How to Avoid PDT Rule on Robinhood

The Pattern Day Trading (PDT) rule is a regulation set by the Financial Industry Regulatory Authority (FINRA) that affects traders using margin accounts in the U.S. It states that if you execute four or more day trades (buying and selling the same stock or option within the same trading day) within five business days, you must maintain a minimum account balance of $25,000. This can restrict trading activity for many Robinhood users. Fortunately, there are several strategies to avoid triggering the PDT rule while still actively managing your trades.

1. Use a Cash Account

The most effective way to avoid the PDT rule is by switching to a cash account instead of a margin account. In a cash account, you can only trade using settled funds, which typically take two business days to clear after a sale. While this limits your ability to make rapid trades, it removes the PDT restriction entirely.

To switch to a cash account on Robinhood:

• Go to “Settings” in the app.
• Tap “Account Types” and switch from margin to cash. Keep in mind that this change can take a few business days to process and will limit certain features like instant deposits.

2. Limit the Number of Day Trades

If you prefer to use a margin account, simply limit your day trades to three within a rolling five-business-day period. Track your trades carefully—Robinhood has a built-in PDT tracker that alerts you when you’re close to violating the rule.

3. Hold Positions Overnight

Instead of closing positions the same day, consider holding them overnight or longer. Swing trading (holding for days to weeks) avoids the PDT rule while still allowing for short- to medium-term strategies.

4. Increase Account Balance

If you’re a more active trader and want to day trade freely, increase your account balance to $25,000 or more. This removes PDT restrictions altogether, but it requires a significant capital commitment.

5. Use Fractional Shares Strategically

Robinhood allows fractional share trading. While this doesn't directly impact PDT, it can let you manage your capital more efficiently, reducing the need for rapid in-and-out trades.

Final Thoughts

Understanding and respecting the PDT rule is crucial for any trader using Robinhood. By using a cash account, limiting trades, or adjusting your strategy, you can stay compliant while still actively participating in the market. Always monitor your trade count and account balance to avoid unexpected restrictions or account freezes. Would you like a summary checklist to help track your PDT status?