How good is Robinhood for day trading, really?

TradeZella explores Robinhood for day trading and discusses the platform's research and analysis tools to find out if it is a good choice for day traders.

May 24, 2023
7 minutes
Trading Education

If you’re interested in day trading, you’ll have heard of Robinhood. 

One of the most popular brokers for beginner investors, it made waves during the COVID-19 pandemic when millions of new investors started using it to begin their trading journey. It’s even been credited by CNBC for introducing a new generation of traders to the stock market.   

Robinhood is especially popular among Millennial and Gen Z traders with small balances (between $1-5k) looking to try out day trading. That is, buying and selling a financial asset – usually stocks or crypto – within the space of a single trading day. Sometimes within minutes.

While this practice was once reserved for financial firms and professional speculators, it’s become more democratized over the past few decades.

The deregulation of commissions since the 70’s has played a role in day trading’s popularity, but more recent access to technology (and apps like Robinhood) have supercharged the popularity of this form of trading.

So, you’ve heard Robinhood is the go-to place for day trading. But what’s the app’s background, and is it really worth the hype?  

First things first: what is Robinhood?

Forget Wall Street. Robinhood is a Silicon Valley-based brokerage, famous for its commission-free trading and user-friendly mobile app. As well as stocks, it also facilitates ETFs, crypto and individual pension funds.

Because it’s super easy to use, it became the go-to app for many first-time investors during (and following) the pandemic trading boom. 

It was also at the heart of the ‘meme stocks’ craze, where Reddit users made headlines trading stocks like GameStop and AMC using the app.

Controversially, Robinhood was among the brokerages that imposed trading restrictions on these stocks – causing a backlash amongst its community.

While Robinhood shook up the industry and was a bit of a Fintech golden child in 2020, it has had its fair share of scandal. Most famously, it faced a Financial Industry Regulation Authority (FINRA) fine of $70 million in 2021. The largest fine ever imposed by the body, it was for Robinhood’s frequent outages and misleading consumers.

All that said, Robinhood is a safe platform to use for day trading. It’s a member of the Securities Investor Protection Corp (SIPC) and is regulated by the US Securities and Exchange Commission (SEC). It also has its own financial protection per customer account – up to $1.5 million for cash, and $10 million for securities.

And, despite the controversies, it’s also still massively popular. It counts over 12.2 million monthly active users as of September 2022. Especially impressive as it’s currently only available in the USA. 

Day trading on Robinhood: benefits

[image instruction: person using their phone, implication being that they’re using the Robinhood app for day trading]

So, is Robinhood good for day trading? There are a few reasons why it’s still a popular choice. For example:

It’s user-friendly 

Robinhood is super easy to use, and has gamified elements that make trading feel fun. This is why it was such a hit with new traders back in 2020, and continues to be a great introduction to stock trading.

Setting up an account is quick and straightforward. In most cases, you can be up and running within an hour. Once you’re in the app, it’s sleek and intuitive. Executing trades is quick and easy.

It has good app integration 

Robinhood has good integration with other software, so you don’t have to worry about transferring data automatically. 

For example it works with TurboTax, pulling in data so you don’t have to do it manually during tax season. 

It also integrates with TradeZella so you can easily use our in-depth analytics tools for long-term success

Another useful integration is with StockTwits, so you can trade directly from your watchlist.

There are no fees for trades 

Robinhood shook up the industry by being the first broker to offer zero-fee trading. It’s not exactly a USP anymore -- since then, many others have followed in their footsteps. 

It’s still a big benefit of using Robinhood to day trade, however, as it keeps overheads low. It’s also free to open and maintain your account so there are no ongoing charges to worry about. 

It’s regulated by the SEC and FINRA 

Day trading on Robinhood is safe because it’s heavily regulated. As well as being regulated by the SEC and FINRA, all investment accounts are covered by SIPC. This means that, if Robinhood declares bankruptcy, investor funds will be protected up to $500k for securities and cash or $250k for cash only.

It also offers its own coverage in excess. So, if Robinhood was to go bankrupt, it would provide $1.5 million for cash and $10 million for securities above and beyond SIPC coverage.

Of course, day trading is never 100% risk-free. Learn more about how to manage risk for day traders.

