Investing is easier today than it has ever been in history. It is also significantly less expensive than it used to be.
However, with the proliferation of new trading platforms, investors often find themselves struggling to find which brokerage caters to them the best.
Robinhood is certainly a platform that make investing easy while also offering virtually a free trading experience. So, is Robinhood right for you? Does it have what you are looking for?
In this article, we provide a complete Robinhood review covering the pros and cons of the platform. Let's dive right in!
Summary
Robinhood is a commission-free stock, ETF, option, and cryptocurrency trading platform. Users can open a Robinhood brokerage account with $0 and start trading for free.
Robinhood caters to beginner investors who are looking to trade in taxable brokerage accounts with limited fees.
Many users also find Robinhood a great platform for options trading due to the $0 trading fees.
Pros
Cons
Robinhood is a US-based financial services company headquartered in Menlo Park, California. The company provides individuals with the opportunity to invest in stocks, ETFs, options, and crypto through its easy-to-use mobile application and website.
Robinhood currently has a growing active user base of 16 million. It's a very popular option for younger investors because it is pretty simple to use. Robinhood has been deemed revolutionary based on the fact that they pioneered commission-free trading.
Vladimir Teneve and Baiju Bhatt launched the company in April, 2013. Previously, they had gained significant experience in New York City creating high-frequency trading platforms. The highly acclaimed and award-winning app was first showcased publicly at LA Hacks and eventually made its debut in March of 2015.
Now, the app has a 4.2 average rating in the app store with over 4.1 million reviews.
Robinhood’s mission is to give everyone, regardless of economic background, a way to get into financial markets.
Robinhood accomplishes this by keeping costs for traders low and driving revenue through high-volume trading. Refer to our “How Does Robinhood Make Money” article to learn more.
With fractional shares, zero commissions on stock trading, and no account minimum, investors can truly get started with as little as 1 dollar.
Despite being known as the simple-to-use trading app with a sleek user interface, Robinhood still touts a number of features - some of which are fairly advanced. Let's review those features in detail here.
Robinhood shines when compared to other apps because it gives investors a low-cost way of executing trades. For example, it offers commission-free execution of trades for its users on stocks, ETFs, options, and cryptocurrency, shaving off excess costs of investing.
Beyond that, Robinhood offers you real-time quotes for free so you have a better idea of what assets are trading for before making a decision.
With Robinhood, investors can trade stocks, ETFs, Crypto, and Options. You can also trade penny stocks on Robinhood as well. For more advanced traders, Robinhood also provides investors with access to margin investing (more on this later).
Exchange Traded Funds (ETFs) are a basket of underlying securities that track an underlying index, industry, sector, or subsector of the market. ETFs are highly diversified and therefore may be a great option if you are new to investing and are looking to get your hands in several pots.
Robinhood offers hundreds of different ETFs for you to choose from to build a highly diversified investment portfolio.
Some examples may include the “SPY,” an ETF that tracks the performance of the S&P 500 Index, the “XLH” which tracks the performance of the Healthcare Sector, or the “XLK” which tracks the performance of the Technology Sector. Sound interesting to you?
Other online brokers may charge underlying fees when you buy ETFs, because they are highly diversified and generally less profitable for brokers when compared to their proprietary mutual funds. With Robinhood, these excess costs are diminished, making it a great choice for you if you want to keep costs low.
Options give buyers the right, but not the obligation, to buy or sell a stock at a specified strike price before or on the day of expiration. These financial instruments are highly complex and are pretty much reserved for people who are more experienced with financial markets.
If you are savvy in financial markets, or are looking for a thrill ride, Robinhood offers options trading with no commissions to buy or sell.
Options come in the form of “contracts” offered through the Robinhood trading platform. These contracts present additional leverage which brings with it the potential for larger gains as well as the potential for larger losses.
Before you will have access to options trading, you will have to request access from Robinhood and will be approved for level 1, level 2, or level 3 options trading.
Robinhood has also created a simple and visual representation of potential profits and losses with their P/L Charts. When engaging in options trading, you will see their P/L charts. These charts are a great way for investors to confirm and visually understand the strategy they are choosing before submitting an options contract.
Robinhood users can buy cryptocurrency such as Bitcoin, Ethereum and dogecoin and sell 24/7 with zero commission. The app currently offers 18 cryptocurrencies to buy and sell.
