How Does Robinhood Work For Beginners?

Robinhood launched in April of 2013 and has since revolutionized the brokerage industry with its commission-free trading model, which has significantly impacted the way competitors operate. This model is often referred to as the "Robinhood Effect" where many traditional brokerages have followed suit by dropping their own commissions to remain competitive.

Robinhood's impact on the investment landscape has been profound, transforming the brokerage industry forever. Their focus on an easy-to-use, beginner-friendly platform has attracted many novice investors.

Robinhood is often the first step in many beginner investors' journeys. With its widespread popularity and simple interface, this is for good reason.

So how does Robinhood work?

Check out my video below to learn more, or keep on reading!

How To Sign Up For Robinhood

First things first, to use Robinhood, you need to sign up for an account here.

Be sure to use our link above, as you will get a free stock worth up to $200! You get to pick your free stock from a list of 20 leading American companies.

During signup, Robinhood asks for certain information, such as your employment and social security number, as legally required. Rest assured, this information is not shared.

Insider Trading Questionnaire

As part of the sign-up process, Robinhood will ask a few questions about your potential relationships with individuals at publicly traded companies:

1. How much investment experience do you have?
2. Are you employed?
3. Are you or a family member a senior executive or a 10% shareholder at a publicly traded company?
4. Do you or any of your family members work for a stock exchange or brokerage?

Tax Certification

Next, Robinhood will ask you to answer some required questions about your tax situation, including whether you are subject to backup withholdings from the IRS.

If you don't owe money to the IRS, this is most likely going to be a "no."

Robinhood is required by law to report your investment activities to the IRS, as you will need to pay taxes on your capital gains, earned interest, dividends, and more. This includes reporting on Form 1099 for capital gains, dividends, interest, and other taxable events. Investors are responsible for including this information on their annual tax return.

You can read our full article about Robinhood taxes here.

Linking Your Bank Account

The next step in the sign-up process is linking your bank account to deposit funds:

1. Click the person icon at the bottom right of the app.
2. Click the three lines at the top left.
3. Select 'Transfers' from the menu.
4. Scroll down to the 'Linked accounts' section.
5. Click '+ add account' to link a bank account or debit card.

Robinhood allows you to link up to 3 bank accounts and 1 debit card. Debit cards have a $1,000 daily deposit limit, with instant transfers available. Bank transfers typically take 4 to 5 business days.

Receiving Your Free Stock

Once your account is funded, you'll receive a notification about getting your free reward stock.

Robinhood offers a unique incentive where you can pick your free stock yourself from a list of 20 leading American companies.

Once your account is funded, you'll receive a random dollar amount that you can use to claim a fractional share of a stock.

The cash value ranges from $5 to $200, with approximately 98% of participants receiving rewards valued between $5 and $10.

Check out our full article on the Robinhood free stock here to learn more.

What Is A Fractional Share?

In the past, investors would have to purchase a whole share of a stock or ETF in order to gain exposure to the asset.

This became problematic when investing in companies with high share prices which have never split and are valued over $500,000!

Robinhood allows you to invest in $1 increments using fractional shares, meaning you can own as little as 1/1,000,000th of a share. This is particularly useful for dollar-cost averaging strategies and for investing in high-priced stocks.

How To Research A Stock

One of the next things you might want to do is search for a stock or ETF using the Robinhood app.

Here's my full video tutorial below, or keep on reading!

Here's how to search for an investment using Robinhood:

1. Open the Robinhood app and click on the search icon in the top right.
2. Type in the name of the company or the symbol for the stock/ETF
3. Click on the correct result under 'Stocks & ETFs'.
4. Research the stock using the available data and charts.

How To Make Money With Robinhood

So how do you actually make money when investing through Robinhood?

