Should you day trade cryptocurrency on Robinhood?

Robinhood is a beautiful app (and website) that has helped many make their first investments. Their app makes it incredibly easy to go from having no experience in exchanges to making your first trade. But should you day trade crypto, and if so, should you do it on Robinhood?

Why would I want to make short term crypto trades?

Statistically, you probably wouldn’t want to make short term cryptocurrency trades, period. There aren’t many scientific studies about this, but numbers floating around the internet imply that less than 10 percent of retail traders are profitable. Attempting to time the market is likely to be a critical mistake for the vast majority of new investors. 

People who trade frequently are often looking for greater returns. Trading on a daily basis increases the need to manage fear, greed and to deal with the exhaustion of losing. As mentioned, it’s also incredibly high risk. On the spectrum of investment strategies from buying-and-holding an index fund to day-trading crypto, the latter is definitely on the riskiest end of the spectrum.

Nonetheless, trading intrigues people because of the potential rewards. The profitable traders are able to sit at their computer with two buttons and make enough money to pay rent.

How hard is it to day trade crypto on Robinhood?

The short answer is: very easy. Unlike the stock market, you do not need a $25,000 portfolio to make more than 5 intraday trades per week. Because the crypto market never closes, you’re able to trade at any time or day of the week. 

Freedom like this can make trading crypto very enticing to a beginner. 

All you need to do after getting your account set up on Robinhood is head over to the cryptocurrency section. From there, type in how much of the crypto you’d like to purchase in U.S. Dollars and then submit the order. Afterwards you are free to sell instantly without any regulations. 

But with Robinhood, you aren’t truly purchasing crypto

Robinhood only lets you bet on the price of crypto. Other websites, like Coinbase, allow you purchase Bitcoin and other cryptocurrencies and use them for any purpose. 

If you are solely interested in crypto as an investment, Robinhood is a decent solution. Others would like to use crypto for purchasing cryptocurrencies that Robinhood does not offer, sending it to their friends, buying goods, or using it in other blockchain projects. 

Your investment’s value will grow as it would buying it from anywhere else, but if you ever wanted to have the full functionality of owning crypto, it would involve a more complicated process. You would have to convert to fiat, withdraw your fiat from Robinhood, and purchase it elsewhere. This would involve fees, a waiting period, and the risk of its value changing. 

Robinhood’s fees, or the lack thereof

The site promotes itself as commission-free, but we all know nothing is really free. It is reported that Robinhood makes money through interest, premium accounts and margin interest, but what you will immediately notice as a buyer is the price spread. 

In this picture, the price of Bitcoin is $12,428.86.

robinhood day trade

Because Robinhood is a middleman between Bitcoin owners and the users who want to benefit from the growth of Bitcoin, the company needs some way of turning a profit. This is why they have an estimated price that is different from the actual value of Bitcoin. 

In today’s case, Bitcoin is worth $12,396.59, but the site won’t give it to you unless you pay $12,418.86. 

The difference between the value offer is roughly .01 percent, which is similar to other exchanges. Where it becomes not so good of a deal is when a day trader intends to “scalp” price. 

On the same picture you can see that the estimated selling price is about $40 less than the estimated buying price. Using bitmex.com, a $20 move in price would be profitable to close. On Robinhood, a $20 move would put you at a break even point from the estimated buy price. After the price hits your break even point from the estimated buy, your new estimated sell will still be around $20 under the current price, meaning that, in order to close the buy without losing any money, you price will have to increase by $40 all together. 

In summary, to leave with some sort of small percentage gain on a BitMEX, price would only have to rise from about $10-15 in the $12,000 range. On Robinhood, you would need to make a successful day trade on a price move more than $40, even without any fee. 

Some alternatives to Robinhood for day trading

There are also much better options than Robinhood for day trading cryptocurrency if you wish to do so. Many of these alternatives will require you to use a VPN, however.

Binance has historically been a great option, but they are closing service to U.S. residents and adding a KYC (Know Your Consumer) policy. In other words, you will need to prove your residency to use the exchange.

Other sites like BitMEX do not use KYC, but it is against their policy to provide service to U.S. residents. If you log on to BitMEX without a VPN your funds can be frozen or liquidated after multiple offenses.

Kraken exchange is also day trader friendly and provides services to states other than New York and Washington. The main downside to this site is that there aren’t as many margin or position options as BitMEX.

Still, if you’re not scalping and have the unadvisable desire to try riding the swings, Robinhood can still be very easy to use and profitable. At the time of this writing, Bitcoin has increased in value by around $600, which is much more than any spread that you’ll deal with. The only thing that you are truly incapable of doing on this site is taking a short position (making money off of price dropping).

Robinhood may not be the worst exchange to use for a developing day trader, but eventually you’ll realize that there are better exchanges with more tools to make money. If you want to join Robinhood to quickly jump in and start trading crypto, feel free to use my affiliate link.

Should you day trade at all?

Day trading is already a practice that’s strongly unadvisable for the vast majority of people. For one, it’s one of the highest-risk “investment” strategies you can have. It also takes an immense amount of time and effort. But another point to consider is that it might actually cost you money. Consider this point:

For instance, suppose you’re day trading Bitcoin and have a rule that you’ll close your position if its price hits 10% over the price for which you bought it. Bitcoin hits that marker so, like a good day trader, you follow your rule strictly and sell. But then, unexpectedly the price just keeps going up as the market continues to recognize Bitcoin’s value. By focusing on day trading, you missed out on greater potential profits.

If you’re reading this article to learn about day trading, chances are you shouldn’t try it. Instead, maybe consider a more conservative approach to buying cryptocurrency with small dollar-cost average purchases on Coinbase.