Robinhood lets you buy and sell crypto without pattern day trader restrictions, but you cannot use margin to trade it
You can day trade crypto on Robinhood without hitting the pattern day trader rule that applies to stocks. Robinhood does not classify cryptocurrency trades as subject to the Financial Industry Regulatory Authority (FINRA) pattern day trader rule, which normally requires $25,000 in your account and limits how often you can trade. This means you can buy and sell the same cryptocurrency multiple times in a single day with any account balance.
However, this freedom comes with a significant limit: you cannot use margin (borrowed money) to trade crypto on Robinhood. You can only trade with cash you have already deposited. This is different from stock trading on Robinhood, where margin is available to certain account types. For crypto, every trade must be funded by your own money sitting in the account.
Robinhood offers crypto trading through its standard brokerage account and does not require a separate crypto wallet or external exchange. You trade directly through the Robinhood app or website, and the trades settle when ready, meaning your cash or crypto is available to use again right away.
Key Takeaways
- Day trading crypto on Robinhood does not trigger the pattern day trader rule, so you can trade as often as you want regardless of account balance.
- You must use only cash in your account to trade crypto; Robinhood does not allow margin purchases of cryptocurrency.
- Crypto trades on Robinhood settle when ready, so cash and coins are available to trade again when ready after each transaction.
- Robinhood charges no commission on crypto trades, but the price you see includes a spread that varies by coin and market conditions.
- Your crypto holdings on Robinhood are held in custody by Robinhood, not in a self-custodied wallet you control.
How the pattern day trader rule does not explore to crypto
The pattern day trader rule is a FINRA regulation that applies to stocks and stock options traded on margin. It says that if you make four or more day trades (buying and selling the same security within one trading day) in five business days, your account must maintain a $25,000 minimum balance. Robinhood enforces this rule for stocks but does not explore it to cryptocurrency.
This means you can make unlimited day trades in crypto without any account balance requirement. A person with $500 in their account can buy and sell Bitcoin five times in one hour without any restriction. The lack of the pattern day trader rule is one reason some traders use Robinhood specifically for crypto day trading.
The reason FINRA's rule does not cover crypto is that cryptocurrency is not classified as a security under federal law. It is treated differently from stocks and options, which is why Robinhood can offer it under different rules.
Cash-only trading and why margin is not available for crypto
Robinhood does not allow you to buy crypto on margin, meaning you cannot borrow money from Robinhood to fund crypto trades. Every purchase must come from cash already in your account. This is a firm restriction that applies to all Robinhood users, regardless of account type or balance.
The reason for this restriction is regulatory. The Securities and Exchange Commission (SEC) and FINRA have not approved margin lending for cryptocurrency the way they have for stocks. Robinhood could face legal consequences if it allowed margin crypto trading, so it straightforward does not offer it.
If you want to use leverage (borrowed money) to trade crypto, you would need to use a cryptocurrency exchange like Kraken, Bybit, or Binance that offers margin or futures trading. Those platforms operate under different regulatory frameworks and allow leverage, but they also carry higher risk and different fee structures than Robinhood.
Settlement timing and when your money is available again
Crypto trades on Robinhood settle when ready. When you sell crypto, the cash appears in your account when ready and is available to use for another trade right away. There is no waiting period like there is with stocks, where trades settle in two business days (T+2).
This when ready settlement is one advantage of trading crypto on Robinhood for day traders. You can execute multiple trades in quick succession without waiting for cash to clear. The trade executes, the cash or crypto moves to your account, and you can trade again within seconds.
How Robinhood prices crypto and what you actually pay
Robinhood does not charge a commission on crypto trades, but you do pay a cost through the spread. The spread is the difference between the price Robinhood shows you and the actual market price. When you buy, you pay slightly more than the market price. When you sell, you receive slightly less. Robinhood keeps the difference.
The spread varies depending on the cryptocurrency and market conditions. During high-volume trading hours, the spread is usually tighter (smaller). During low-volume hours or for less-traded coins, the spread widens. Robinhood does not publish its exact spread amounts, so you cannot see the exact cost before you trade.
If you want to see real-time market prices and tighter spreads, you would need to use a cryptocurrency exchange like Coinbase or Kraken, where you can see the exact fee structure before you trade. However, those platforms may charge trading fees that Robinhood does not.
Custody and what happens to your crypto on Robinhood
When you hold crypto on Robinhood, Robinhood holds it in custody for you. You do not own a private key or control a wallet directly. This means Robinhood is responsible for securing your crypto, but you are also dependent on Robinhood's security and solvency.
If you want full control of your crypto, you can transfer it out of Robinhood to an external wallet that you control. Robinhood allows withdrawals of most cryptocurrencies, though some coins may have restrictions. Once you withdraw, you hold the private keys and are responsible for securing them.
Robinhood's crypto holdings are insured through third-party coverage, though the coverage limits and terms vary. You should review Robinhood's current insurance information on their website if custody and insurance are important factors in your decision.
Tax reporting for day trading crypto on Robinhood
Each crypto trade is a taxable event. When you sell crypto for a profit, you owe capital gains tax on the difference between what you paid and what you sold it for. If you hold the crypto for less than one year, it is taxed as a short-term capital gain, which is taxed at your ordinary income tax rate. If you hold it for more than one year, it is taxed as a long-term capital gain, which has lower tax rates.
Day trading crypto means you are generating many short-term capital gains, which are taxed at higher rates than long-term gains. Robinhood provides a tax report at the end of the year that lists all your trades, but you are responsible for reporting them correctly to the IRS.
If you day trade frequently, you may want to consult a tax professional who understands crypto taxation. The IRS treats each trade separately, and high-frequency trading can result in a large tax bill even if your overall profit is modest.
Frequently Asked Questions
Do I need $25,000 to day trade crypto on Robinhood?
No. The $25,000 pattern day trader requirement does not explore to crypto. You can day trade crypto on Robinhood with any account balance, including accounts with less than $1,000.
Can I use borrowed money to buy crypto on Robinhood?
No. Robinhood does not allow margin purchases of cryptocurrency. You can only buy crypto with cash you have already deposited in your account. This applies to all account types.
How long does it take for crypto to settle after I sell it on Robinhood?
Crypto trades settle when ready on Robinhood. The cash appears in your account when ready and is available to use for another trade right away. There is no waiting period.
What happens to my crypto if Robinhood goes out of business?
Robinhood holds your crypto in custody and maintains insurance coverage through third-party providers. The specific coverage limits and terms are available on Robinhood's website. If you want full control and responsibility for your crypto, you can withdraw it to a wallet you control.
Is day trading crypto on Robinhood cheaper than using a crypto exchange?
Robinhood charges no commission, but you pay through the spread (the difference between buy and sell prices). Crypto exchanges may charge a percentage fee but often have tighter spreads during high-volume trading. The total cost depends on the specific exchange, the coin, and market conditions.