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Special Notice (updated February 26, 2020): In late January 2021, Robinhood decided to restrict trading on certain securities such as GameStop, AMC Entertainment, BlackBerry, Nokia, and others as part of the Reddit r/wallstreetbets short squeeze on the stocks mentioned above. Class-action lawsuits have been filed against Robinhood for the restrictions on trading.
Robinhood is an innovative self-directed investing and trading platform, founded in 2013 by entrepreneurs Vladimir Tenev and Baiju Bhatt, who envisioned popularizing investing among younger generations of Americans through the introduction of free trades and other attractive features such as fractional shares and cryptocurrencies.
In the past, stock trading platforms charged high fees per trade, which made trading unappealing and costly for retail investors.
Robinhood effectively disrupted the way brokerage firms operate, causing a tectonic shift in the industry that ended up forcing household names like Charles Schwab, TD Ameritrade, and E*TRADE to slash their fees to remain competitive.
Robinhood has since become the go-to trading platform for more than 13 million millennials in the United States. Nearly 80% of its users are part of this demographic group.
The following review provides a closer look at the firm’s services, features, pricing, and other important details to help investors decide if Robinhood is the brokerage firm to help manage their investments and place trades.
on Robinhood’s website
Quick Summary: Robinhood allows you to make unlimited commission-free trades in stocks, ETFs, options and crypto. You can access professional research reports, trade on margin, and make bigger instant deposits with Robinhood Gold for $5 a month.
Promotion: 1 free stock for new account
What is Robinhood?
Robinhood is a self-directed investing and trading platform that offers investors the opportunity to trade US-listed stocks, ETFs, options, and other instruments without having to pay any commissions to make these transactions.
The firm’s platform also offers the chance to trade cryptocurrencies at a low cost, which is a feature that is not currently available with all providers in the United States.
All transactions can be completed using the firm’s user-friendly web-based or mobile trading platform. Users can also opt to subscribe to Robinhood’s Gold trading plan, which includes advanced features such as Level II market data and the possibility to leverage their trades through a margin account.
See Also: 12 Best Online Brokers for Stock Trading
How Does Robinhood Work?
Robinhood has made it simple to open an account and start investing in the stock market.
Investing Account Types
Robinhood currently offers the following types of accounts for its users:
- Robinhood Cash – a taxable investment account that allows investors to place zero-commission trades for US-listed securities while also offering the possibility of trading during the extended hours of the market. This account does not provide access to other features offered by Robinhood, like instant deposits or instant settlements.
- Robinhood Instant – a taxable individual margin account that gives the holder access to instant deposits, marginable trades, and extended-hours trading.
- Robinhood Gold – this account offers the same features as the Instant account, while also increasing the investor’s buying power and the amount that is covered by the instant deposit feature.
Robinhood doesn’t offer any retirement accounts as of this writing, and they don’t currently support joint accounts, trusts, or custodial accounts. The firm hopes to offer these alternatives soon.
Opening an Account
The process of opening an account with Robinhood starts by clicking the “Sign Up” button, located in the upper-right corner of the firm’s official website.
Then, the user will be directed to a page where a free stock can be claimed. Once the “Claim your free stock now” button is clicked, the system’s algorithm will pick a stock randomly, and that stock will be credited to the user’s account once a bank account is synchronized.
The firm’s website discloses that there is a 98% chance that your bonus stock will have a value ranging between $2.50 and $10.00. The maximum amount that a user can obtain from this offering (at the time of writing) is $223.30. This amount varies depending on the fluctuation in the price of the shares included in the program.
Once this step is completed, the user will be required to add some basic contact information, including first and last name, e-mail, and password. Currently, only US residents are allowed to open an account with Robinhood.
After the information is submitted, the user will receive an email to confirm that the application has been approved. (It should be noted that further documentation may be required to complete the registration process.)
In some cases, Robinhood can take up to 7 days to approve the application, although the process is usually much faster. And one feature worth mentioning is that an account can be opened with Robinhood without making a deposit.
As a last step, users will be prompted to link their bank accounts after their application is approved to start making trades within the platform.
Robinhood’s offerings have grown along with the firm. From cash management to crypto, Robinhood is a commission-free broker with lots of great features.
|Stock & ETF Fees||$0 per trade|
|Mutual Funds Fees||N/A|
|Investment Types||Stocks, ETFs, Options and Cryptocurrencies|
|Account Types||Individual Taxable|
|Platform||Web-based, Mobile (iOS / Android) and Watch (watchOS)|
|Account Funding||Bank Transfer|
Stock & Funds Trading
Robinhood offers zero-commission trades for more than 5,000 US-listed stocks and exchange-traded funds.
Additionally, the firm offers the chance to trade American Depositary Receipts (ADRs), which are foreign stocks that have also been listed in an American stock exchange. The firm also offers a small subset of Canadian and Israeli-listed stocks.
The company does not currently offer the possibility to trade OTC equities, foreign stocks, mutual funds, or bonds.
