Robinhood Pattern Day Trader (PDT) Rules Explained
Day trading is a popular and exciting way to make money in the stock market. However, it also comes with certain rules and regulations that you need to be aware of before you start trading.
In this article, we will explain what the pattern day trader (PDT) rule is, how it affects your trading on Robinhood, and how you can avoid or remove the PDT flag from your account.
What is the PDT Rule Explained?
The PDT rule is a regulation imposed by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) to protect investors from excessive risk and potential losses.
The rule limits the number of day trades that can be made in a margin account with less than $25,000 in a rolling five-day period. The SEC designates an account as a PDT if the account makes four or more day trades in five business days.
A day trade is defined as buying and selling (or selling and buying) the same security on the same trading day. For example, if you buy 100 shares of AAPL at 10:00 AM and sell them at 11:00 AM, that is considered a day trade.
If you do this four times or more in five business days, you will be flagged as a PDT. The PDT rule only applies to margin accounts and not to cash accounts.
When do Day Trades Reset?
The day trades in your account will go away from the counter after five business days from the date of the trade. The rolling five-day window is a way to measure how many day trades you have made in the past five business days.
For example, if you make a day trade on Monday, it will count as one day trade until the following Monday. If you make another day trade on Tuesday, it will count as another day trade until the following Tuesday. And so on.
The rolling five-day window is not fixed to a calendar week but rather moves along with your trading activity. This means that your day trade count can change every day, depending on when you made your previous day trades. To keep track of your day trade count, you can use the Day Trading Dashboard in your trading platform, which will show you how many day trades you have made and how many you have left before triggering the PDT rule.
Cash Accounts and Day Trading
If you want to avoid the PDT rule altogether, you can use a cash account instead of a margin account. A cash account is an account that only allows you to trade with your own money.
The advantage of using a cash account is that you have unlimited day trades with no minimum balance requirement. However, you need to have settled cash in your account before you can trade to avoid good faith violations.
When you trade options in a cash account, there is a 1 day settle time. When you trade equity, the cash will settle in 2 days T+2. Therefore, if you day trade options, you can day trade every day since your cash will settle the next day.
For example, if you have $10,000 of settled cash in your account and you buy $10,000 worth of stock A on Monday, you can sell stock A on Monday or any day after that without any problem.
However, if you sell stock A on Monday and then buy $10,000 worth of stock B on Monday, you will have a good faith violation because you sold stock B before paying for stock A with settled funds. To avoid this violation, you should wait until Wednesday (the settlement date of stock A) before buying stock B.
Good Faith Violations Explained
Settled cash means that the funds from your previous trades have cleared and are available for trading again. If you trade with unsettled funds, you may incur a good faith violation (GFV).
A GFV occurs when a cash account buys a stock or option with unsettled funds and then sells the position before the funds used to make the opening trade have settled. A GFV can occur when:
You buy a security with funds that are available but not settled
You sell the security before paying for the initial purchase in full with settled funds
You sell the security before the settlement date of the sale that generated the proceeds
If you incur four or more GFVs in a 12-month period, your account will be restricted from placing trades for 90 days.
Day Trading Rules Robinhood
The rules for day trading on Robinhood are the same as any other broker. Robinhood follows the FINRA and SEC regulations regarding margin accounts and PDT rules.
However, there are some differences in how Robinhood implements these rules and how they affect your trading experience.
Can You Day Trade on Robinhood?
Yes, you can day trade on Robinhood with a margin account if your account is over $25,000. Or with a cash account with settled funds.
If your equity falls below $25,000, you will be restricted from making more than three day trades in a five-day period.
Robinhood Cash Account Day Trading
You can also day trade on Robinhood with under $25,000 by using a cash account. If you day trade options, you can essentially day trade every day since it only takes one day for your cash to settle.
Equity trading is a bit more difficult with a cash account since it will take two days for your cash to settle.
This means that you need to wait for the funds from your previous trades to clear before you can use them again. This can limit your trading frequency and flexibility, especially if you trade large amounts or volatile securities.
How Many Day Trades Can You Make on Robinhood?
Robinhood Standard and Robinhood Gold accounts are limited to three day trades per week. This limit is based on the pattern day trading (PDT) rule, which states that traders with less than $25,000 in their accounts cannot make more than three day trades in a five-day period.
