You may have a handful of reasons to start investing. Among them are wanting to learn more about the stock market and figuring out how to navigate it successfully.
But the bottom line is clear: You and me and all other investors large or small want to make money. Preferably, buckets of money. We want it to rain money. We want to look at our dividends and ROI and have butterflies.
Agreed? Good. So, let’s take a look at a popular investing app called Robinhood and how it could potentially earn you money.
Robinhood has earned its reputation as the app that pioneered commission-free trading. Robinhood opens doors for beginning investors looking to get their feet into the game without paying excessive commissions or investing large sums of money.
It was designed to be a solid choice for newbies and is among the simplest trading platforms out there.
Just FYI, Robinhood will work for you even if you don’t have the cash to open a large brokerage account. This brokerage doesn’t have a minimum investment, which means you can start to trade stocks right away with just a few dollars. Robinhood has $0 account minimums and offers fractional shares to make investing more accessible.
Robinhood also operates its own clearing system, chipping away at many of the service’s account fees. How do you benefit from this? Investors historically had to pay around $10 for each stock trade in their brokerage account. That fee is now zero for stock trades placed online.
We’ll say it again: This is a 100% free trading platform. That’s right, they don’t charge you when you buy or sell stocks or other financial products.
More advanced investors can choose to opt into Robinhood's $5 per month Robinhood Gold subscription. However, Robinhood Gold will not be a necessity for most beginner investors.
Robinhood is also a member of the Financial Industry Regulatory Authority (FINRA) which provides additional protections for investors.
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So, you won’t be shelling out any money to start trading stocks, but how will you be actually making money on Robinhood?
In short, there are two ways to make money from the stock market:
Let's go ahead and cover those now!
By definition, a dividend is the distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders.
The corporation is any company you’ve sleuthed out and deemed a potential winner. Maybe you’ve heard of a new trend and see a rise in a particular stock value in the near future. Maybe you’ve been following a company’s expansion over time. Perhaps you’ve got a tip from your father.
In all the above cases, do your homework before making a move to buy shares in a company. See how the company has fared historically. Probably not a good idea to rush into a stock you have no knowledge about.
Dividends come into play when the company decides to share earnings with shareholders, rather than reinvesting profits back into the business.
Dividends are typically paid out based on a percentage of the stock price, also called the dividend yield.
You can make money with your Robinhood investments by holding stocks that pay out dividends. But remember, there’s an option to reinvest those profits back into additional shares. This can easily be accomplished with the dividend reinvestment feature offered. Reinvesting dividends allows you to earn compound interest.
If you are on the hunt for dividend stocks, check out the list of dividend aristocrats. These companies have grown and paid dividends for 25+ years consecutively.
"Buy Low, Sell High" is the cornerstone philosophy of a successful investor. But is it easier said than done? Our answer is a resounding “yes.”
If only we had a crystal ball and could see into the future! Barring that option, you need to rely on facts, not emotions, to determine if a stock price is at a relative low.
The most successful Robinhood users do the research and are clear in where they want their money invested. Trades can be executed in a flash, as Robinhood handles market orders, stop orders, limit orders, and stop limit orders.
You can also take advantage – and should – of analyst ratings Robinhood provides from an independent investment research company. What do these ratings offer you? You will find lists of the top movers and shakers, as well as the benchmarks they are expected to hit in a specific time frame. These are known as earnings calendars. Robinhood Gold users will have access to additional research and insights on stocks to help them to make effective buying decisions.
While this may be self-explanatory, you make money through asset appreciation by selling something for a greater price than you paid for it previously.
For example, let's say you bought Apple stock in 2015 for $28 per share.
Today, Apple's stock price has soared to over $125 per share!
Your capital gain, from asset appreciation, would be around $97 per share you own.
One of the factors that initially put Robinhood on the map was its free stock promotion. Since day 1, investors that sign up through a referral link have received a randomly chosen free share of stock for creating an account.
This promotion continues on to today and has allowed many investors to make money with Robinhood both through signing up themselves and by referring their friends.
When you refer a friend to sign up for Robinhood, you'll both receive a free share of stock. So if any of your friends have yet to sign up for Robinhood, there may be some serious potential for you to score some free stocks.
The free stocks you receive can range anywhere in value from $3 - $225 and are selected based on a random lottery. According to Robinhood, there is approximately a 98% chance that each stock will be worth $10 or less.
However, one of the free stocks I received was a share of Microsoft which is now worth almost $300!
Recently, Robinhood began to allow investors the ability to invest in new IPOs immediately as they become listed. An IPO or initial public offering describes the process of a private company offering their shares to the public for the first time.
Historically, investing in a company pre-IPO was only an option for institutional investors that were willing to commit large sums of capital upfront. This allowed them to cut the line and get access to these stocks before the general public.
As new IPOs can be extremely volatile, in many instances this led to significant gains for institutional investors and retail investors left holding the bag when the stock price fell.
However, Robinhood now gives everyday investors the ability to invest in these IPOs and potentially profit before the masses enter the stock.
This is done on a randomized basis, giving all Robinhood investors an equal opportunity to invest. Before the IPO, investors are able to specify how many shares they would like to buy along with a limit price per share. Then Robinhood randomly selects orders to fill.
It's possible that you receive some, all, or none of the shares you were looking for. Then, you are able to either sell your shares or hold them for the long term.
One of the most recent IPOs available for investment on Robinhood was $HOOD. This is Robinhood stock and represents ownership in the company Robinhood Markets Inc. Investors were able to purchase $HOOD shares early through Robinhood's IPO Access and are now able to trade these shares through the app.
Although $HOOD does not pay a dividend to shareholders, investors can benefit from appreciation if the stock increases in value.
Robinhood investors that are optimistic about the future of the company may find investing directly in the company to be an appealing way to make money on Robinhood.
One of the best ways to make money with Robinhood is by paying attention to what is going on around you.
Take the opportunity to also learn from others!
Whether you’re a fledgling or more advanced player, you can view what other investors at your level of expertise are doing with their trades. You can gain insight by looking at the most popular stocks.
But be cautious, as past performance does not guarantee future results. Stocks can be overvalued and following the wave is rarely the best long-term investment strategy.
Valuing stocks requires plenty of research and due diligence. Robinhood resources can be a good start, but you will also need to look at how the company has fared over the longer term.
One of the most common reflexes of newcomers to the stock market is to sell stocks within a short time of buying. Think of this as an impulse that’s probably ruled by emotion, not fact-finding. No, you don’t need to hold onto shares for decades. But impulse selling can cause many newer investors to lose money.
Pocketing/reinvesting dividends and selling when stock prices go up are the cornerstones of how investors stand to make money in the stock market.
And of course, it is possible to own stocks that do both! For example, Apple stock has appreciated in value while paying dividends out to shareholders.
By not charging commission fees, Robinhood makes it efficient to buy and sell. They offer access to lots of valuable info on trends, what other investors are up to, and more advanced features like margin trading.
You will become more confident over time and fine-tune your assessments on the wide array of companies. But you can not underestimate the value of doing your homework with the stock market. Is it not a guaranteed place to make money, but over the long run, it can be a great vehicle for growing your wealth.