- Trading Fees
- Ease Of Use
- Account Types
- Securities Offered
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.
Commission-free trading of stocks, ETFs, options, and cryptocurrency
Easy to use platform with a dynamic mobile app
No account minimums, ($2,000 for margin accounts)
Account types are limited to just taxable brokerage accounts. No retirement accounts or IRAs.
No trading mutual funds on the Robinhood platform
The rise of retail trading is here, and several online brokerage services are vying for your attention by highlighting their services to eager investors like you.
With a flood of new users logging on to access these user-friendly platforms, news has spread like wildfire about what makes these apps flexible and potentially profitable for you.
Robinhood, a US-based online broker, has a mobile app and website for every investor to get into the coveted public markets.
In this review, we will take a deep dive into the features of Robinhood so you will see for yourself why it's such a popular online broker.
Robinhood Review: Platform Highlights
- Zero Commissions on Stocks, ETFs, Options, and Cryptocurrency
- Beginner Friendly Mobile App
- Extensive FAQ Page on Website
- Fractional Shares, Democratizing Financial Markets
- Competitive Cash Management Program
- Easy To Access Important Tax Documents
- Access To Leverage Through Robinhood Gold
- Free Stock Through Referral Program
- Comprehensive Buy/Sell Orders To Attain Execution Intentions
- FDIC Insured Accounts Up To $1.25 Million
What Is Robinhood?
Robinhood is a US-based financial services company headquartered in Menlo Park, California. The company has low-cost ways 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 10 million. It's a very popular option for younger investors because it is pretty simple to use.
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.
Robinhood’s mission is to give everyone, regardless of economic background, a way to get into financial markets.
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.
When you buy a stock, you are gaining partial ownership of a company and a right to the future cash flows of it. Companies that have a steady cash flow are solid investments because shareholders will get a slice of that cash.
Keep in mind, when you buy a stock, you are buying an underlying company. If the company tunes up its business operations and performs better, shareholders should make money.
Robinhood offers 1000’s of different companies for you to choose to in. Users can navigate to the “100 Most Popular” stock section on the website to get a sharper picture of these companies.
In this section, you can check out the company name, symbol, price, market capitalization, popularity, and analyst consensus ratings.
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 broker’s may charge underlying fees when you buy ETFs, because they are highly diversified and require active management. With Robinhood, these excess costs are diminished, making it a great choice for you if you want to keep costs low. Who doesn't want that?
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.
Cryptocurrency is a digital asset meant to work as a common means of exchange in online transactions.
Robinhood users can buy cryptocurrency like Bitcoin and Ethereum and sell 24/7 with zero commission.
Robinhood allows fractional purchasing for small investors who looking to dip their toes into cryptocurrency. Fractional shares are a good idea because many of these cryptocurrencies come with high price tags.
Zero Account Minimum
Robinhood has a zero account minimum policy. Users can fund their accounts with whatever sum of money they wish and invest as they please.
Robinhood offers its mobile app on both the Apple store and Google Play store. It has garnered honorable awards including the Google Play Award in 2015 for its user-friendly interface and easy-to-use features. They believe investing should be quick, easy and seamless, and pioneering app design makes this possible.
Robinhood Cash Management
Robinhood’s Cash Management feature lets people earn on uninvested cash in a brokerage account. Robinhood offers better than average APY, meaning you get the best bang for your buck.
There is currently a waitlist for the Cash Management feature, so if you're interested, signup with the email on the Robinhood website.
Robinhood is insured by the Federal Deposit Insurance Corporation that backs up and secures Robinhood brokerage accounts up to $1.25 million.
Accessing Tax Documents
- Tap the Account icon in the bottom right corner of Robinhood app
- Click on Statements & History
- Hit Tax Documents
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. Live representatives are also available, but Robinhood has often been known as “hard to reach.” Visit the “Contact” section of the Robinhood Website to speak in person with a rep.