Robinhood allows fractional purchasing for small investors who looking to dip their toes into cryptocurrency. Fractional coins are a good idea because many of these cryptocurrencies come with high price tags.
They also recently launched a new crypto wallet that makes transferring coins in and out of Robinhood very simple. Be sure to check out the Robinhood Crypto wallet. Without using the wallet, transferring coins in or out of Robinhood would require liquidating your assets first and then transferring your funds.
It is important to note that Robinhood Crypto accounts do not hold the same level of protection as cash management and investment accounts. There is no federal insurance on your crypto and there is the potential for loss if Robinhood were to get hacked.
While they do keep most of their crypto in cold storage and disconnected from the internet and insured, there is still the potential for loss.
IPOs used to be limited to institutional firms and high net worth individuals. Today however, Robinhood account holders have access to participate in IPOs.
Robinhood is not the underwriter during an IPO, but rather they gain access to participate in an IPO through partnering with investment banks. They then receive an allocation of share that their members can then request.
Through a random selection, some members may be chosen to purchase shares during an IPO.
Robinhood’s Cash Management feature lets people earn on uninvested cash in a brokerage account. Robinhood also offers a much better APY than traditional banks, meaning you get the best bang for your buck.
With Robinhood's Cash Management account, you can earn cash back as participating partners, save money with zero hidden fees, and earn up to $10 in weekly rewards as you spend and enables round-ups.
With this card, you also have access to 90,000 ATMs across the nation with 24/7 phone support.
Robinhood is insured by the Federal Deposit Insurance Corporation that backs up and secures Robinhood cash management accounts up to $1.25 million.
Robinhood investment accounts on the other hand are insured by the SIPC up to $500,000.
This makes Robinhood a safe investment in terms of protecting your deposits. If Robinhood went out of business, there are multiple layers of protection in place.
This is Robinhood’s standard taxable brokerage account. You can buy and sell stocks, ETFs, options, and cryptocurrency through online and mobile platforms. This account is completely free to open and the first $1,000 deposited will appear in your account instantly.
Robinhood Cash gives all of its users access to Robinhood Instant features such as unlimited instant deposits and withdrawals. This account type is for those who would like to have a debit card and banking features all in one place with their investment account.
If you're a Gold member, you will be given access to several features that are different than Robinhood’s standard account.
Here's our full review of Robinhood Gold and whether or not it is worth the money.
With a standard account, members earn 1.5% interest on uninvested cash. With Robinhood Gold, that number increases to 4.15%.
Gold members also gain access to level 2 market data and larger instant deposits ($1000 for standard accounts and up to $50,000 for Gold members).
If you choose to invest on margin, you must pay interest on the “leverage” that Robinhood lets you access. You can magnify both losses and gains by investing on margin. With a standard Robinhood account, you will pay 11.25% in interest. With the Gold account, you get the first $1000 of margin completely free and anything over $1000 at a reduced rate of 7.25%.
Robinhood Gold Members also get key info like industry-wide research from topnotch firms to help make smart investment decisions.
Robinhood recently launched their IRA account option. With this account, users can open a Traditional or Roth IRA. Like other brokerages, these accounts can be opened in a matter of minutes and grant you access to compound interest.
With Robinhood, there is a special perk: matching. When talking about matching, most would quickly think about an employer sponsored 401K. However, with Robinhood, members receive a 1% match on all contributions made to an IRA. This may not seem like much, but it can become as much as $26,000!
To find your tax document, you will follow this 3-step process:
Keep track of important docs on Robinhood, such as the Form 1099 document, including information on the 1099-DIV, 1099-MISC-INT, and the 1099-B.
Most of Robinhood’s customer support comes from its extensive FAQ page on its main website. Dozens of common questions are on the page, along with detailed answers. If you cannot find an answer in their help center, you can also request a phone call 24/7. Within the app, they have a number of topics in the help center. Some of the topics can be answered in their help center and therefore, you will be directed to one of their FAQs. For other questions, you will be prompted to request a phone call directly from their team.
For every new friend who uses your referral code to sign up for a Robinhood brokerage account, both accounts will be credited with a free stock. In each calendar year, an account can receive up to $500 in free stocks.
