With the ability to trade stocks, ETFs, options, cryptocurrency, and more for its users, Robinhood has emerged as a dominant force in the investing sector.
It’s also gained a lot of negative press as well for people “betting it all” on hot stocks and options. And it was recently ordered by FINRA to pay a record $70 million fine for a variety of “systemic supervisory failures,”
With $0 trades, a well-designed mobile app, and a slew of posh investment backers that would make any Wall Street firm envious, Robinhood positions itself as the future of money (both banking and investing).
Pros & Cons Of Robinhood
- No account minimum.
- simplified user interface.
- Trading in cryptocurrencies.
- absence of retirement accounts.
- No bonds or mutual funds.
- minimal customer service.
What Is Robinhood?
The Menlo Park, California-based online broker Robinhood, which was established in 2013, has amassed more than 22 million users and has raised $2.2 billion in venture capital funding. The broker, which primarily targets millennial DIY investors, is best known for providing $0 stock, ETF, option, and cryptocurrency trades via an intuitive website and mobile trading app.
Robinhood is a commission-free investing platform that operates through an app (it also offers banking options). The goal of this tech-based start-up has been to alter the investment landscape.
And, to be honest, it has been effective. By providing zero commissions on trading in stocks, ETFs, and options, Robinhood established a solid reputation. This was unheard of when it first started. Today, almost all of the major stock brokers offer zero percent commissions and no fees.
How do they contrast now? In all honesty, most users will probably be better off elsewhere. However, if you’re curious about Robinhood, here’s what you should know.
How To Set Up The Robinhood App
After registering for Robinhood on the website, I got an email with a link to the Robinhood app download. The link was followed, and I began.
I launched the Robinhood App on my iPhone after downloading it. It prompts you to make a Watchlist after you log in using your details.
At this point, I wasn’t really sure what was happening. Sincerely, after entering my login details, a Watchlist was already populated. I wish it wouldn’t do that (and from what I can tell, there is no way to skip it).
The following screen asks if you want the app to have smart notifications. Because I detest iPhone notifications, I chose not to participate in this. I’m sure others will find this feature useful though:
You must fund your account on the following screen. This has been the step of the process that has made the most sense to me out of every app I have ever used. Even on a desktop computer, I find it difficult to link bank accounts, but Robinhood made it simple.
An alert on the iPhone app and a confirmation email will both be sent to you once your account has been funded. Since I turned off my phone’s notifications, I appreciate the email reminders. Here’s what your account screen looks like:
However, before I could take any further action, Robinhood once more required me to set up a number of investment goals. Since they don’t appear to have any software or assist in customizing a portfolio or trade, I didn’t really understand the point of these.
It didn’t take long at all, but there were a few extra steps that I didn’t think were necessary. It was all pretty standard stuff, but seemed like a robo-advisor:
Can You Benefit From Robinhood?
Robinhood is a good option if you value a simple trading interface, a good mobile experience, or the ability to trade cryptocurrencies. However, since a large number of online brokers have joined Robinhood in eliminating commissions, novice investors can now afford to compare brokers to find the one that best suits their needs. Are you looking for additional brokers who serve new investors well? Take a look at NerdWallet’s rankings of the best brokers for beginners.
How To Use The Robinhood App
The Robinhood App can be used to look up and trade stocks now that your account has been funded.
To look up stock information, they have some very sophisticated methods. I began by searching for Abbott Labs (ABT) and found this. When you look up the stock symbol, you are presented with a quote, a basic chart, and other essential details.
This is all trading information – they don’t have any fundamental information about the company:
Before you can make a trade, Robinhood does have this cool feature that lets you look at “Popular Stocks” based on what others are doing on their app.
While I don’t like to base my investment decision on what others are doing, a little voyeurism is always fun:
I decided to keep it simple and only invest in SPY when I went to make my first trade. I therefore entered the SPY symbol to obtain a quote.
I then clicked the large Buy button, which took me to the order screen. For placing an order, it is very user-friendly and intuitive. The price and the shares you want to purchase are simply typed in. If you don’t want a market order, you can tap the “Market” and switch it to a limit order.
You then review your order. In order to submit, you simply swipe up. Personally, I detest having to swipe to access features on a phone. Please allow me to press a button.
Robinhood was founded in April of 2013 by Vladimir Tenev and Baiju Bhatt, aiming to democratize investing and “provide everyone with access to the financial markets, not just the wealthy.”
It was one of the first companies to offer stock trading without commissions when its well-known trading app was released in March of 2015. When the app first launched, there were more than 800,000 people on the waitlist, including a large number of millennials drawn in by the removal of commission fees and the absence of a minimum balance requirement.
As one of the first mainstream brokers to provide a simple way to buy virtual coins — without transaction fees — Robinhood increased its appeal in 2018 by incorporating cryptocurrencies into its trading platform. This increased its market share.
