions. The best discount brokerages, including Charles Schwab, E*TRADE, TD Ameritrade, and Fidelity, also let you trade without paying a fee.

A Great Mobile App

Robinhood app - day trade on robinhood
Robinhood app – day trade on robinhood

The Robinhood app is the easiest to use and has the best user interface. It’s the best way to enter or leave a trade while on the go quickly.

But the app doesn’t have any analytics. The charts aren’t as good as the ones on TD Ameritrade’s thinkOrSwim app.

Good margin rates

Robinhood Gold’s margin loans are a good deal at the time of this writing because their interest rates are lower than those of many of their competitors, such as Schwab and E*TRADE.

Robinhood charges 5% on all margin loans over $1,000, which is more than $1,000. A flat $5 fee charges for the first $1,000 of margin, whether or not you use it.

Now let’s talk about RobinHood’s flaws.

The best brokers also offer commissions for free.

As I said, the biggest discount brokers now offer trading without fees. These brokers have sophisticated desktop trading software with high-quality charting, screeners, scanners, and news.

For example, TD Ameritrade gives free commissions and the thinkOrSwim platform to all of its clients for free. Most people agree that this platform is one of the best free trading programs. Even traders with a lot of experience love it.

Robinhood doesn’t give its clients this level of technology.

The flow of Sales Orders

Except for Interactive Brokers’ IB Lite program, almost all big brokers sell your order flow to high-frequency traders. This means big HFT firms like Virtu Financial pay brokers to send your order to them before it ever gets to a stock exchange.

According to a report by Logan Kane, they pay Robinhood up to 10 times what they pay other discount brokers for the same volume.

This is probably because the HFTs know that Robinhood’s customers are less knowledgeable on average than the average trader at Schwab or Fidelity. But it could also be because market orders are the default order type in the Robinhood app. Dennis Dick, a proprietary trader with Bright Trading, says that market orders are better for HFTs because they make more money.

Charging for the basics

The Robinhood Gold subscription service is one of the company’s primary ways to make money. Gold lets investors use margin, market data, and research reports like Morningstar and Level 2.

The problem with Gold is that Robinhood’s rivals offer the same features for free. Even if a client hasn’t made a deposit, most discount brokers like Schwab will give them free research reports, trading software, and other tools.

Customer service that stinks

Fidelity, Interactive Brokers, and Schwab have excellent customer service available 24 hours a day, seven days a week. Unless the market is about to crash, getting in touch with a licensed broker usually doesn’t take long.

If you Google “Robinhood customer service Reddit,” you’ll find a lot of complaints from Robinhood customers about how the company takes days to respond to support requests or makes them wait on hold for more than an hour before they can talk to someone.

According to PissedConsumer, only 1% of people who complained were able to talk to a representative when they needed help.

A few types of assets

Right now, Robinhood only lets you buy stocks, options, ETFs, and cryptocurrency. This is enough for most people. But most serious traders try out different strategies across various asset classes.

Robinhood doesn’t sell futures, mutual funds, bonds, foreign exchange, commodities in the spot market, or warrants. Interactive Broker is an excellent example of a broker that gives retail investors access to almost all types of assets.

Robinhood Fees

One of the best things about Robinhood is that most of their fees are pretty low. They don’t charge commissions on any trades, and the price structure for Robinhood Gold is clear.

Robinhood’s Gold pricing used to be more complicated, but now all Gold members pay the same $5 per month and pay 5% interest on any money they borrow.

Robinhood also has “hidden fees” for different kinds of transactions, such as:

  • An account transfer fee of $75.
  • $5 for paper statements
  • For foreign securities, the commission is $50, and for Canadian securities, it is $35.

For account transfers and foreign securities, many other brokers also charge fees that are similar to these.

Robinhood’s competitors in the day trading market

When Charles Schwab cut their commissions to zero, the rest of the industry followed suit, and Robinhood lost its leading competitive edge. Price competition always leads to a race to the bottom.

If you want to be serious about day trading, you need the right tools. It would help if you had good charts that use good data feeds. It would help if you had a stock screener with many features and let you look for trade opportunities for several strategies.

Most importantly, it would be best to trade on a computer, not a phone. And Robin Hood Web is insufficient. Even though it looks nice, all that fancy JavaScript only slows things down. Believe it or not, the best trading software is simple and looks like it’s from 2003. This lets trading happen quickly, without extra fat to slow things down.

Most of the best brokers give the software to traders who trade often. All of them are pretty good, but I like thinkOrSwim from TD Ameritrade the best. The platform has some of the best charts in the game. Options traders love its options table layout and options analytics, which work well with several asset classes.

Charles Schwab’s StreetSmart Edge is also good, but it’s not as good as thinkOrSwim because it’s not as powerful. Most active trading platforms from brokers like Fidelity and E*TRADE will meet these requirements. All of them are pretty good, but thinkOrSwim is the best.

Traders who use algorithms or numbers can get great tools from TradeStation. They made their programming language EasyLanguage, known for being easy to learn, so clients can create strategies to backtest or trade live.

Webull is a new broker that follows the same millennial-focused strategy as Robinhood, but they may be doing it better. This is good news for people who want a broker that focuses on mobile trading. Their web platform is pretty good, and their mobile app is almost as user-friendly and easy to use as Robinhood’s.

Conclusion

Robinhood has its place in the world of finance, but its edge over its competitors is getting smaller and smaller every day. As soon as commissions in the brokerage business dropped to zero, it became harder to explain why you should use Robinhood instead of one of their competitors.

Day traders need good charts, screeners, and hotkeys that can be programmed. None of these are available in Robinhood.

The platform is a great way to start the stock market, but you should leave as soon as you know how to trade.

The company started Profiles, a social network for investors, in February 2020. It lets users rate stocks as “buy” or “sell” and look at what each other owns. Even though the platform isn’t suitable for advanced traders, this seems like an excellent way to start growing.

Frequently Asked Questions About Day Trade on Robinhood Platform:

Day trading rules over 25k robinhood in 2022

Understanding the trading rules for over 25k, You usually can’t make more than 3 day trades in a 5-day trading period, unless you had at least $25,000 in your instant or gold brokerage account (minus any cryptocurrency positions) at the end of the previous day.

Can you day trade without 25k?

If the account’s equity falls below $25,000, the pattern day trader won’t be able to trade until the account’s equity goes back up to $25,000. Day traders who do this often must keep at least $25,000 in their margin accounts.

Why can’t I day trade on Robinhood?

If you are a pattern day trader and ended the previous trading day with less than $25,000 in your account, you will get a day trade violation. You won’t be able to buy stocks, ETPs, options, or cryptocurrencies with Robinhood Financial or Robinhood Crypto for 90 days.

How quickly can you sell stocks on Robinhood?

Traditionally, the markets are open from 9:30 AM to 4:00 PM ET during regular business days. With extended-hours trading, you’ll be able to trade during pre-market and after-hours sessions. Pre-market will be available 2.5 hours earlier, starting at 7 AM ET. After-hours trading continues for 4 more hours until 8 PM ET.

Does Robinhood report to IRS?

Traditionally, the markets are open from 9:30 AM to 4:00 PM ET during regular business days. With extended-hours trading, you’ll be able to trade during pre-market and after-hours sessions. Pre-market will be available 2.5 hours earlier, starting at 7 AM ET. After-hours trading continues for 4 more hours until 8 PM ET.

Does Robinhood report to IRS?

Yes, Robinhood has to give the IRS a report. You must include on your tax return any dividends you get from your Robinhood shares or any profits you make from selling stocks through the app. If you make money by selling securities and have to pay taxes on that money, the rate will depend on how long you owned the stock.

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