Robinhood randomly selects shares of free stock from its extensive inventory of settled shares. However, since it is random, it's likely you and your friend will receive completely different stocks.
You get a free stock when you sign up with our link too!
The value of the stocks vary because of the unpredictable nature of stocks, making it tough to put an exact dollar amount on a referral. According to the website, the shares may be valued anywhere between $2.50 and $200, but there's a 98% chance the stock bonus be worth $2.50-$10.00.
The Robinhood app uses the “Top 100 Stocks” website section to pick the free stocks, so they are highly variable based on what is currently popular on that particular day.
Robinhood uses this page to credit its users with popular, relevant info on companies viewed by the market and its users as solid investments.
Yes, the stock can be liquidated immediately, and your individual brokerage account will be credited based on the sale value.
Robinhood will count any gains on the stock as capital gains. These will show up on a 1099 tax form. However, if the stock is sold at the same price that it flows into your brokerage account, the value the stock is sold at will be counted as “other income” and won't carry income taxes.
With Robinhood’s Free Stock Referral Program, there are no gimmicks or catches. There are no strings attached - the stock is truly free.
Users can get some skin in the game and see what it feels like to own stock before making their first purchase.
Here's our full article explaining more about the free stock incentive on Robinhood.
Established by FINRA, the PDT rule requires pattern day traders to have a minimum of $25,000 in their brokerage accounts for unlimited day trade transactional capabilities. This rule holds true with Robinhood as well.
Accounts below the $25,000 minimum will only be allowed three day-trades (a buy and sell on the same day) per week.
So, the short answer is yes – Robinhood does let users day trade while abiding by the FINRA PDT rule. If you want to day trade on Robinhood, make sure your account has a minimum of $25,000 to be eligible.
Here's our full article about day trading on Robinhood.
A market order on a security is executed at the best available price on the market. The ask price is what a seller is the price a seller is willing to sell at. If you are buying with a market order, your order will execute at the highest ask price available.
Users can choose a specific price, called a limit order. This is the price at which that they want to buy or sell. The order will stay unfilled and idle until a buyer meets the seller’s request, or a seller meets the buyer’s request.
A stop order is an order to sell a stock at a specific price. It will turn into a market order and automatically be executed when the stop price is reached. Stop orders are very important for people looking to manage their risk properly and want to sell out of a security if it reaches a pre-set price considered risky.
A stop limit order combines a stop and limit order into one. A limit order is triggered if a security hits a stop price that you have set. They will set this limit order at a specified price that the seller has set. No worries; Robinhood will only execute the order when that price is fulfilled.
A trailing stop order lets you track the best price of a stock before triggering a market order. Trailing stop orders can help limit a maximum potential for losses, and help investors manage their risk.
Robinhood makes money through gaining interest on the margin that it lends to account holders. Note: the charges Robinhood sets on money it lends to customers is relatively high.
When Robinhood makes a purchase for its users, they wire it to a large financial intermediary to make the trade for the client.
The spread between the actual price that the intermediary executes the trade at, and the execution price you set creates a miniscule (fractions of pennies) margin for Robinhood to keep. Due to high volume, these fractions of pennies do add up!
Robinhood makes money from fees that Robinhood Gold members pay. You will pay $5/month for Robinhood Gold. The marginal interest section, described above, also carries additional fees.
Overall, Robinhood is a beginner-friendly, easy-to-use, low cost way to invest in the financial markets.
Robinhood has key incentives like its stock referral program. It also offers zero-commission on stocks, ETFs, options, and cryptocurrency. These make it easy to start on your path and flourish financially. Simply put, the company is revolutionizing the way retail traders participate in the markets.
If you're looking to get your feet wet in a beginner-friendly and simple way, this app may be for you. If you want a more complex platform with features beyond the world of investing, other apps may suit you better.
At the end of the day, the choice is up to you to find what will speed you along toward your financial goals. There are dozens of platforms to choose from by comparing features and complexities in the world of investments and personal finance. Robinhood could be the one for you!
If you are ready to get started, check out our step by step article on how Robinhood works as well as how to make money with Robinhood.
Get 1 Free Stock Worth Up To $200 From Robinhood!
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For US Residents only. Investing Simple is affiliated with Robinhood, and we may earn a commission when you sign up for Robinhood.
