Wall Street Scrapped a 25-Year-Old Rule. Does It Make Robinhood Stock a Buy Right Now?

Editor's note: This article has been corrected to state that regulators eliminated the pattern day trader rule's $25,000 minimum equity and trade-counting requirements, replacing them with a risk-based intraday margin system with no equity minimum. Separately, margin accounts continue to require $2,000 minimum equity to carry margin loans.

For years, retail margin accounts with less than $25,000 in equity were limited to fewer than four day trades within any rolling five-business-day window. When customers exceeded this threshold, they were subject to a 90-day account freeze. Now, 25 years later, regulators have scrapped the pattern day trading rule.

Robinhood Markets' (HOOD +7.83%) trading platform has historically served users with significantly fewer assets than those of traditional brokers. Without these users hamstrung by old pattern-day-trading rules, is Robinhood stock a buy?

Expand

NASDAQ: HOOD

Robinhood Markets

Today's Change

(7.83%) $8.51

Current Price

$117.16

Key Data Points

Market Cap

$98B

Day's Range

$112.68 - $117.54

52wk Range

$63.52 - $153.86

Volume

216.2K

Avg Vol

31.4M

Gross Margin

94.92%

How Robinhood stands to benefit from the removal of the pattern day trade rule

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) overhauled Rule 4210. Regulators eliminated the pattern day trader rule's $25,000 minimum equity and trade-counting requirements, replacing them with a risk-based intraday margin system with no equity minimum. Separately, margin accounts continue to require $2,000 minimum equity to carry margin loans. As a result, millions of smaller retail traders can day trade without restriction.

Robinhood's trading platform caters heavily to millennial and Gen Z investors, and these accounts tend to have lower average balances than traditional brokerages, along with higher trading activity. As of 2024, the average Robinhood account balance was around $4,000, and roughly one-quarter of accounts had a balance below the $25,000 threshold.

Image source: Getty Images.

Because this rule has constrained a large portion of Robinhood's active user base, its removal would unlock more trading opportunities, potentially boosting the company's transaction-based revenues through payment for order flow (PFOF) and exchange rebates. It also incentivizes cash account holders to upgrade to margin accounts to avoid settlement delays, potentially boosting margin interest revenue and Robinhood Gold subscriptions.

Robinhood CEO Vlad Tenev noted that "Robinhood worked alongside regulators and industry partners to make this happen," and that "this is exactly what we built Robinhood for." The change, which went into effect on June 4, comes on the heels of Robinhood already seeing stellar growth in trading volume, with average daily equities trading volume jumping 84% year over year in May.

Is Robinhood stock a buy?

Robinhood has done a good job of growing its business through new offerings over the past several years, including futures and index options, prediction markets, stock tokens, and agentic trading. The company's customer and asset bases continue to grow, and the removal of the PDT rule could further boost its volumes.

If Robinhood gets a bigger-than-expected boost from increased trading volume, the stock could surge. That said, investors are already paying up for strong growth ahead, with Robinhood stock priced right around 46 times forward earnings.