You can access thousands of stocks 

Robinhood is pretty comprehensive, with over five thousand securities available to trade. You’ll find most U.S. exchange-listed stocks and EFTs, as well as ADRs for more than 650 global companies. There’s also a decent crypto offering, with around 18 popular coins available to day trade.

Day trading on Robinhood: drawbacks

Photo by ThisisEngineering RAEng on Unsplash

Of course, no app is perfect. If you’re considering day trading on Robinhood, these are a few stumbling blocks to be aware of. 

Lack of in-depth data

While Robinhood’s sleek and minimal design is one of its biggest draws, it can also be a drawback. The platform doesn’t have much in the way of in-depth analysis or charting tools like other software does. 

If you’re not doing in-depth research elsewhere, this could lead to uninformed decision making. However, if you’re using technical analysis and journaling tools to manage your strategy, this shouldn’t be as much of an issue. 

Looking for technical analysis tools? Check out our guide to the best software for stock trading for our recommendations.

It’s hard to manage diverse portfolios

Another drawback of Robinhood’s sleek design is that it can be difficult to track your portfolio once you have more than three or four positions open. 

To keep things convenient, it’s easy to simply slip into only having a couple of trades open at any time. This is fine for beginners, but as you become more advanced you’ll probably want to have a few more trades on the go at once.  

You can’t use Robinhood outside the USA

Robinhood is only available to US citizens. You also need to be older than 18, and have a valid social security number. There were plans in place to expand to a number of new territories, including the UK, however these have been shelved indefinitely. 

Is Robinhood good for day trading crypto?

That depends. 

Robinhood’s crypto exchange is great for beginners. Just like its stock trade options, the crypto side of the app is easy to use, and trades are free from commission. Another nice touch is the no-withdrawal option, which keeps your crypto super secure.

More advanced crypto traders might find some elements of the app frustrating. Particularly the limited coin selection. As of May 2023, there are 18 cryptocurrencies listed on the Robinhood exchange.

This includes super popular coins like Ethereum, Dogecoin and Bitcoin (of course), but if you’re looking for low market cap exotic coins it’s probably better to use a dedicated crypto exchange.

But, if you want to dabble with day trading the big names in crypto, Robinhood is a great choice. 

How strict is Robinhood on day trading?

Robinhood trading - TradeZella
Photo by Tech Daily on Unsplash

If you’re a day trader on Robinhood, there’s one super important rule to know about: the Pattern Day Trading (PDT) rule. Under this regulation, you can’t make more than four day trades in a rolling five day period if you have less than $25k in your account.

This five day period is usually based on business days, not calendar days – so if you make a trade on Monday, it will count  towards your total until the following Monday.

Robinhood is pretty strict on this. If you go over your three trade limit, Robinhood will restrict your account from placing any further day trades for 90 days. So it’s better just to wait out the week.

There is a one-time pattern day trading restriction waiver that you can use  – like a ‘get out of jail free card – but as the name suggests, this can only be used once. Best to save it for when you make a  genuine mistake. 

Of course, mistakes are less likely when you turn on the app’s in-built Pattern Day Trading protection feature. This sends you a warning alert once you make three day trades in the five day period. This helps to reduce your risk of accidentally hitting your limit, and facing a 90 day ban.

Because this regulation was set by the Financial Industry Regulatory Authority (FINRA), all US-based brokerages need to follow the PDP rule. So, if you were hoping to get around it by switching to Thinkorswim or Charles  Schwab, you can’t. Sorry.

If you do want to make more day trades, the only way to do it is to have more than $25k in your account. As you become more successful as a trader, this won’t be too hard a milestone to hit.

If you’re a day trader on Robinhood, it’s easy to journal with TradeZella

TradeZella has direct broker integration with Robinhood, so you don’t need to add your trades into your journal manually.

Once you set up integration, all of your trades pull into your analytics dashboard automatically. This makes it easy to visualize key metrics and visualize what’s working for you during your trades. 

Day trading is a skill like any other – it needs to be honed, and experience will make you better.

Journaling your trades helps you to reach your goals quicker. Especially if you use TradeZella. Our powerful journaling features go way beyond what you’d get from simply logging your trades in a spreadsheet.

Register for TradeZella and start reaching your goals.

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