Want to Learn How To Buy Penny Stocks On Robinhood? Here’s A Quick Guide
You can buy penny stocks on Robinhood by opening up the app, finding the stock you like, and tap Buy. But there are a few more things to consider when it comes to penny stocks. Most people who buy penny stocks have heard of trading platforms like Interactive Brokers, ETrade, and TD Ameritrade. But the overwhelming data supporting Robinhood’s growth means new traders looking for ways to buy penny stocks on the platform. In fact, if you look at the penny stock brokerage growth stats from 2020, Robinhood was one of the top dogs as far as new user growth is concerned.
What Is Robinhood & Can I Buy Penny Stocks With It?
If you’re brand new to trading, in general, you may not even know what Robinhood is. So let’s start with the basics. Robinhood is a trading platform that offers commission-free trading to investors. This fact alone makes their platform extremely enticing to new traders and those with small account sizes. You can trade options, normal equities, cryptocurrencies, and, yes, penny stocks.
Robinhood’s platform is compatible on computers through its website robinhood.com, as well as mobile devices through its Robinhood app.
Making A Robinhood Account To Buy Penny Stocks
Robinhood offers 3 different types of accounts for investors. This includes Instant, Gold, and Cash. When you create your account, it “instantly” becomes a Robinhood Instant account. This account type is a margin account that allows instant deposits and extended-hours trading.
Robinhood Gold is a premium plan that has a starting cost of $5 a month. It enhances what you would get with an Instant account, like bigger instant deposits and additional buying power. You also get instant deposits, which means you can use your cash immediately instead of waiting up to five business days for funds to clear. The app also allows for different levels of instant deposits:
- $50k instant deposit limit if your portfolio value is over $50k
- $25k if your portfolio value is over $25k
- $10k if your portfolio value is over $10k
- $5k for every other Gold user
The final account type is Robinhood Cash. It is the most basic account type you can have with Robinhood. Like the other account types, it offers commission-free trading but does not have access to instant deposits or instant settlements. You can downgrade to this account from an Instant or Gold account (more on this in “Tips And Tricks”).
How To Use Robinhood To Find Penny Stocks To Buy
Now that you have made your account make sure to put funds into it. Only put in what you are willing to lose, especially when finding penny stocks to buy.
Because Robinhood has commission-free trading, penny stock trading is a lot more profitable. This is especially true if you like to get in and out of a position quickly. A trader can afford to sell their stocks for a smaller percent gain because they no longer have to worry about paying $5-$7 on every trade they execute.
To find penny stocks on Robinhood, you must understand what they are first. A penny stock is any stock that is trading under $5. This is important information when searching on Robinhood for them. Something else to note is that Robinhood only allows access to penny stocks listed on the NASDAQ or the NYSE. Only on a few occasions have there ever been OTC penny stocks on the app. So how can you find penny stocks to buy on Robinhood?
Step 1- Select “Show More” Next To “Popular Collections”
Once logged-in, navigate to the part of the homepage that shows “Popular Lists”. Then click “Show More.”
Step 2- Select The Sector(s) You Like To Trade
This will drop-down a larger list of industries, sectors, and currencies. Now select the one you’re interested in.
Step 3- Filter Your Results
Once you make your selection, you will be redirected to a full list of stocks in that sector/industry. Now it’s time to filter the result.
Step 4 – Adjust Your Price Parameters
Another drop-down box will appear and here is where you can adjust your parameters. In this case, to find penny stocks on Robinhood, set your upper price limit to $5.
Now you’ve got a list of penny stocks on Robinhood for that particular sector or industry. Keep in mind that this is a quick way to find penny stocks on Robinhood itself. What you may notice (and the above image is a good example) is that Robinhood will list penny stocks that it doesn’t support. Don’t ask me why; tack it onto the list of things buggy with the app. So one workaround is to go to any finance site (including PennyStocks.com) and search for a list of NASDAQ & NYSE stocks under $5. Then you can go to Robinhood and cross-reference as needed.
Tips And Tricks For Trading Penny Stocks On Robinhood
Pattern Day Trader Rule
A common barrier small traders experience is not being able to trade more than 3 intraday trades a week. This is due to the Pattern Day Trader Rule, which affects day traders primarily.
What Is Pattern Day Trade Rule On Robinhood?
One of the infamous barriers for day traders with smaller accounts in the pattern day trade rule. Some say it’s in place to prevent novice investors from losing all of their money. But others feel it is something outdated. What is the definition of the pattern day trade rule?
When you buy and sell the same penny stock or option within the same day, that’s considered a day trade. With accounts valued below $25,000, these are subject to the Pattern Day Trade rule (PDT). As the rule states, you’re limited to making no more than 3 day-trades for accounts of this size in a given 5-day period.
Of course, your portfolio value may shift above $25,000, but it’s what the account looks like at the end of the day, which determines if you fall into the PDT rule or not. Remember that if you have an “Instant” or “Gold” account, your value doesn’t include leverage. This means that if you are looking at the marginable (borrow-able) value in your account, valued over $25k doesn’t mean you’re not subject to PDT. It’s the total value of cash and securities that determines this.
Also, if you are subject to the PDT rule, keep in mind the “5-day” time frame. These are trading days, not days of the week. Basically, if you place a day trade on Wednesday, another Thursday, another Friday, you’re day trade on “Monday” will market you as PDT. The result is that you’ll likely be restricted from day trading for 90 days (these are calendar days). The alternative is to bring your account up to $25k so pick and choose wisely.
A Solution To PDT?
However, Robinhood has a solution to this problem. It allows traders to downgrade their account type from Instant to Cash. By doing this, the 3-trade barrier disappears. But if you downgrade your account you cannot make your account Robinhood Instant again. Here’s how to downgrade your account:
- Step 1 – Email Robinhood’s support team at email@example.com, include your name and state that you would like to downgrade your account to a cash account.
- Step 2 – Complete all the requirements needed to downgrade (provided by Robinhood’s support team after you email them).
- Step3 – Once everything is finalized, you will receive another email from the Robinhood support team confirming the downgrade and that it may take between 5-7 business days.
Like This Article? Check Out The Beginner’s Handbook For Trading Penny Stocks