Robinhood went public in 2021, becoming one of the most anticipated IPOs of the year, and is now traded under the ticker HOOD.
Robinhood Fees You Should Know About
To be clear, Robinhood does not charge commissions for stock, ETF, and option trades executed through its mobile or online platforms. There may still be some costs associated with using Robinhood; this does not imply that everything is free. Here are a few of the more common charges you might face:
- Returned check or ACH fee: $0
- Domestic/International wire transfers: $0/$0
- Domestic overnight check delivery: $20
- Paper statements: $5
- Paper trade confirmations: $2
Like many other commission-free brokers, Robinhood does not charge a commission when trading stocks, ETFs, options, or cryptocurrencies. Similar to other such brokers, Robinhood’s order routing relies on payment for order flow, or PFOF, in which the broker sells a customer’s order to wholesale market makers.
Penny stocks: The trading of OTC stocks is not supported by Robinhood. Stocks that trade on either the NASDAQ or NYSE are the only penny stocks that Robinhood supports.
Robinhood Gold: In our testing, we discovered that the Robinhood Gold account level didn’t offer enough value for the majority of traders. Access to Morningstar reports, Level II streaming quotes, and margin trading through Robinhood Gold is $5 per month (5.75% annual interest is charged for accounts with more than $1,000). While charging the same $0 per stock trade price, rivals TD Ameritrade, E*TRADE, and Charles Schwab provide measurably better stock research, trading tools, and customer service. However, a notable new feature is that Gold account holders who opt in to Robinhood’s “cash sweep” program can earn a very competitive 3% annual percentage yield on uninvested money. Customers who use cash sweeps but are not Gold members receive 1.5% APY.
What Is Robinhood Like?
Remember how Robinhood revolutionized investing when it first launched by charging no commission on trades? At the time, that was novel.
Today, they aren’t outperforming anyone else, and in many ways, they are even falling behind the opposition.
Every major investment firm offers zero commissions, and a lot of them provide a wide range of additional features and account types. See our selection of the top free investing apps.
Here’s a breakdown of some of the competitors to Robinhood:
Robinhood Vs. Vanguard
Vanguard is the market leader in mutual funds and low-cost investing. They revolutionized the industry by reducing management and expense ratios for mutual funds, helping investors save billions of dollars. They have a cult-like following of investors in low cost index funds as a result.
Robinhood Vs. M1 Finance
Another tech-based investment company, M1 Finance, is a game-changer for long-term investors. M1 Finance offers commission-free investing, but it also has a special feature that enables users to create their own portfolio allocation, have it automatically rebalanced, and add new money to the appropriate investments.
Robinhood Vs. Public
Public, which has a separate investment app, is another direct rival of Robinhood. Public, in our opinion, is the more joyful and amiable app-based investing tool. Public aims to bring together the best features of free trading, fractional share investing, and more – with a special sense of community.
Robinhood Vs. Fidelity
One of the biggest traditional investment companies in the country is Fidelity. Except for cryptocurrency, they provide the option to invest in almost anything. They also permit investors to open any kind of account they can think of.
Robinhood Vs. Webull
In the world of investing through apps, Webull directly competes with Robinhood. Webull is almost like the more “adult” version of Robinhood, offering a lot more of the robust trading and analytics features that Robinhood lacks.
Is It Secure And Safe?
Strong security measures are taken by Robinhood, including the use of the Transport Layer Security (TLS) protocol to safeguard data and the provision of safer login options like TouchID, FaceID, a unique PIN code, and two-factor authentication.
Nevertheless, in October 2020, a few of Robinhood’s data servers were compromised. Robinhood has already been sued by at least one affected customer whose accounts were among the nearly 2,000 accounts compromised during the breach.
All brokerage accounts are protected financially by SIPC up to a maximum of $500,00. Additionally, through Robinhood’s bank partners, cash accounts are protected by the FDIC up to $1.25 million.
Is Robinhood Truly Cost-free?
The short answer is that, technically, trading stocks, options, and cryptocurrencies through Robinhood is free and costs nothing. However, some features of Robinhood Gold cost $5 per month, and Robinhood does accept PFOF, or payment for order flow.
Can Beginners Use Robinhood Successfully?
Due to the ease of use of its trading app and a website platform that focuses on the fundamentals of investing for new investors, Robinhood is a fantastic option for beginners.
Simple navigation and basic trading and investing tasks are made simple by Robinhood’s user interface. However, you might find that Robinhood’s selection of trading tools is somewhat constrained once you’ve gained some fundamental experience.
Robinhood should be a broker you look into if you’re looking to start investing in stocks and ETFs in a taxable account with a small amount of cash. Just be aware that you won’t be able to start an IRA or invest in mutual funds. Also, don’t anticipate receiving prompt and courteous customer service.