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Owing money in your brokerage account is never an ideal situation, no matter how aggressive of a trader you are. Popular trading platforms like Robinhood allow even the newest of traders to have access to margin trading. Unfortunately though, this is where things can go south for inexperienced traders. It is certainly possible for you, or any investor, to owe money to an online brokerage like Robinhood. Buying on margin is one of the fastest ways to run a negative balance on your trading account, and is often where new traders run into problems. With that said, it’s important to know what you can do to prevent having to owe money to Robinhood or any online broker you use. Can You Owe Money to Robinhood? During the COVID-19 pandemic, retail investors took a shine to Robinhood, a no-fee and simple trading platform that was easily accessible from your smartphone. As social media sites like Reddit began to post riskier trades that inexperienced traders were making, it became a popular trading strategy to ‘YOLO’ into a low percentage trade. While a few of these YOLO trades were successful, a majority of retail traders learned the hard way that you can very quickly end up owing money to your trading platform. A lot of these accounts ended up with a zero or even negative balance (if they traded on margin, will talk about this soon). Some Redditors see massive losses as a badge of honour, but running a negative account balance on Robinhood is certainly nothing to be proud of. Recommended Reading: Does Robinhood Steal Your Money? (No They Don’t) Starting to Invest?Our RecommendationStart Trading TodayRobinhood InvestOnly in USAStart investing with just $1Invest in stocks and ETFsNo commission feesAccess to the Crypto MarketsStart Trading Today Can You Have a Negative Balance on Robinhood? A Robinhood account can have a negative balance if an account holder's trades result in a loss greater than the account's cash balance or if the account holder uses margin trading and does not have sufficient funds to cover the margin requirements. If you use a margin account and the price of your stocks drop below the price you bought them for, your account balance will be in the red. Many new traders were enamored with trading options contracts on Robinhood. While options trading can be a profitable strategy, it is a relatively advanced form of trading. Giving this ability to inexperienced traders is a sure way to see some negative balances. In fact, it’s definitely not unusual to see options contracts assigned to traders who quickly find they have bitten off more than they can chew. One situation that is unique to Robinhood is that you can get access to your buying power before you even deposit funds into your account. If you trade over your buying power and your account transfer is either cancelled or insufficient, you will be operating with an account deficit. What Happens if You Owe Money To Robinhood? Like any business, Robinhood will require you to pay that money back to the company and will likely freeze your account if you can’t make the payments. There are a couple of different ways in which you can pay back what you owe to Robinhood, neither of which are very enjoyable for you as a trader. The first way to pay Robinhood back for a negative account deficit is to add more funds to your account. Simple enough and probably the fastest way to get your balance out of the red. You will also need to confirm how much you can add to your account as different tiers of Robinhood membership have different maximum amounts you can deposit. The other way to settle your debt with Robinhood is out of your control. As I talk about in my article Is Robinhood Allowed to Sell Investors Stock Without Permission?, if you have a negative balance with Robinhood they can close out a position you have in another asset. This means that the platform can sell your stocks, crypto, or even prematurely sell your options contracts, in order to cover your negative balance. What Happens If You Can’t Pay Back Robinhood? Occasionally, traders will find themselves with a negative account balance and not have enough funds elsewhere to cover their losses with Robinhood. In this scenario, Robinhood will take swift action to close out any and all positions you have with the platform. You can also expect any assets to be liquidated with or without your approval. If after Robinhood closes out your positions and you still have a negative balance then things get a little more serious. Robinhood will likely sell your debt to a collections agency which can become a nuisance in your life. If it is a larger debt, Robinhood might even look to take legal action against you, so if you do run up a negative balance, it’s probably best to find a way to pay it off. Debt is bad! We don't think buying stocks on margin at The Financial Geek is a good idea, and neither does Kevin O'leary! What Happens if Your Robinhood Account is Negative? When your Robinhood account actually goes negative, the company will notify you of it. Robinhood generally provides a set time period for you to add more funds or close out some of your own positions. But if you haven’t settled the negative account by then, Robinhood will begin to liquidate your other asset positions without your consent. Not only does having a negative balance prevent you from making any other trades, it’s likely a giant waste of your hard-earned money. Or even worse, it was a giant waste of borrowed money from the platform itself. If you are trading below water in a margin account, you can expect to receive a margin call at some point. If you find yourself with a negative balance in your Robinhood account, the best thing to do is to try and pay it off as fast as you can. And please don't read this article and think I'm anti Robinhood, I'm not at all. As I talk about in my article 10 Reasons Why Robinhood Is Good for Beginners, I actually really like Robinhood as a trading platform, but please just remember that making YOLO trades and using margin for high-risk trades is a recipe for disaster unless you have experience in trading options. Going into debt to buy a home is one thing, buying stocks with debt is a completely different beast. So if you are thinking about trading with margin, please email me before hand so I can talk you out of it. Please, my email is noel@thefinancialgeek.com. (Seriously!) Starting to Invest?Our RecommendationStart Trading TodayRobinhood InvestOnly in USAStart investing with just $1Invest in stocks and ETFsNo commission feesAccess to the Crypto MarketsStart Trading Today Conclusion: Can You Owe Money to Robinhood? Of course! Making poor trading decisions can lead to any trading account falling into the red. If you trade on Robinhood, you have access to things like options trading and a margin account. For new traders, these are two things that can lead to some serious losses if you don’t know what you are doing. Always remember that Robinhood can begin to close out your positions if you are unable to settle your balance with them. Geek, out.