As a trader, you may have heard of Robinhood, the popular investment app that allows you to buy and sell stocks commission-free. However, in 2023, Robinhood has implemented a new feature called Day Trade Protection. In this article, we will explore what Day Trade Protection is, how it works, and how it can benefit you as a trader.
What is Day Trade Protection?
Day Trade Protection is a feature that Robinhood offers to its users to prevent them from being flagged as Pattern Day Traders (PDTs) by the Financial Industry Regulatory Authority (FINRA). PDTs are traders who execute four or more day trades within a five-day period using a margin account. Robinhood’s Day Trade Protection aims to help traders avoid being labeled as PDTs by limiting their day trades to three within a rolling five-day period.
How Does Day Trade Protection Work?
When you open a margin account with Robinhood, you are automatically enrolled in Day Trade Protection. This means that you can only execute three day trades within a rolling five-day period. If you attempt to make a fourth day trade within five days, Robinhood will automatically flag you as a PDT and restrict your account. However, Robinhood’s Day Trade Protection is not foolproof. If you still want to make more than three day trades within five days, you can upgrade your account to a Robinhood Gold account. As a Gold member, you will have access to higher buying power and be able to execute more day trades without being flagged as a PDT.
The Benefits of Day Trade Protection
Day Trade Protection offers several benefits to traders. Firstly, it helps traders avoid being labeled as PDTs, which can have serious consequences. PDTs are required to maintain a minimum account balance of $25,000, and if they fail to do so, they will be restricted from trading for 90 days. With Day Trade Protection, traders can avoid this requirement and continue to trade without any restrictions. Secondly, Day Trade Protection helps traders manage their risks. By limiting the number of day trades a trader can execute within a five-day period, it encourages traders to be more strategic with their trades and avoid making impulsive decisions. This can help traders avoid losses and ultimately improve their overall trading performance.
How to Activate Day Trade Protection
If you have a margin account with Robinhood, you are automatically enrolled in Day Trade Protection. However, if you want to upgrade to a Robinhood Gold account to access more day trades, you can do so in the app. Simply go to the Account tab, then click on “Upgrade to Gold” and follow the prompts.
Overall, Day Trade Protection is a valuable feature that can help traders avoid being labeled as PDTs and manage their risks. By limiting the number of day trades a trader can execute within a five-day period, it encourages traders to be more strategic with their trades and ultimately improve their overall trading performance. If you are a Robinhood user, be sure to take advantage of this feature and upgrade to a Gold account if necessary.