In the general sense of purchasing a stock, a cash account in brokerage means you need to pay for everything you want to buy. Or in other words, you’re not allowed to borrow to pay for transactions.
Specifically, when it comes to a cash account in Robinhood, the organization clearly states that your money/funds need to clear first before you can put them to use. The period of time it takes to do so will depend on the situation, and it could take up to 5 business days.
For more advanced strategists, a cash account in Robinhood also means the following (may not be limited to):
- You’d only be permitted Level 2 of options trading if approved.
- You will need to stand by for two (2) business days to transact with funds from “Equity Sales.”
- Lastly, for the purposes of this post, it also means that you will need to wait for one (1) business day to put your funds to use from “Options Sales.”
How Do I Switch to a Cash Account in Robinhood?
(Please note that the instructions pertain to Robinhood’s desktop site, not through its app. The logic is that it avoids the whole iPhone vs. Android confusion and would be independent of what mobile device a person has.)
New brokerage accounts in Robinhood are by default assigned as “Robinhood Instant” — with a choice to reject it for a cash account instead.
So when you’re just about using Robinhood, you can opt to go with a cash account at that time.
However, if you’ve gone with the default Instant account and want to switch to a cash account later, you can follow the steps below.
Step 1: Head Over to Your Main Account Settings Page
As depicted in the image above, on your desktop, navigate to your account settings in Robinhood. This is the first step toward changing to a cash account.
Step 2: Select “Investing” Under the ‘Account Details and Options’ Menu (It’s on the Left Side)
Once inside the main settings, divert your attention to the Account details and options menu on the left, and click on the “Investing” option to proceed to step 3 (the last step).
Step 3: Switch to a Cash Account
Finally, the “Investing” option will reveal a few more applicable settings on the right side of the window. From those, expand the Account type section (as shown in the image), and perform a left-click on the button “Switch to cash account.”
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Is It a Good Idea To Have a Cash Account in Robinhood?
Like many things in life, the answer to this question is that it’s conditional on what you’re expecting to achieve out of a particular situation or set of circumstances.
The most significant (it seems) benefit of having a cash account in Robinhood is that there is a potential to lift the pattern day trading or PDT restrictions.
As always, you must conduct your due diligence with any form or method of investing and its transactions, no matter the amount.