Over previous months, the Robinhood brokerage firm has quickly become one of the most reliable stock trading platforms where users are able to deposit funds to buy stocks and open trading accounts for several trading operations. If you’re a regular user of Robinhood, you must have had your funds withheld for what is known as a “settlement period” leading to you receiving a message from Robinhood about your unsettled funds. In line with this, you may wonder what exactly is the term “unsettled funds” especially if you’re just getting started with investing and you use Robinhood.
In simple terms, unsettled funds can also be related to pending transactions in your bank account. If you have unsettled funds in your Robinhood account, it’s either because you transferred money from your bank account to your Robinhood account or you sold a stock and the funds are still processing.
Unsettled funds usually take a period of time called the “settlement period” to be settled. Although seeing this makes a lot of users panic, hence why in this piece, I’ll be discussing everything you need to know about unsettlement funds in Robinhood to help you whenever you encounter this while using the platform to trade.
What Exactly Are Unsettlement Funds In Robinhood
To help you better understand what unsettled funds are, you can generally think of them as pending transactions. Just like every other pending transaction, the “unsettled fund” will eventually be settled and you’ll get your funds in your Robinhood account but first, the pending process needs to be completed for you to be able to access your funds again.
The reason why your funds are being withheld and processed for a particular time (settlement period), is that the Securities and Exchange Commission (SEC) imposes on all financial markets that all stock purchases, whether on Robinhood or other financial markets, need to complete a waiting period which is known on Robinhood as the settlement period.
There are two ways in which you can experience unsettled funds- Unsettled funds from bank account deposits, and Unsettled funds from stock sales.
Unsettled Funds From Bank Account Deposits
When you make a deposit into your Robinhood account, it usually takes time for the funds to be settled and eventually reflect in your Robinhood account from bank deposits. This is because Robinhood takes time to process the transaction from your bank account to your Robinhood account. However, Robinhood does allow you to perform some trading operations with unsettled funds still being processed from your bank account but at the same time, you need not worry as your funds will eventually be processed and settled into your Robinhood account.
Unsettled Funds From Stock Sales.
Whenever you sell a stock, the funds are not immediately available in your Robinhood account for withdrawals. This is because it takes time for your unsettled funds to be processed and settled. It may take as long as five days for your funds to become settled.
If you really need to withdraw your money from your Robinhood, depending on the amount you want to withdraw as Robinhood has a withdrawal limit of $50,000 per business day, you may need to be patient for your funds to be settled into your Robinhood cash account before you finally process your withdrawal.
It’s very normal to have at least some unsettled funds in your Robinhood account at different times depending on how frequently you use your Robinhood account to trade or transfer money from your bank account to your Robinhood account.
You can see your unsettled funds in your Robinhood account immediately after you log in to the account. Normally, bank deposits and stock sales are the triggers of the unsettled funds so, depending on the action you made, you’ll see the funds in your Robinhood account as unsettled funds for at least a day.
How Long Do Robinhood Unsettled Funds Take To Settle?
When you trigger the unsettlement problem by withdrawing funds from your Robinhood cash account to your bank account, it may take up to five business days to receive the funds. However, If you make a deposit from your bank account to your Robinhood cash account, it may take about two days for the funds to be settled into your account.
On the other hand, if you own a Robinhood Gold account and you use it to purchase a stock, the funds won’t go through the settlement process at all as it’s processed immediately for stock purchases. Buying stocks on the platform is a seamless process as the process is completed immediately and the stock reflects in your Robinhood account almost immediately.
If you have a Robinhood Gold account and you sell a stock, it’ll take two or more days for the fund to be settled into your Robinhood cash account. And if you need to withdraw your funds after selling the stock, you’ll need to wait for the settlement period to be completed before you can withdraw the funds from your Robinhood cash account to your bank account.
Does Robinhood Let You Trade With Unsettled Funds?
Depending on the type of account you have with Robinhood, not all users can trade with unsettled funds. However, only Instant and Gold Robinhood account users can use unsettled funds for trading purposes. There’s a limit to the number of unsettled funds that can be used to trade with these accounts.
If your profile is a cash profile, then you won’t be able to use the unsettled funds for trading or any other operation until the funds are completely settled- meaning you’ll need to wait for the settlement period to be completed.
If you have a Robinhood Instant account, you can instantly trade with up to $1,000 without waiting for the settlement period to be completed
It’s understandable that unsettled funds may be a setback for a lot of people, but the settlement process happens for a reason.
On the other hand, if you’ve upgraded your account from the Robinhood instant account to the Robinhood Gold account, you’re able to trade instantly with up to $5,000 out of your unsettled funds.
These restrictions and limits are there because Robinhood needs to comply with the SEC to process and record every transaction that takes place on the brokerage, hence the reason why settlement has to occur and why the platform indulges users to be patient for their funds to be processed and settled.
How Do You Day Trade With Unsettled Funds In Robinhood?
To place a trade with unsettled funds, you need to first make sure you’re either using the Robinhood instant account or the Robinhood gold account as these are the only accounts that can be used to trade with unsettled funds. To day trade with either of these accounts, you can place your trades with your day trading strategies.
The proceeds made from day trading can be used only on the following day to make another purchase as the proceeds are required to sit in the cash account for 24hours. However, if the proceeds aren’t a result of day trading, you can use the proceeds to make another purchase immediately.
This cash you’re using to make purchases is referred to as your cash buying power or cash available to trade. It’s a combination of settled cash and unsettled cash.
What Happens If You Trade With Unsettled Funds In Robinhood
Trading with unsettled funds is a norm on Robinhood as long as you do not break the limits and rules of the particular account you’re using to trade.
If you’re using the Robinhood instant account, as long as you do not break the $1000 unsettled fund limit, you can continue with your trading plans. But once it’s broken, you’d be required to wait until your funds are settled before you can perform trading operations or buy stock on the platform. After the settlement period, you can place trades with your settled funds for as much as you have in your instant account without worrying about limits.
However, if you’re trading with the Robinhood Gold account, as long as you’re trading within the unsettled fund limit of $5000, you can continue with your trading plans and strategy. But if you need to trade above the limit, you may need to be patient until your funds are settled before you can perform trading operations or buy stocks on the platform that’s above your account’s unsettled fund limit.
Can You Withdraw Unsettled Funds?
It’s impossible to withdraw unsettled funds. Whenever you sell a stock, the funds are required to be settled in your Robinhood cash account before you can withdraw from the cash account to your bank account. Once you sell the stock, it may take 2-days for the funds to be settled into your cash account.
During this settlement period, If you try to withdraw the unsettled funds, Robinhood will not process the transaction as you’re required to be patient until the transaction has been fully processed and the settlement time elapses before you can finally withdraw the funds straight into your bank account.