Robinhood Fractional Shares
Robinhood’s Fractional Shares lets people buy fractional pieces or percentages of companies to help them pinpoint resources and make expensive stocks more affordable. It's just one more example of how Robinhood is tearing down the barriers for smaller investors to jump in the game.
Who Are Fractional Shares Available To?
The Fractional Shares feature is available for all Robinhood’s securities it offers except options, which trade at a per-contract value, making them difficult to fractionalize.
How Do You Trade Fractional Shares?
Fractional share orders can be executed in dollar amounts or share or share amounts. All of these orders will be rounded to the nearest penny. Robinhood lets fractional shares be traded through good-for-day (GFD) orders. Right now, Robinhood users are not allowed to trade fractional shares in extended-hours trading.
Fractional Shares Supported Stocks
The supported stocks through Robinhood’s Fractional Shares feature must be worth over $1.00 and have a market capitalization of over $25,000,000. Robinhood will let you know if the company you're looking at does not meet both standards.
Fractional Shares Dividends
Dividends will be paid in proportion of the fractional ownership of the stock. For example, if Company A is paying a $1.00 dividend per share, and you own 50% of one share, I will receive a $0.50 dividend.
Stock Splits With Fractional Shares
Like the proportional value of dividends with Fractional Shares, you'll get the relevant number of fractional shares if a stock has a forward stock split or a reverse stock split.
If you own 2.5 shares of Company A valued at $10 per share, and Company A does a 2 for 1 (2:1) forward stock split, you will now own 5 shares of Company A valued $5 per share.
Robinhood Free Stock Referral Program
How Does It Work?
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.
How To Claim Your Free Stock
- Navigate to the account page on the Robinhood App interface and tap “invite friends, get free stock” in the lower right-hand corner
- Tap “invite contacts”
- Pick the friends you want to invite to open a brokerage account
- Once a friend uses your referral code and the conditions of the promotion are satisfied, both accounts will be credited with the free stock
How Robinhood Chooses Your Free Stock
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!
How Much Are The Stocks Worth?
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.
Can I Sell The Stock Right Away?
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.
Are The Stocks Really Free?
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.
Robinhood Account Types
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.
If you're a Gold member, you will be given access to several features that are different than Robinhood’s standard account.
Gold members receive access to margin investing, so you can borrow money to buy stocks. As a member, you must pay interest on the “leverage” that Robinhood lets you access. You can magnify both losses and gains by investing on margin.
Remember, a golden rule of investing is to never invest with more margin than you can pay back (including interest).
Robinhood Gold Members get key info like industry-wide research from topnotch firms to help make smart investment decisions.
Members of Robinhood Gold also have access to extended hours trading. This lets you trade before and after the 9:30 AM EST opening of the NYSE and the 4:00 PM EST close of the NYSE.
Currently, Robinhood does not offer joint accounts, trusts, custodial accounts, and IRA products. This may be a door the company opens in the future, however.
Can You Day Trade With Robinhood?
The PDT Rule
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.
Day Trading On Robinhood
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.
Robinhood Order Types
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.
Stop Limit Order
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.
Trailing Stop Order
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.
How Does Robinhood Make Money?
Spreads On Trades
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.
- Extremely beginner friendly and easy-to-use
- Zero-Commissions on all securities offered through platform
- Easily accessible online tax documents and info
- Cash Management provides competitive yields on idle cash
- Award winning application that received the Google Play Award in 2016
- Zero account minimums
- Great choice for the individual investor looking to have autonomy over his/her investment decisions
- Democratization of financial markets through fractional shares
- Extensive FAQ page that answers users most asked questions
- Different types of orders to help risk management
- Users have described customer service as difficult to reach
- Execution prices can be poor depending on spread between bid/ask
- Lack of a tactical trading platform
- You can only access research and margin with the Robinhood Gold subscription
- No “shorting” capabilities offered
- No Robo Advising service offered; you must pick and choose your own investments
- Limited accounts offered
Robinhood: The Verdict
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!