Flagged as a Pattern Day Trader on Robinhood
If your account is flagged as PDT, it means that you have made four or more day trades in a five-day period with less than $25,000 in equity. This will trigger a closing-only restriction on your account that will prevent you from making any more day trades until you either:
Deposit enough funds to bring your equity above $25,000
Switch to a cash account
Robinhood PDT Reset - How to Remove Pattern Day Trader Status
If you are flagged as PDT and want to remove the restriction from your account, you have two options:
Deposit enough funds to bring your equity above $25,000
Request for a one-time PDT flag removal by contacting Robinhood support
The first option is straightforward. You just need to add enough money to your account to increase your equity above the minimum threshold. This will lift the restriction immediately and allow you to resume day trading as normal.
The second option is a bit more complicated. You can request a one-time PDT flag removal by contacting Robinhood support. However, this is not guaranteed, and it may take several days for them to process your request.
If you violate the PDT rule again after receiving the exception, you will not be eligible for another one, and you will not be able to day trade unless you switch to a cash account or deposit enough to bring your account over $25,000.
FAQ
Does PDT apply to cash accounts?
No, PDT does not apply to cash accounts. Cash accounts are accounts that do not use margin or leverage to trade securities. However, you can receive a good faith violation in a cash account.
What is the Robinhood day trade limit?
The Robinhood day trade limit is three day trades per week for margin accounts with less than $25,000 in equity. This limit is based on the PDT rule, which states that traders with less than $25,000 in their accounts cannot make more than three day trades in a five-day period.
How to day trade on Robinhood without 25k?
You can day trade on Robinhood without 25k by using a cash account instead of a margin account. You can also limit your day trading to avoid becoming a pattern day trader.
What is a pattern day trader?
A pattern day trader is a trader who makes more than three day trades in a five-day period. The PDT rule is a regulation imposed by the FINRA and the SEC to protect investors from excessive risk and potential losses. The rule limits the number of day trades that can be made in a margin account with less than $25,000 in a rolling five-day period.
How to avoid PDT rules?
You can avoid PDT rules by following these tips:
Use a cash account instead of a margin account. Cash accounts are not subject to the PDT rule, but you need to have settled cash before trading.
Keep your equity above $25,000. Margin accounts with more than $25,000 in equity are not subject to the PDT rule, but you need to maintain this balance at all times.
Trade less frequently. Limit your number of day trades to three or less per week. This will prevent you from triggering the PDT flag and facing a restriction.
Trade overnight. Hold your positions overnight or longer. This will not count as a day trade and will not affect your day trade limit.
Does PDT apply to options?
Yes, PDT applies to options as well as stocks and ETFs. Options are considered securities and are subject to the same rules and regulations as stocks and ETFs. However, options settle in one day as opposed to two, allowing you to trade every day.
If you buy and sell (or sell and buy) an option contract on the same trading day, it will count as a day trade. If you do this four times or more in five business days with less than $25,000 in equity, you will be flagged as a PDT.
What is the one time pattern day trading flag removal Robinhood?
The one time pattern day trading flag removal Robinhood is a request that you can make to Robinhood support if you are flagged as PDT and want to remove the restriction from your account.
Each account only gets one PDT flag removal per lifetime of the account.
Robinhood Day Trading Rules - Bottom Line
Day trading on Robinhood can be a fun and profitable way to make money in the stock market. However, it also comes with certain rules and regulations that you need to follow and understand before you start trading.
The most important rule is the pattern day trader (PDT) rule, which limits the number of day trades that can be made in a margin account with less than $25,000 in equity.
You can avoid or remove the PDT flag by using a cash account, keeping your equity above $25,000, trading less frequently, trading overnight, trading different securities, or requesting a one-time exception from Robinhood support.
If you want to learn more about day trading and how to improve your skills and strategies, you can join the HaiKhuu Trading community. HaiKhuu Trading is a community of thousands of traders that can help you accelerate your learning curve on the stock market.
HaiKhuu Trading offers live trading calls, daily morning trading reports, and a friendly and supportive environment where you can interact with other traders and learn from their experiences. You can sign up for HaiKhuu Trading for free and start your day trading journey today.
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