Robinhood Account Deficit | What Does This Mean?
If you are using Robinhood, a popular online brokerage platform, you may have encountered a situation where your account shows a negative balance.
This is called a Robinhood account deficit, and it can happen for various reasons.
Key Takeaways
A Robinhood account deficit is when you are using more buying power than is available in your account.
You can have a Robinhood account deficit even if you are not using margin if you incur fees, an option spread is exercised early, or your ACH transfer is reversed.
To fix a Robinhood account deficit, you can deposit funds or close positions that are causing it.
What is a Robinhood Brokerage Account Deficit?
A Robinhood account deficit is when you are using more buying power than is available in your account. Buying power is the amount of money that you can use to buy stocks, options, or cryptocurrencies on Robinhood. Buying power can come from your cash balance, your margin balance (if you have Robinhood Gold), or your instant deposits (if you have access to them).
A Robinhood account deficit means that you have overspent your buying power and you owe money to Robinhood. This can happen if you incur fees, an option spread is exercised early, or your ACH transfer is reversed.
Why Does My Robinhood Account Have a Deficit?
There are several reasons why you may have a Robinhood account deficit, even if you are not using margin. Here are some of the most common ones:
1- Robinhood Gold Fees
If you are subscribed to Robinhood Gold, you will be charged a monthly fee based on your margin usage and your tier level.
If you are charged the Robinhood Gold fee when you don’t have any buying power left in your account, it will cause your account to show a deficit. You can check out the fees in the app under History.
2- ADR Fees
ADR stands for American Depositary Receipt, which is a type of security that represents shares of a foreign company that trades on U.S. stock exchanges.
If you hold ADRs in your Robinhood account, you may have to pay occasional service fees to the depositary bank that issues and manages the ADRs. These fees can range anywhere from $0.01 to $0.03 per share, depending on the ADR.
These fees are deducted from your buying power, and they can cause your account to show a deficit if you don’t have enough funds to cover them.
3- Option Exercise
If you are trading an options spread, such as a call spread or a put spread, your long option generally covers your short option. However, you may have an account deficit if the short option of your spread is exercised before the expiration date and your long option is not exercised yet to cover it.
For example, suppose you sell a call option with a strike price of $100 and buy a call option with a strike price of $105 for the same underlying stock and expiration date. This is called a call credit spread, and it means that you receive a premium upfront for selling the option, but you also have an obligation to sell 100 shares of the stock at $100 if the option is exercised.
Now suppose that the stock price rises above $100 before the expiration date, and the buyer of the call option decides to exercise it early. This means that you have to sell 100 shares of the stock at $100, even if the market price is higher.
If you don’t have enough shares or buying power in your account to fulfill this obligation, your account will show a deficit. To avoid this situation, you can exercise your long option to buy 100 shares of the stock at $105 and offset your loss.
4- ACH Reversals With Instant Deposit
ACH stands for Automated Clearing House, which is a network that processes electronic payments between banks. If you link your bank account to your Robinhood account, you can use ACH transfers to fund your account.
Instant Deposits allow you to use the money from your ACH transfers immediately to buy stocks, options, or cryptocurrencies on Robinhood, without waiting for the transfers to settle.
But if you use some or all of your Instant Deposits and your ACH transfer does not go through (your transfer is reversed), your buying power will be reduced by the amount of the reversed deposits, which may lead to an account deficit.
To prevent this from happening, make sure that you have enough funds in your bank account to cover your ACH transfers, and avoid canceling or reversing them after using Instant Deposits.
Robinhood Account Deficit - How to Fix?
If you have a Robinhood account deficit, you will need to deposit funds or close positions that are causing it. Depending on the reason for your account deficit, you may have different options to fix it.
If you were charged a fee, such as a Robinhood Gold fee or an ADR fee, you will just have to deposit enough funds to cover the fee. You can do this by linking your bank account and initiating an ACH transfer or by using a debit card.
If half of your spread was assigned early, you will likely have to exercise the other half of the spread to get rid of the account deficit. You can do this by tapping on the option in the app and selecting Exercise.
If your ACH transfer was reversed after using Instant Deposits, you will have to deposit funds again or sell some of your positions to cover the reversal. You can also contact Robinhood’s support team if you think that the reversal was a mistake or if you need more time to resolve it.
How to Get Hands-on Help With the Stock Market
We hope that this article has helped you understand what a Robinhood account deficit is, why it can happen, and how to fix it. However, if you still have questions or need more guidance on how to trade stocks, options, or cryptocurrencies on Robinhood or any other platform, we have a solution for you.
You can join the HaiKhuu Trading community, a group of passionate and experienced traders who are eager to help you navigate the stock market efficiently. HaiKhuu offers daily morning reports, live trading calls, and a welcoming community where you can learn from others and share your ideas.
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