When it comes to investing in the stock market, one of the very first steps is deciding on a brokerage. This is the firm that you will work with in order to place trades. It is often a frustrating and intimidating experience, especially when you find out that there are dozens to choose from.
Robinhood and E*TRADE are two of the most popular online brokerage services available today. While both offer high-quality, cost-effective ways for investors to access the public markets, there are some big differences between the two platforms.
In this article, we are going to break down the important features, fees, pros, and cons of both platforms to help you decide which brokerage service is the perfect fit.
Robinhood is the original commission-free trading app. In 2013, it was unthinkable for a brokerage to be commission-free and now the opposite is true. The app has a simple and sleek interface which allowed it to dominate the market right out of the gate. For beginner investors, the app will likely meet their needs. However, if you're looking for something more advanced you might be better off looking elsewhere.
E*TRADE is an old-school online stock trading brokerage. They ended up following Robinhood's lead and doing away with commissions on most of their investments. However, some investments like mutual funds and options contracts may still incur fees or commissions. You do generally see better customer service and a more advanced interface with E*TRADE which may be attractive for certain investors.
Robinhood Review 2021: Best Investing App?
E*TRADE Review 2021: Best Investing Platform?
||Invest With E*TRADE Here|
|Minimum Account Balance||$0||$0|
|Commissions||$0 (All)||$0 (Stocks & ETFs)|
|Options Commissions||$0||$0.50 To $0.65 Per Contract|
|Assets||Stocks, ETFs, Options, Crypto||Stocks, ETFs, Options, Bonds, Mutual Fund, Fixed Income, Futures|
|Customer Service||Limited||24/7 Phone Support|
|Online Savings Account||Yes||Yes|
|Best For||Complete Beginners||Intermediate/Advanced Traders|
By breaking down the barriers to entry for investors big and small, Robinhood’s mission is to revolutionize the way the world invests. By making their IOS app beginner-friendly, understandable, and digestible all in a low-cost way, Robinhood is striving to achieve the most efficient way for its clients to access the public market.
Robinhood allows its clients to invest in stocks, ETFs, options, and cryptocurrency through its trading platform. It is designed from the ground up to be the most beginner-friendly app available.
When it comes to choosing an online broker, making sure the features align with your financial goals is crucial. Let's break down some of Robinhood's most notable features and what makes them so great.
Have you ever wanted to buy a share of a company but did not have the required capital to do so? Robinhood solves this problem with its fractional share initiative. By allowing users to buy partial shares of companies, even the companies with high share prices (i.e. Google and Amazon) become a reasonable option to invest in.
This feature also encourages diversification as you no longer need to buy full shares which often decreases diversification potential in smaller accounts. You can now invest in dozens of companies with as little as $1!
With this feature, you will be able to buy shares of stocks and ETFs in $1 increments. This is going to allow you to get much more granular with designing your portfolio to match your objectives and investing style.
Along with the ability to buy fractional shares, Robinhood also allows investors to automatically reinvest their dividends if they choose to do so. By opting into the DRIP or "dividend reinvestment plan", you'll be able to automatically reinvest all of the dividends you receive back into fractional shares of the company.
By doing this, you'll be able to earn compound interest and reduce the cash drag of your portfolio by putting your money back to work right away.
For investors that believe in a dollar-cost-averaging strategy, this feature should be particularly interesting. By offering recurring investments to their users, Robinhood allows you to automatically invest a set amount of money into a certain investment on a periodic basis.
For example, if you wanted to invest $500 per month into VOO (an ETF that tracks the S&P 500), you can set up your Robinhood account to automatically pull $500 from your checking account on the first of the month and invest it fully in VOO. This can be a great way to further automate your investing if you follow more of a passive investing strategy.
Additionally, Warren Buffet is a proponent of dollar-cost-averaging, so if you are looking to learn from the best, embracing this strategy may be a good option.
Robinhood also offers a cash management account where investors can hold extra cash that they aren't ready to invest while earning an above-average APY. This account also comes with a debit card that users can use to spend cash directly from their Robinhood account and access over 75,000 fee-free ATMs.
As a result, investors may not feel as rushed to jump in on an opportunity knowing that their uninvested cash is still accruing interest payments. “Patience is a virtue” holds especially when investing. You can signup for this feature on Robinhood's website here, and join the waitlist.
This feature demonstrates Robinhood's desire to expand their offerings beyond just a brokerage account and become a more integrated part of the financial lives of young people. Depending on the success of this feature, this may spur Robinhood into launching more related financial products for millennials and Gen Z.
Robinhood’s referral program works like this!
If you sign up with a friend’s referral code you both receive a stock worth anywhere from $2.50 to $225.
Receiving a free stock is a great way to get your feet wet in the world of investments and start learning about the company that Robinhood grants you!
You can also refer friends with a provided referral code, so you and your friends continue to receive free stocks. The limit is $500 annually for an individual brokerage account’s referral code.
If Robinhood was to lack in any specific category compared to its competitors, it is this one. Most questions are answered through its extensive FAQ page, but the customer support line operates mostly through message interactions.