While investing always carries risk, there are three primary ways investors can grow their wealth:

1. Capital Appreciation (Buy Low, Sell High)

This method involves buying a stock or ETF at a low price and selling it at a higher price later. For example, if you buy a stock at $100 and sell it at $130, you've earned a $30 gain per share. Capital appreciation depends on factors like company performance, economic conditions, market sentiment, and new innovations.

Stocks of companies with strong earnings growth, expanding market share, or new innovations tend to attract more buyers, driving up share prices.

2. Dividend Income

Some companies pay a portion of their profits back to shareholders in the form of dividends. These are typically paid quarterly and can be a reliable source of passive income.

Dividend payments can be:

• Cash dividends deposited directly into your brokerage account, or
• Reinvested through a DRIP (dividend reinvestment plan) to buy more shares automatically.

Dividend-paying stocks are often found in mature industries like utilities, consumer staples, and healthcare. Many ETFs also distribute dividends from the underlying stocks they hold.

Tax tip: Qualified dividends may receive favorable tax treatment, while others are taxed as ordinary income. Be sure to review your 1099-DIV at tax time.

3. Interest Income

While less common with stocks, certain investments—such as bond ETFs or cash sweep accounts—generate interest income. Robinhood Gold members can earn interest on uninvested cash, typically at a competitive APY like 4%.

Interest income provides predictable cash flow and can complement a long-term growth strategy, especially in retirement or conservative portfolios.

How To Buy A Stock

To buy a stock, follow these steps:

1. Open the Robinhood app.
2. Click on the search icon and type in the stock symbol
3. Click on the correct result under 'Stocks & ETFs'.
4. Click the green Buy button.
5. Select whether you want to invest using dollar value (default for fractional shares) or whole shares.
6. Enter the amount you wish to invest or the number of shares to purchase.
7. Click the green Review button and confirm your order.

How To Sell A Stock

Let's say you want to sell a stock or ETF that you own in your Robinhood portfolio. Here are the steps:

1. Open the Robinhood app.
2. Navigate to the Stocks & ETFs section.
3. Click on the stock you want to sell.
4. Click the Trade button.
5. Select Sell.
6. Enter the dollar value you want to sell or click Sell all to sell your entire position.
7. Alternatively, change to shares if desired.
8. Swipe up to submit the order.

Robinhood Gold Membership

Robinhood Gold is a premium subscription service designed for active investors. For a monthly fee of $5, it offers:

• 4% APY on Uninvested Brokerage Cash: Earn interest while waiting to make investments.
• Bigger Instant Deposits: Larger instant deposit limits for quicker access to funds.
• Professional Research from Morningstar: In-depth research and analysis for informed decisions.
• Level II Market Data from Nasdaq: Real-time bid and ask prices for stocks, providing a deeper understanding of market trends and liquidity.
• Margin Trading: Borrow up to $1,000 interest-free for investments.
• IRA Match: A 3% match for IRA contributions, provided you hold your contributions for at least 5 years.

Robinhood Gold offers a 30-day free trial for new subscribers.

Robinhood's Recent Developments

Since its launch, Robinhood has continuously expanded its services to meet the growing demands of investors. Here are some recent developments:

1. Robinhood Strategies

In 2025, Robinhood launched Robinhood Strategies, an actively managed robo-advisor service designed to help users build and manage investment portfolios based on their individual goals and risk tolerance. This service is available for an annual fee of 0.25% of assets under management, capped at $250 for Robinhood Gold members.

2. Robinhood Banking

Robinhood has expanded into the banking sector with its Robinhood Banking initiative. The platform now offers a range of banking services, including a 4% APY on savings accounts and premium features like on-demand cash delivery and international money transfers.

This development positions Robinhood as a competitor in the growing neobank space, offering private banking experiences at a lower cost.

3. Robinhood Cortex

In an effort to leverage emerging technologies, Robinhood introduced Cortex, an AI-driven investment tool that provides real-time analysis and personalized insights to assist users with their investment decisions.

Cortex is expected to roll out in 2025, initially available to Robinhood Gold members.