Robinhood vs Charles Schwab 2020: Best Brokerage?

Whether you are a small investor trying to get some skin in the game or a well-seasoned veteran, picking the right broker is the first step to any investment plan. It is crucial to get off on the right foot, and this article will aim to break down a few of the largest players in the online brokerage space.

In this review, I will be going over the important features, fees, pros, and cons of Robinhood and Charles Schwab, two of the most well-regarded and popular online brokers for you to choose from.

Summary 

• Both Robinhood and Schwab offer high-quality services at competitive prices 
• Robinhood focuses more on trading in the stock market and providing low commission choices across stocks, ETFs, and options
• Schwab offers a more diverse array of accounts for you to choose from (Robinhood only offers a taxable or margin account)
• Schwab has a longer track record than Robinhood which is a newer trading app
• Robinhood’s mobile application won a recent Google Play Award
• Robinhood is offering a stock referral program where you get a free stock when you sign up and more stocks when you invite friends
• Schwab offers a tactical trading platform for technical charting and trend analysis
• Robinhood is geared towards beginners
• Both have no trading commissions (for stocks and ETFs) and no account minimums

What Is Robinhood?

Robinhood is an online broker based out of Menlo Park, California. It offers a large menu of investment services and products.

Robinhood Mission

Robinhood’s online brokerage service and easy-to-use mobile platform will make it both easy and affordable for you to access top-quality investment services. The company’s mission is simple: to break down the barriers to entry for all market participants.

Robinhood can do this by offering cheap, simple, and effective services.

Services Offered

Robinhood offers stocks, ETFs, and options as part of its competitive services. And better yet, Robinhood will offer these securities at no extra cost to you! You may wonder how this is possible. It's all through the impressive online brokerage features.

Robinhood does make money, but it is in less conventional ways than what most brokerages do.

Robinhood Features 

We have discussed enough about competitive services, no extra costs, and top-quality investment services.

Let's dive straight into Robinhood's top features and break them down as we go.

Zero-Commission Trading

Now I know what you are thinking: No commissions on trades? And I will admit, at first it seemed too good to be true. However, the reality of no extra trading costs on stocks, options, and ETFs is true for Robinhood.

You enjoy the luxury of keeping costs low while trading the 1000’s of different securities that Robinhood offers. And did I mention you can enjoy trading on an award-winning mobile application? Robinhood has that too!

Robinhood App

Robinhood’s app is offered on both the IOS App store and the Google Play store.

It is 100% free to download and, speaking especially from personal experience, is very beginner-friendly. It took a lot of the complications out of investing when I began using the app in 2018 and still provides the seamless beginner-friendly experience that won it the Google Play Award recently for best use of material design.

$0 Account Minimum

If you are a small investor, Robinhood’s $0 account minimum may standout as an accommodative feature of its online brokerage account.

Big or small, Robinhood is fully welcoming of all sizes of users. However, why start at zero when you can use a friend’s referral code to receive a free stock upon opening a brokerage account. A free stock? Worth how much? What company? How does it work? All very important questions that deserve answers that I will provide below.

Robinhood Stock Referral Program

When signing up for a Robinhood account with our link, you will receive a free stock when your account gets approved.

These stocks are chosen from Robinhood’s extensive inventory of securities that it holds. According to the Robinhood’s website, stocks are valued anywhere between $2.50 and $200.

Robinhood also notes that there is a 98% chance that you will receive a stock that is worth between $2.50 and $10.00. Therefore, while the odds are low that you will hit the jackpot on a $200 stock, the chances of you receiving a $5 stock are high: not a bad start to your new brokerage account.

Fractional Shares

Robinhood’s fractional shares initiative allows you to buy fragments of a company’s stock if you cannot afford it or only want to allocate a smaller percentage of money toward it.

For example, let's take a company like Amazon. It is currently trading at $3,138 per share. However, with Robinhood, you can buy shares of Amazon in $1 increments.

Cash Management

Robinhood Cash Management provides a great solution to earning interest on uninvested cash in your brokerage account. This is something to take note of if you are a patient investor and often have a lot of cash lying around in your brokerage account as you wait for the right opportunities to test the waters.

Robinhood Gold

Robinhood Gold is a monthly paid service starting at $5 per month that gives you access to features that are not offered in the normal Robinhood brokerage account.

Margin trading, investment research, and extended trading hours are some of the most notable features supplied to Robinhood Gold members. However, these features do not come free and a monthly fee will be billed to you for investing in this account.

Check out the “Robinhood Fees” section for more information regarding fees on Gold accounts.

Customer Support

If there was one aspect of Robinhood that lacks, it would be its customer support.

With a track record of unresponsiveness and limited access to actual representatives, Robinhood’s customer support can be easily deemed as difficult to deal with. With this being said, the company still has an extensive FAQ page on its website that should do a good job of answering the most basic questions you may have.

Robinhood Fees

While many of Robinhood's features can be accessed free of charge, Robinhood still needs to make money some way. It does this in part by adding fees on certain features that it provides.

Robinhood Gold

If you are a a Robinhood Gold members, you will be charged a monthly fee of $5 for accessing its exclusive resources and tools. However, if you aren't planning on investing with margin, paying $5 may be unnecessary. If you are looking for these features, the $5 may be well worth it for you. There are no fees on margin as well.

Margin Fees

For Margin associated with the Robinhood Gold account, the first $1,000 that you use is included in the $5 monthly fee.

Remember that this money still needs to be paid back, however. After that, the daily interest rate on margin is calculated as 5% divided by 365 charged monthly. So, the longer you take to pay back margin, the more interest you will pay on it.

Robinhood Pros

• Mobile platform is easy to use and makes the investment process easier to traverse commissions on all stock, ETF, and options trades
• High interest on all uninvested cash through Robinhood Cash Management Program
• No account minimums on individual brokerage accounts
• Fractional shares allow smaller accounts the opportunity to invest in higher-priced securities
• No fee on account withdrawals and deposits in and out of brokerage account
• FAQ page is extensive and covers most basic questions that you will have

Robinhood Cons 

• No ability to sell a stock short (bet against a company)
• Some people have said customer support is hard to reach and unresponsive
• No tactical charting program for technical analysis
• Poor execution prices potentially hinder total returns
• Not a Robo-advisor, so you have full autonomy over your investments. (This may be good or bad depending on how experienced you are as an investor)
• Margin, investment research, and after-hours trading capabilities can only be accessed through Robinhood Gold