Robinhood is an investing platform that opens the doors to financial markets by offering commission-free trades on a sleek and clean mobile app.
There is no account minimum to get started and no fees to open an account, transfer funds, or maintain an account.
However, for just $5/month you can access a premium subscription called Robinhood Gold. But, is the $5 per month worth it?
Here's what we think...
Anyone out there with a Robinhood account can try Robinhood Gold free for 30 days. After that, payments of $5 per month with be automatically withdrawn from the cash balance of your Robinhood account.
With this $5 comes the following:
In summary, the main perks associated with Robinhood Gold are access to margin trading, better data, and larger instant deposits. This means you could invest a larger amount of money immediately rather than waiting for your deposit to settle from the bank.
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For $5 a month, you get all the Robinhood Gold premium features.
The platform will also include your first $1,000 of margin. Robinhood will charge you $5 every 30 days at the beginning of your billing cycle.
If you use more than $1,000 of margin, you’ll pay 2.5% yearly interest on the amount you use above $1,000. Robinhood will calculate your charge daily and debit your account at the end of each billing cycle.
In addition to the benefits listed above, Robinhood Gold is a margin account, so there are additional risks and responsibilities you should be aware of. With margin investing, the returns on any stocks bought on margin have a magnified effect on your account value. Whether positive or negative.
Let us be clear, margin trading on Robinhood is completely optional. You do not need to use the margin features if you choose to purchase Robinhood Gold. You can simply say no to margin investing.
Investing on margin means that you’re borrowing money from your broker to buy stocks. This allows you to invest more money than you could otherwise.
It lets you leverage more money without having to sell off any of the assets in your current portfolio. This way you can open larger positions to magnify your results.
It’s vital to remember that when you use a margin account, it could result in both major profits or huge losses. With margin, it’s possible to lose not only the borrowed money but also the value of the securities in your cash account.
You'll also be paying interest on any borrowed cash throughout the duration of the investment. This cost can eat away at your investment the longer you hold it.
A margin call occurs when an account's value falls below a certain amount. When a margin call takes place, the brokerage platform can force the sale of securities or other assets in your account to make up for losses. In order to prevent this from happening, you can either sell off positions or add more of your own funds to the account.
The firm can sell your securities or other assets without contacting you. You are not entitled to a time extension while in a margin call.
Margin trading involves interest charges and risks, including the potential to lose more than you deposited or the need to deposit additional collateral in a falling market.
With margin investing, the returns on any stocks bought on margin have a greater impact on your account value, whether positive or negative. If the stock loses value, the losses will be deducted from your account value—not the funds you borrowed. It’s absolutely possible for margin to increase your losses.
You can track how much margin is available to you by checking your Gold settings.
With all brokerage accounts, upon depositing cash into your account, you'll need to wait for that cash to settle before you're able to invest it. This is done to protect the brokerage and it can take up to five business days for your funds to be available on Robinhood.
However, Robinhood will allow up to the first $1,000 of that investment to become available instantly. This is called an instant deposit.
With Robinhood Gold, this amount will be raised to anywhere from $5,000 - $50,000 depending on your account size and the amount of trust that Robinhood has in you and your account standing.
In the case of Instant Deposits, they are essentially giving you a very short-term interest-free loan while they wait for your capital to settle. For this reason, the amount they will extend to you is based on trust.
On many trading apps like Robinhood, the objective of the firm is to keep things simple. This is evident by only providing Level I Market Data. With this level of detail, you are only able to see minimal information about the bid and ask on different securities.
As a long-term investor, this likely won't make a huge difference. But as an active trader, you'll want to have as much information as possible before you trade. That's where Level II Market Data comes in.
Level II Market Data provides additional data about the bid and ask prices of the securities. Instead of just showing you the current bid and ask, you'll be able to see the next 10-15 bid and ask prices as well as the lot size of each. This provides you with a wider picture of the market for each stock and gives you a leg up over other traders.
Without this information, active traders are putting themselves at a bit of a disadvantage. While you'll need to pay $5 a month on Robinhood for this kind of data, there are other apps like Moomoo that provide Level II Market Data for free.
At the end of the day, the answer to this question comes down to whether or not you plan on taking full advantage of what Robinhood Gold has to offer.
Ask yourself the following questions:
If the answer to some (or all) of these questions is yes, it might be something to consider. The good news is you can try it free for 30 days to see if you actually use it!
However, every investor must make up their mind about whether or not to venture into margin trading. It depends on a wide array of factors, including your knowledge of the market, experience, investment objectives, and the value of your portfolio and cash account. With an increased chance of reward comes an increased chance of losing it all.
Be sure to do sufficient research before signing up to trade in any capacity – including margin trading.