A Robinhood Gold subscription can be purchased for a fee of $5 per month. If you are interested in accessing research and margin, it may be a great option for you. The more you borrow, the higher the monthly fee.
Margin is available only with Robinhood Gold and can be accessed with a 2.5% annualized interest fee. Interest expenses are billed at the end of every month and found in the Gold Billing section of the Account Overview section of the app.
E*TRADE’s mission is simple. To increase and enhance the financial independence of traders and investors through their highly technical and powerful digital services and personal guidance.
E*TRADE offers its clients the ability to trade in the public market, investment research, trading strategies, and several other important features all while keeping costs low.
This is one of the longest-standing and most trusted brokerage accounts out there.
Mutual funds are baskets of investments chosen and managed by professionals in the investment management industry.
E*TRADE offers access to 9,000+ mutual funds and 4,400 of them offer no-transaction-fees. A mutual fund can be a great way to add a professionally managed, diversified, and flexible security to your portfolio.
Mutual funds differ from ETFs in a few important ways though. A couple of important differences are that you're typically not able to trade mutual funds during the day, and the fees associated with mutual funds tend to be higher than those associated with ETFs.
A bond is essentially a loan to a legal entity or to the government that bears interest (income). E*TRADE offers commission-free purchases of US-Treasury debt and new issue bond trades.
Bonds are typically less volatile and not as highly correlated with the stock market, so buying bonds can be a good way to protect your portfolio against the risk of a correction in the stock market.
E*TRADE also offers CDs (certificate of deposit) and other fixed-income investments.
No monthly fees or minimum balances. Just a high-yielding savings account. Note that this yield is substantially lower than Robinhood’s.
E*TRADE’s Core Portfolios allows clients to access a diversified portfolio monitored and managed for a 0.30% advisory fee. This is E*TRADE's robo-advisor offering and appeals to individuals who are looking for a hands-off investing experience.
The portfolio is constructed based on the individual investor’s risk tolerance, time horizon, and investment goals. Simply fill out a questionnaire with important information regarding your goals and objectives and the platform's algorithms will get to work on building a portfolio suited to your situation.
E*TRADE offers this tax-deductible retirement account for clients to increase the potential for income longevity and help clients retain their principal income levels.
The Roth IRA retirement account that E*TRADE offers allows clients to have tax-free growth potential by setting up annual contributions that can be withdrawn at age 59 ½.
By taking advantage of retirement accounts with tax benefits, investors can secure their retirement more quickly by paying less in taxes.
24/7 customer support through the 800 number that can be found on E*TRADE's website.
This innovative platform is full of technical trading indicators and easy-to-use tools to increase a trader’s ability to effectively execute orders and profit. Power E*TRADE has 100+ technical indicators along with 30+ drawing tools that you can utilize to enhance your gain potentials.
Technical indicators are can be used to assist in determining short-term stock movements. Check out this article to learn more about technical analysis.
One of the best ways of practicing trading and investing without taking the unnecessary risk of losing your hard-earned money is through paper trading! And lucky for you, E*TRADE offers paper trading through its Power E*TRADE online platform.
Here, you can do your own technical analysis, test strategies, and ultimately learn how to enhance your gains without any risk. As the saying goes, practice does make perfect!
Obviously, the psychology of investing real money and fake money differed significantly, but getting your feet wet with fake money can be a good way to familiarize yourself with the platform before your hard-earned dollars are on the line.
While E*TRADE does offer commission-free stock and ETF trades, there are still some fees for using the platform that are important to keep in mind.
While contract pricing is low, a 65-cent fee still applies if a client decides to buy an options contract. If you meet a certain volume, that fee is dropped to $0.50 per contract. Options can be complicated, especially for newcomers to the financial markets, so here is a little about the complex derivative.
Options give you the right but not the obligation to buy or sell a security at a certain price. There are two types of options that you can trade, calls and puts. By buying a call, you are betting on the price of a security increasing in value. Therefore, people who are bullish on a certain stock and believe highly in its future prospects may find options to be a great choice. This is because the return potential for options is higher than outright buying a stock.
On the other hand, there is also the potential for greater losses if you don't have a deep understanding of what you are doing. So be sure to do your homework before you start investing in options or other high-risk investing strategies.
In this automated portfolio for clients, a 0.30% annual fee will apply for the robo-advising aspect of the portfolio. There is also a $500 account minimum on this type of E*TRADE portfolio.
Both Robinhood and E*TRADE offer high-quality, low-cost services to their clients. If you are a complete beginner, Robinhood may be a better option due to the simplicity of its app and the services offered. Robinhood is designed from the ground up to be the simplest trading app out there.
In terms of the investments that are available, E*TRADE has a wider variety including bonds, fixed income assets, futures, and mutual funds. With Robinhood, you will only find stocks, ETFs, options, and crypto.
Lastly, Robinhood offers a free stock to all new users worth up to $225 and E*TRADE does not offer this. They may offer a deposit bonus, but this is often for those who transfer or deposit thousands of dollars.