Robinhood is an online brokerage that specializes in bringing online day trading to the masses with its free app. It offers stocks, ETFs, and cryptocurrency trading.

Robinhood Day Trading

When Robinhood first entered the brokerage industry, they exploded on the scene. They were the first large broker to offer commission-free trades and created the most user-friendly stock trading app.

Robinhood gained a huge market share with millennials, a demographic that big brokers have historically struggled to garner.

Robhinhood’s young clientele is quickly enamored with day trading. (One day trading occurs when you buy and sell the same security within one day. If I buy Apple stock at 10AM and sell it an hour later, I have made a day trade.)

For Robinhood traders, day trading is partly a game. To make the trading and investing experience similar to a mobile game, Robinhood attempts to ‘gamify’ it.

Traders at Robinhood have small accounts and know that buying index funds with $2,000 won’t result in impressive gains. According to a study from JMP Securities, the average Robinhood customer has between $1,000 and $5,000 in their account, as compared to Charles Schwab, which has an average of $240,000.

For many, day trading is the only way to grow their small accounts. 

Is Robinhood day trading platform?

Yes, you can day trade on Robinhood.

It functions the same way as investing. Using the app, you can buy a stock, and then sell it later in the day. There is no day trading feature or switch in the app. 

PDT Rule

Day traders, however, should know a few things first, namely, the Pattern Day Trader (PDT) rule. PDT prohibits traders with less than $25,000 in their accounts from making more than three days worth of trades in a rolling five-day period.

The five-day period is rolling. If you make a day trade on a Tuesday, it counts against your day trade number until the following Tuesday.

It’s a dumb regulation, but all US brokerages must follow it, so it’s something to consider when adapting your trading strategy. Using a small account means no scalping or highly active trading strategies.

Order Types

Order types are another thing to be aware of.

Robinhood day traders are relatively new to the stock market. Their knowledge of order types is limited. 

Robinhood’s default order type is a market order, which buys whatever shares are available at the time. Market orders can result in your order being filled at an undesired price. 

Robinhood offers only a few order types, and the most important one is the limit order. You can tell robinhood day trading, “I want to buy this stock at $X and under.” This prevents you from paying more than you intended to for a stock. 

Limit orders and market orders aren’t much different when trading large-cap names like Amazon or Apple. When trading penny stocks, which can have wide bid-ask spreads, limit orders become extremely important.

Day trading on Robinhood: pros and cons

The pretty UI and trendiness of Robinhood might appeal to you, but remember the classic quote, “if it’s free, you’re the product.” In other words, there’s no free lunch. 

Let’s take a look at some of the features Robinhood offers.

Easy to use

Investing and trading have been democratized by Robinhood. The company created a user interface that is intuitive and easy to use. Stock trades can be made without many of the traditional formalities. 

Robinhood has undoubtedly provided many future hedge fund managers with an accessible introduction to the stock market through its low-friction model. 

This attribute is listed under the pros, but it can also be a disadvantage.

Many people are fooled into thinking that profitable trading is easy because of the simplicity of making a trade. The company has been criticized for this.

No Commissions

Robinhood as a platform used to be known for its low trading commissions.

In response to Robinhood’s disruption, the rest of the industry has cut commissions. Commission-free trading is offered by all the top discount brokerages: Charles Schwab, E*TRADE, TD Ameritrade, and Fidelity. 

Great Mobile App

From a pure ease-of-use and UI standpoint, Robinhood blows the rest away. If you need to enter or exit a trade quickly, you can’t beat it. 

Robinhood Day Trading: With its free app, Robinhood brings online day trading to the masses through a streamlined trading brokerage.
Rabinhood day trading mobile application

However, the app lacks analytics. When compared to the thinkOrSwim app, offered by TD Ameritrade, the charts are pretty weak. 

Good margins

Currently, margin loans through Robinhood Gold are a decent deal, offering lower interest rates than many of their competitors like Schwab and E*Trade.

