Robinhood started with the mission to democratize the financial system. And somehow, it became real. They were one of the first companies offering commission-free trading to their customers.
In this article about day trading on Robinhood, we will dive deeper into the reasons why more than 20 million users prefer the free stock trading app. Are there only advantages of using Robinhood, or are there also some downsides?
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Can You Day Trade On Robinhood?
Yes, day trading on Robinhood is possible, and the regulations Robinhood falls under are similar to other U.S. Brokers. So, while day trading is allowed, there is a minimum requirement of maintaining $25,000 to day trade stocks in a margin account more than 3 times every 5 rolling business days.
If you plan to do day trading on Robinhood, you can already do it with $500 in your account, as long as you make less than 4 day trade round trips (1 trade round trip is a buy and sell order).
However, if you want to trade more frequently, you need the 25k. This is also true for options trading with Robinhood.
One thing to keep in mind planning to day trade on Robinhood is that they dramatically changed their business concept after the Wallstreetbets frenzy. Back in the day, they locked day trading accounts, which was nothing else than well-received by their clients.
Right now, they primarily promote investing activities and earning interest with high APY. Therefore, if you are looking for a high-end day trading brokerage, other day trading brokers are likely a better choice. Still, using Robinhood for a day trade here and there seems still reasonable.
What Is Robinhood?
Born as an idea of two Stanford roommates a few years ago, today Robinhood is a company aimed at revolutionizing the financial system. The platform became so successful all because of the concept to democratize the investment process by cutting the trading fees and provide commission-free investing.
Commissions and Fees
Simply put, Robinhood provides one of the cheapest possible trading services that you can find. Meanwhile, popular investment apps like Webull provide even more exciting tools and functionalities.
The Robinhood investment app became so widely popular due to its disruptive model to provide free investing to the masses. The commission fee structure allows clients to trade U.S. listed securities commission-free. In addition to all that, all automatic clearing house (ACH) bank transfers are completely free of charge.
The majority of the investment app’s users are millennials and this is no coincidence. The Robinhood minimum deposit is set at $0 which makes it open to all types of investors, no matter of the funds they have at their disposal.
In a world where some of the largest brokers set minimums of $500 even for the best brokerage accounts and above, Robinhood easily shines. Yet, for margin trading (Robinhood Gold), the minimum account balance is set at $2,000 which is the regulatory standard.
The range of traded instruments was not one of Robinhood app’s strengths. In the past only 250 globally-listed stockswhere tradeable. As of now, the asset classes that users can choose from are:
- U.S. exchange-listed stocks and ETFs
- Options contracts
- Over 5,000 globally-listed stocks
There are no mutual funds, FX, and fixed-income instruments. Another little downside is the fact that the investment app does not offer an automatic dividend reinvestment program. This means that when dividends are issued, they are credited to accounts as cash and cannot be invested back in the particular security.
The truth is that investors are limited to 3 trades per day for the period of 5 trading days unless they have an account balance of more than $25,000. The same SEC regulation applies to Robinhood users.
Trading Platforms and Tools
The basic idea of the Robinhood trading platform is to provide everything needed for one to invest from his mobile device. Webull goes the same way with their new trading and investment app.
Android and iOS users can navigate the platform easily and customize all their preferred features such as relevant alerts, personal news feed, etc. The sign-up and the initial setup, including the account funding, are quick and smooth.
According to the company, the application approval happens within an hour. The app does not offer the traditional interface of typical stockbroker platforms. Instead, it is minimalistic and intuitive, allowing quick trades execution with a limit, stop and market orders, which is more than enough for basic investing.
The data is real-time, although the terms of the platform mention that sometimes it may lag with up to 20 minutes. Although Robinhood started as an investment app only, it has recently released a desktop version of their platform.
Yet, the service is far from the ultimate investment experience. Overall, the Robinhood trading platform lacks much of the needed tools when compared to established brokers. Although it offers analyst ratings and commentary from Morningstar, there are no backtesting software, nor any in-depth charting, stock screener and visualization features.
The charts can only show historical data and tick information that cannot be customized. With that said, if you are a day trader or a data geek, look elsewhere. We should also mention and the “Robinhood Gold” investment feature. The premium service allows investors to trade on margin (2x).
It has its perks like extended trading hours and instant access to your funds without having to wait a couple of days for a settlement. If you are one of those riskier investors and decide to trade on margin, bear in mind that you won’t have to pay any interest.
Instead, you will be charged with a monthly fee, depending on the account size. For all those who want a professional advice, Robinhood offers the chance to take advantage of a broker-assisted trading for which you will have to pay additionally.
Education and Research
Unfortunately, all the educational part is limited to tutorials on how to navigate the app and where to find newly-introduced features. The idea of the Robinhood app is to simplify the investment process as much as possible, which is why the design is so clean and simple.
The controversial part here is that, although the investment app targets newbies, it lacks the much-needed know-how and educational resources to make their lives easier. The only form of basic research tools that the mobile app offers is limited to tick charts and valuation stats.
Yet, if you want to test different scenarios, use screeners or dive deeper in indicators and numbers, Robinhood will likely disappoint. When it comes to the web-based platform, the case is pretty much the same. There are no research or educational tools, apart from articles on the platforms’ UX.
You can find some additional information on their blog though, but it is yet again limited to corporate news, new features and platform developments. There are no how-to guides, videos, articles, etc. that may help you understand more about the investment process or how to achieve your personal goals.
With that said, if you want to take advantage of Robinhood’s free-of-charge investment platform, the best thing to do is conduct your research elsewhere and use the app only for trades execution.
The customer service is standard – there are multiple ways to get in touch with a Robinhood representative such as phone, email, social media, etc. Yet, the service is not 24/7, so if you try to contact them outside the standard business hours, you will have to wait until the next day.
Here we can focus also on the recent allegations against Robinhood about exploiting their clients’ order flow. The investment app is said to be earning 40% of its revenue from selling its clients orders to high-frequency traders.
Thats being done with two of the most prominent industry leaders – Citadel and Two Sigma Securities on the receiving end of the deal. Although the company CEO published a letter to decline the allegations, Citadel and Two Sigma Securities refuse to comment.
The point is that even big brokerage companies like TD-Ameritrade and E-Trade now do the same. So it became a business practice selling clients order flow to companies by offering commission-free trading to clients.
The customer service is further enhanced by the investment app’s referral program. If you invite a friend of yours to sign up and he gets approved, then both of you will get a free stock. That way, anyone can get a share of Apple, Ford, Google, etc., simply by spreading the word about Robinhood.
Robinhood Day Trading Summary
There are plenty of investment apps that offer “free” investing. Yet, most of them can surprise you with some hidden fees popping-up for this or that, which significantly increases the overall trading costs. Investing via Robinhood, on the contrary, is entirely free.
If you want to find the cheapest way to invest, then Robinhood is your best shot. The free-trading app is ideal for investors who are willing to trade stocks, ETFs, or options contracts without having to pay for that.
If your primary goal is to cut your costs and do basic buying and selling of stocks, and options, then Robinhood is an option.
- Commission-free investing
- Great trading platform interface
- Main tradeable assets supported
- Customer support waiting times
- Add-on costs for Robinhood Gold
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