How To Remove Robinhood Pattern Day Trader Status
November 16, 2021
Like all U.S.-based brokers, Robinhood follows the pattern day trader (PDT) set by the Financial Industry Regulatory Authority (FINRA).
These rules define a PDT as anyone who executes four or more day trades in a margin account within a consecutive five-day period. And as a Robinhood pattern day trader, you must have a minimum of $25,000 in your account.
Luckily, there are loopholes and workarounds that let you day trade on Robinhood without keeping this much cash in your account.
But if Robinhood flags you as a pattern day trader and you don’t have the requisite $25,000 in your account, the app might block you from making another trade for 90 days.
If you’ve been flagged as a Robinhood pattern day trader, you have two options.
You can either wait out your 90-day account freeze (if you’ve been penalized) or add to your account so it has at least $25,000 in it.
In this guide, we’ll delve deeper into what it means to be a pattern day trader and what steps you can take if Robinhood flags your account.
What Is a Robinhood Pattern Day Trader?
According to FINRA, a pattern day trader is anyone who executes four or more day trades within five consecutive trading days.
You execute a day trade whenever you open and close a stock position within the same trading day.
Day trading has become wildly popular lately. Broker apps like Robinhood make investing easy and charge zero fees on most trades.
But day trading is super-speculative. Day traders look for volatile stock moves and dive in. As you can imagine, that can lead to more losers than winners.
What’s more, most day traders trade on margin. This means they borrow money from their broker to give themselves even more leverage when buying a position.
Of course, the broker charges interest on the margin loan. This makes day trading in a margin account particularly risky — you stand to lose more than your principal, since you’ll have to pay the loaned amount plus interest.
FINRA has attempted to lessen this risk by limiting multiple day trades to investors who have enough money padding their margin accounts to afford these losses. Hence the PDT rule.
What Happens If You’re Flagged as a Robinhood Pattern Day Trader?
When you’re stock trading on Robinhood, it can be surprisingly easy to get flagged as a pattern day trader.
That’s because all Robinhood users start out with a margin account by default.
Robinhood Instant accounts allow you to place trades before your funds are officially settled. That technically makes them margin accounts — even if you don’t employ a margin trading strategy.
And because they’re margin accounts — you guessed it — you can get flagged as a pattern day trader if you open and close four or more trades within a five-day period.
If Robinhood flags you as a PDT, typically, your account will be frozen for 90 days. That means you won’t be able to execute any trades for roughly three months.
You can remove the 90-day freeze penalty if you deposit at least $25,000 in your account. However, you’ll still be flagged as a Robinhood pattern day trader for 90 days — so if you dip below the $25,000 account minimum again, you might have to face further penalties.
What Is Robinhood’s Pattern Day Trade Protection?
Robinhood has a feature called Pattern Day Trade Protection that alerts you when you’re about to cross the PDT line.
When you’ve completed three day trades and are about to place your fourth, you’ll receive an alert. Robinhood will give you the option to either proceed with the trade and face the penalties or cancel it and avoid the PDT flag.
You can toggle this feature on and off in the Day Trade Settings section of your Robinhood Account Summary.
How Can You Remove the Pattern Day Trader Status?
As we mentioned above, there are two steps you can take if Robinhood flags you as a pattern day trader.
First off, you can accept the PDT label and make sure you have at least $25,000 in your Robinhood trading account.
As soon as the funds clear in your account, you’ll get to enjoy unlimited day trading — and the ability to borrow on margin to magnify your gains, to boot.
Secondly, you can wait 90 days before executing another trade. During this time, you could try trading with another commission-free broker, such as Webull. However, understand that other brokers have the same pattern day trader rules!
There’s one more thing you can do if Robinhood flags you as a day trader: You can ask to have the flag removed.
Robinhood allows many account holders a one-time PDT flag removal. You’ll have to contact Robinhood’s customer support through the app to find out if you’re eligible.
How to Avoid Getting Flagged as a Robinhood Pattern Day Trader
The best way to make day trades on Robinhood without getting flagged as a PDT is by switching to a Robinhood Cash account.
With a cash account, you’ll be trading with money you’ve already deposited in your account. So it’s not a margin account and therefore the PDT rules don’t apply.
Although you’ll still enjoy commission-free trades as a Robinhood Cash account holder, note that your deposits and gains may take up to two days to settle in your account. So if you want to day trade, make sure your strategy takes that into account.
The best way to do this is by staggering your trades and letting them compound. (Check out this article for our favorite tips.)
Frequently Asked Questions
Is pattern day trading illegal?
Pattern day trading isn’t illegal. However, there are rules in place that require you to have at least $25,000 in your account if you attempt to be a pattern day trader.
If you don’t comply with these rules, brokers such as Robinhood will place a 90-day freeze penalty on your account. And if you violate the PDT rules more than once, Robinhood may bar you from executing any trades on the platform again, even if you put $25,000 in your account.
Does Webull have pattern day trading rules?
Yes. All U.S.-based stock brokers have rules against pattern day trading without a minimum of $25,000 in your trading account.
Webull’s day trading rules are the same as Robinhood’s. You can also set up a cash account to trade with Webull — however, remember that the cash you use to day trade must be settled in your account first.
The Bottom Line
Day trading can be a fun and exciting way to pocket some quick profits. But it also comes with risks.
Not only do you risk losing your money (and your loaned money, too!), but you risk running afoul of regulatory rules.
If you place four or more day trades within a five-day period in a Robinhood Instant or Gold account without meeting the pattern day trader minimum of $25,000, Robinhood will flag you as a pattern day trader. This could lead to the broker freezing your account for 90 days.
Before you try to day trade on Robinhood — or any other trading platform — make sure that you 100% understand the rules.
You might find it best to pace yourself when it comes to day trades — making three or fewer every five days. That way, you can build up your $25,000 account and earn the title of legit pattern day trader with the freedom to place unlimited trades.