The Robinhood Trading App is free to download and lets investors trade stocks, cryptocurrency, options, and exchange-traded funds without any commissions or fees on the trades. When Robinhood first released their app, they were one of the only players in the market that offered completely free trading. In 2019 and 2020, many other firms decided to offer commission-free trading to compete with Robinhood. The company currently has over 10 million members, surpassing other top-name brokers like E*Trade. In addition to zero-fee trading, they also offer checking and high-yield savings accounts. We’re going to give you a fully unbiased overview of the Robinhood trading app review to see if it really is legit and worth your time.
Robinhood Offers Fee-Free Trading And Manages To Make Profits Still
As we’ve mentioned, the Robinhood trading platform does not charge you fees or commissions for trades. Other platforms that offer fee-free trading make up for it elsewhere in new account fees, inactivity fees, and withdrawal and deposit fees.
Robinhood charges you none of these same fees. In fact, the only fee we could find that you might run into is a $75 fee to transfer your portfolio to another brokerage firm.
How does Robinhood make money? Let’s be clear, and they’re not running some charity here. They exist solely to turn a profit. Robinhood first makes money off of the interest made from the cash accounts.
Second, they offer Robinhood Gold subscriptions for $5 per month. Finally, they offer margin accounts. A margin account is essentially investing with borrowed money, and you pay interest on that money that you’ve borrowed whether the stocks you buy with it perform well or not.
Showing how they make money isn’t really part of the review of their app, but it should help you feel okay to use their service knowing that they aren’t exactly going out of business anytime soon.
What Are The Pros Of The Robinhood App?
As if the no-fee trading wasn’t enough for them to stand out from competitors, there are plenty of other areas where the Robinhood app shines brighter than other brokerage services.
Minimum Account Balances: Robinhood just doesn’t have any minimum required to get started. You can literally open an account with $0, deposit $0.40 into it and buy some penny stocks if you wanted to. This helps ease the pressure on beginners who have faced large opening account-balance minimums in the past.
Instant Access To Funds: Whenever you deposit $1,000 or less, you are given instant access to invest with the funds. Whenever you sell a stock, you have instant access to use or withdraw those funds as well. Just about every other brokerage out there requires at least 3 business days for access to funds.
Margin Account Minimums: To use borrowed brokerage money for investing, the Financial Industry Regulatory Authority has said that these accounts with brokers must require at least $2,000 to open them up. As such, Robinhood requires the bare minimum of $2,000 for a margin account.
Factional Share Trading: With Robinhood, you are not restricted to buying the entirety of a share. If there’s a company whose shares are trading at $100 each, and you only want to throw in $50 towards their stock, you can go to the app and buy 50% of a share. You can even buy a fraction of a percentage worth of stock if you were so inclined to do so.
Options Trading: Even just offering no-commission stock trades is amazing. But with the Robinhood app, you can also enjoy zero-commission options trading as well. You also now have the ability to multi-leg options strategies within a single order to balance out your risk: reward ratio.
Super Easy To Set Up: Originally aimed at millennials who stayed glued to their smartphones, the Robinhood app is easy to use for anyone who has ever picked up a smartphone.
Even on other services with easy-to-use apps, you at least run into trouble opening or funding your account. Not with Robinhood. Their account setup process is straightforward, they’ll let you know within the hour if you’re approved, and they use instant bank verification.
You don’t have to deal with the “we made two small deposits into your account, please check in 3-5 business days and come enter those amounts here to verify your bank account” nonsense.
Super Easy To Use: The Robinhood interface is purposely barebones. The streamlined design and lack of clutter make using the app simple and an absolute godsend for beginners and investors who already know exactly what they want. Those that would say they’re a little bit more of an advanced investor will have no problem executing market orders, stop-limit orders, stop orders, and limit orders.
Collections Feature: Although Robinhood’s barebones approach doesn’t offer much in the way of research, their collection feature is pretty unique. Here you will find stocks that have been grouped or organized by various factors. You might want to look at stocks for companies that harness the power of wind, or you might want to look at stocks for companies whose CEOs are all women.
Their Research Is Improving: Although they don’t offer nearly as much flare or as many bells and whistles as other fee-charging platforms do, Robinhood is slowly starting to improve the amount of research that’s available from within the app. Hopefully, the near future will have a Robinhood where you can do all due diligence directly from their platform.
Robinhood Gold: For just $5 per month and a minimum opening balance of $2,000 (as regulated by FINRA), users can upgrade to the Robinhood Gold account. From here, you can use borrowed funds for margin-account trading at just 5% on $1,000 or more and no interest if you leverage less than $1,000.
Robinhood Gold members get access to level 2 NASDAQ data, a copy of the order book for traded stocks. By viewing the bid and ask prices, users are given a unique insight into the market that’s not available to common traders. Accessing this directly from NASDAQ would run you $15-$75 bucks per month.
Cash Management (high-yield account): The Robinhood app now offers what they call Cash Management. It’s essentially a checking account that gets the same interest rates as most high-yield savings accounts. The account even comes with a debit card, where free ATM withdrawals from a network of 75,000 participating machines.
What Are The Downsides of Robinhood?
It seems like we’ve been doing nothing but singing the praises of Robinhood so far, but we did promise you a completely unbiased look at the app. So, with that being said, let’s look at some of the areas where the Robinhood App (and their entire investing service overall) just isn’t cutting it.
Let’s tackle the current events first. Within the span of two weeks in March of 2020, their training platform crashed three times. The beginning of March in 2020 is when Coronavirus started taking its toll on the markets. Users were unable to log in during these times of market volatility, and many users report missing out on a chance to salvage some of their stocks that eventually crashed.
Individual Taxable Account – Get used to that term because that’s the only kind of account you’re able to open with them. Many other brokerage accounts at least let you set up an IRA.
Limited Asset Classes – Robinhood lets you trade stocks, EFTs, options, and cryptocurrency. Their competitors let you trade those types of assets AND other classes like bonds, funds, futures, and forex.
Limited & Delayed Data – As we mentioned earlier in the article, Robinhood has minimal data that you will have access to. The data and current market quotes are often delayed up to 20 minutes. This will not affect you if you are beginner-level investors.
The Robinhood App Has Changed Online & App-Based Stock Trading
When they first emerged, many people thought they were crazy. A free app that offered free trading with no minimums and no fine print or hidden costs along the way? That was unheard of.
Their dominance in the market forced other brokerages and stock trading apps to follow suit and eliminate most or all of their fees as well. This was all because of Robinhood.
Without paying off fees every time, somebody literally did anything with their service: added money, bought a stock, sold a stock, or withdrew money. These brokerage firms had to find new ways to stay alive, which forced them to work harder for your business, and even harder to keep you as a client.
Now that we have all been spoiled to a world where we can freely buy and sell stocks without any commission or brokerage fees, the big guys from the past will be hard-pressed to going back to their old ways of charging you every time you lift a finger.
I never thought we’d see the day where TD Ameritrade, E*Trade, and Charles Schwab were all three offerings fee-free trading!
Regardless of how they have affected the brokerage industry, and regardless of our pros and cons here, one question remains:
Is The Robinhood App A Good Choice For You?
The Robinhood App is the absolute best choice for beginners and those looking to test the waters of the stock market. Some options can grow with you as you get better at investing and learn more investing tactics.
From buying your first stock to learning the ropes with options trading, all the way down to leveraging Robinhood’s own money to enrich your portfolio, they are absolutely great.
It isn’t until you start trading on a larger level or earning a full-time income from trading that you would be able to benefit from the other features and options made available in other brokerage accounts.
For most investors out there and most beginners out there, Robinhood is a solid choice!