If you are using Robinhood as your trading platform, you have a margin account by default. Robinhood refers to this as an “instant settlement” account. For a little more in-depth information about the differences between margin and cash accounts, check out this post that explains the difference.
Open up your Robinhood app and tap the little person icon in the bottom right-hand corner. Then, tap the three lines in the top right corner to get to your menu. The first option in your menu will say Investing. Tap this to get to the Investing screen where you’ll have the options to change several settings for your Robinhood account. You’ll first see your portfolio value and breakdown. Scroll down past this to access various options for your account. From here you can do things like enable divided reinvestment, manage options trading, and finally, at the very bottom, change your Day Trade Settings.
Tap Day Trade Settings to get to a screen that gives you information about your day trades. Even if you don’t want to change your account from margin to cash, it’s still a good idea to know where to find this information about your day trades. If you are trading with a margin account under $25,000 in the US, you are subject to the PDT rule (Pattern Day Trader) which prevents you from taking more than three day trades in a five day period. The Pattern Day Trade Protection button will automatically be activated. This prevents you from accidentally taking more than the maximum three allowable day trades. Penalties for violating the PDT rule include account liquidation and getting your account frozen for 90 days. Keep the PDT protection on if you are day trading with a Robinhood margin (or instant settlement) account.
To switch to a cash account, simply tap Turn Off Instant Settlement at the bottom of the screen. You’ll get a confirmation message that warns that you’ll need to wait 3-5 days for funds to settle before they can be reinvested. This action is permanent.
Ways Around PDT
The reasons for switching from a margin account to a cash account would be so you can take more than the three day trades allowed under the PDT rule. If you’re not day trading, you probably want to keep instant settlements on in Robinhood. If you are day trading and looking for a way to get around PDT (other than funding a margin account with $25,000+), you should consider opening a second account on another platform instead of moving to a cash account. Consider opening an account with Webull if you want a second account for day trading. That link for Webull is good for a free bonus stock if you do open an account. You can choose either a margin or cash account when you set up an account through Webull. For some further information about using Webull to trade, check out this post about paper trading on Webull or this one about the different order types Webull offers.
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