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 top choice for day traders because it has low costs, an easy-to-use interface, and is widely accessible. The platform offers various features, investment options, and account types that suit different day trading approaches.

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

Yes, you can, but there are some important points to consider before you start.

Day Trading in a Robinhood

Robinhood provides two kinds of retirement accounts: Traditional and Roth. Both account types allow for day trading and come in limited margin and cash formats.

Robinhood's IRA accounts typically operate as margin accounts by default. This means trading in these accounts is similar to trading in a regular brokerage account. However, the available margin is restricted, which could limit certain trading strategies.

Robinhood IRA Account Details

Your day trading experience at Robinhood will depend on the type of IRA account you choose and how much trading capital you have.

Here are some key details to keep in mind.

Robinhood Incentive

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

Open Robinhood Account

Limited Margin vs Cash Accounts

Choosing between a margin account and a cash account is crucial. The differences between these two aren't as significant in IRAs since margin is restricted. Still, there are some distinctions.

In a limited-margin IRA account, you can immediately use the money from selling stocks or options for new trades. However, in a cash IRA account, you must wait for the settlement period, which is two days for stocks and one day for options, before using the funds for new trades.

Another difference is in trading frequency. In a cash account, you can make unlimited trades in one day without worrying about the Pattern Day Trader (PDT) rule. Also, you don't need to keep a $25,000 minimum balance.

What Can You Trade?

You can trade stocks, ETFs, and options in a Robinhood IRA account. However, certain assets popular with day traders, like cash-settled indices such as the SPX, cryptocurrencies, futures, and forex, are not available.

For options trading, you can engage in level 2 strategies like long calls, covered calls, long puts, and cash-secured puts. More complex strategies such as straddles, strangles, vertical spreads, and calendar spreads might be offered in the future but are currently not available in IRA accounts.

Pros and Cons of Day Trading in IRA Accounts

Day trading in a Robinhood IRA comes with both advantages and challenges.

Benefits of Day Trading in IRAs

IRA accounts offer tax benefits such as deferred tax growth for Traditional IRAs or tax-free withdrawals for Roth IRAs.

Trading in an IRA allows for potential long-term growth and compounding of profits. This aligns your trading activities with your retirement planning and can help build a solid retirement fund.

Considerations and Potential Drawbacks for Day Trading in IRAs

IRA accounts have some restrictions that might affect day traders.

For example, IRAs are subject to the PDT rule, Good Faith Violations, and margin calls, just like other accounts.

For those with IRA accounts under $25,000 and enabled for margin, you can't make more than three day trades in a five-day period. Cash accounts don't have the PDT limit, but you cannot trade with unsettled funds.

Contributions and Margin Calls

If you face a margin call, IRAs have limits on how you can address it.

If you get a PDT flag on your account because you turned off the Day Trade protection, you can respond by adding funds to your IRA, but only if you haven’t reached your yearly contribution limit.

If you need more funds than your contribution limit allows, you must either transfer another IRA from a different broker or wait 90 days before you can trade actively in the IRA again.

Final Thoughts

Robinhood IRA accounts are great for day trading as long as you can work within the limitations.

The accounts don't require high minimum balances, and Robinhood Gold offers extra tools and features if you need them.

Robinhood Incentive

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

Open Robinhood Account