For all margin loans above $1,000, Robinhood charges 5%. There is a flat fee of $5 for the first $1,000 of margin, regardless of whether you use it. 

Let’s talk about Robinhood’s downsides.

Brokers who offer free commissions are also better

The largest discount brokers now offer commission-free trading, as I mentioned earlier. The majority of these brokers offer sophisticated desktop trading software, including charting, screeners and scanners, and news. 

TD Ameritrade, who offers free commissions, provides the thinkOrSwim platform for free to all clients. One of the best pieces of free trading software is this platform. Even experienced traders appreciate it.

Robinhood doesn’t offer this level of technology to its clients.

Order flow for selling

Except for Interactive Brokers (and their IB Lite program), most big brokers sell your order flow to high-frequency traders. HFT firms like Virtu Financial pay brokers to route your orders to them before they reach a stock exchange. 

HFT firms, on the other hand, REALLY like Robinhood traders. Logan Kane reports that they pay Robinhood up to ten times what they pay other discount brokers for the same volume. 

This is likely due to HFTs knowing that Robinhood’s clientele is generally less informed than your average investor at Schwab or Fidelity. It might also be due to the way Robinhood’s app defaults to market orders. Dennis Dick, a proprietary trader at Bright Trading, says market orders are more profitable for HFTs. 

Charging for Basic Features

Robinhood Gold is Robinhood’s primary revenue source. Gold allows investors to use margin and access analytical tools like Morningstar research reports and Level 2 market data. 

There is a problem with Gold in that Robinhood’s competitors offer the same features for free. A majority of discount brokers like Schwab offer free research reports, trading software, and other resources, even to clients who haven’t made a deposit.

Poor customer service

Fidelity, Interactive Brokers, and Schwab provide excellent customer service 24/7. You can usually speak with a licensed broker within a few minutes, unless a market crash is unfolding. 

If you Google search “Robinhood customer service reddit,” you’ll find dozens of reports from Robinhood clients who complain about the company’s slow response to support claims or waiting on hold for over an hour to reach a representative.

PissedConsumer reports that only 1% of complaints reported reaching a representative.

Classifications of limited assets

Currently, Robinhood only offers stocks, options, ETFs, and crypto. This is enough for most people. However, most serious traders test several different strategies across several asset classes.

Futures, mutual funds, bonds, forex, spot commodities, or warrants are not offered by Robinhood. An excellent example of a broker offering almost all asset classes to retail investors is Interactive Brokers.

Robinhood Fees

The great thing about Robinhood is that most of their fees are barebones. Robinhood Gold does not charge commissions for trades, and its pricing structure is transparent. 

In the past, Robinhood’s Gold members were charged more complex pricing, but now all Gold members pay the same $5 per month and receive a 5% interest rate on any capital they borrow.

Robinhood also charges hidden fees for miscellaneous transactions, such as the following: 

  • $75 account transfer fee
  • $5 paper statement fee
  • $50 commission for foreign securities, $35 for Canadian securities.

Other brokers also charge similar fees for account transfers and foreign securities.

The bottom line

While Robinhood certainly has a place in the finance world, their competitive advantage is eroding every day. When the brokerage industry cut its commissions to zero, it became harder to justify using Robinhood over one of its competitors. 

Traders need high-quality charts, screeners, and programmable hotkeys. Robinhood does not offer any of these features.

As an entry point to the stock market, the platform is great, but once you have any trading experience, it’s time to jump ship. 

The company launched Profiles, a social network for investors, in February 2020. Users can set buy/sell ratings for stocks and analyze each other’s holdings. Although the platform isn’t suitable for advanced traders, this feature seems like a promising start to growth.

Gratia Mario

The founder of traderma.com has 15 years of experience in the financial markets. She aims to make trading and investing easy to understand for everyone, and she has been interested in developing the money management techniques.

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Gratia Mario

The founder of traderma.com has 15 years of experience in the financial markets. She aims to make trading and investing easy to understand for everyone, and she has been interested in developing the money management techniques.

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