Margin trading gives Robinhood users the opportunity to make trades by using leverage (which means taking a loan from the brokerage firm to increase the size of the position).
Margin trading is available for Robinhood Instant and Gold accounts, with the latter providing a higher percentage of margin on trades.
The amount that an investor can borrow to place trades on his margin account will be displayed within Robinhood’s trading platform.
A minimum balance of $2,000 or 100% of the security’s purchase price is required to access this feature (whichever is less between the two).
If a margin account falls under any of these requirements at any given point, the user may be subject to an action known as a margin call which could trigger the forced liquidation of the positions held in the account if the user does not add additional money.
Users can either deposit more money into their accounts or liquidate some of their positions once a margin call notice is received to avoid a forced liquidation.
Robinhood charges an average 5% annual interest rate on any amount of margin used that exceeds $1,000.
Level II Market Data is available for users who have upgraded their account to Robinhood Gold.
This information is provided by the Nasdaq stock exchange, and it showcases the number of buy and sell orders within the system at any given point in time and their respective prices.
Traders can use this information to track the evolution of supply and demand for individual stocks and ETFs that can be traded through Robinhood’s platform, to make decisions, and to place trades accordingly.
This information, although significantly useful for high-frequency traders and day traders, is limited to the trades made directly on the Nasdaq exchange, and does not include those made outside this system.
Options are derivative instruments that give holders the right (not the obligation) to buy (call) or sell (put) the underlying security at a pre-defined price – known as the strike price – once the expiration date of the instrument is reached.
Apart from most other brokerage firms, Robinhood offers the chance to trade options for free — the firm does not charge any commissions or per-contract fees.
The firm currently offers options for a wide range of US-listed stocks and ETFs, and for a selection of ADRs as well.
It is important to note that options are complex financial instruments, and traders should understand all the risks that these financial assets carry before exposing their money to them.
That said, zero-commission option trades are particularly advantageous for options traders who use complex strategies such as spreads, straddles, strangles, and condors, as they can save a significant amount of money in transaction fees.
Robinhood currently supports the trading of Bitcoin, Ethereum, and Dogecoin through their platform — a feature that has not been made available by many traditional brokerages thus far.
These instruments can also be traded for free, and one of their distinctive features compared to traditional financial assets is that their market remains open 24/7.
Cryptocurrencies have become a very appealing financial instrument for younger generations who have grown accustomed to technology, and to digital currencies. The incorporation of cryptocurrencies into Robinhood’s portfolio is one of the things that sets this broker apart from others.
Robinhood Gold is the premium account offered by the firm. In essence, the Gold account is a margin account that increases the amount of leverage that investors can use to make their trades, while it also increases the amount of instant deposits that they can make.
Instant Deposits is a feature that allows investors to immediately get access to the funds they have deposited without having to wait for the money to be cleared (which usually requires a 24- to 48-hour waiting period).
Additionally, Gold account holders are given access to Level II Market Data (explained above) and to professional research materials from Morningstar.
To use the Gold account, investors have to pay a $5 monthly subscription fee.
Fractional Shares (New)
Fractional shares are an innovative way to allow investors with small account balances to expose their portfolios to high-priced stocks.
These instruments work by giving investors ownership of a portion of an entire stock, and investors can either choose to purchase a fraction of them or they can invest a fixed dollar amount. Dividends are paid on a fractional basis as well.
Fractional shares can be purchased for any of the stocks supported by the program, with as little as $1.
Any stock that is worth more than $1 and with a total market capitalization above $25 million is eligible as a fractional share within Robinhood’s trading platform.
Robinhood Cash Management
Robinhood’s Cash Management solution consists of a bank account that entitles users to a 0.30% annual percentage yield (APY) as of March 16, 2020.
The amount deposited within this account comes from the uninvested cash held in the user’s taxable investment account.
This account comes with a Robinhood debit card, an ACH account number and routing number, and access to Apple Pay, Google Pay, and other similar solutions.
The Cash Management account can be used to pay for expenses and save money. As of this writing, users have to sign up to a waitlist before they can open one. Once they receive an email confirming that they have been taken off the waitlist, users can upgrade their accounts to Cash Management.
As of this writing, this solution is supported by the following seven banks:
- Goldman Sachs Bank USA
- HSBC Bank USA, N.A.
- Wells Fargo Bank, N.A.
- Citibank, N.A.
- Bank of Baroda
- U.S. Bank, N.A.
- Amerant Bank, N.A.
In addition, the Robinhood debit card issued for Robinhood account holders is issued by Sutton Bank.
All these accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for an amount of up to $250,000 per account.
No maintenance, inactivity, in-network ATM withdrawal, transfer, or card replacement fees are charged on any of Robinhood’s accounts.
Additionally, the account is designed to prevent overdrafts, which means that your debit card will be declined if there are insufficient funds to process a debit transaction.
That said, those with a Gold account can draw money from their available margin balance to pay for any transactions that exceed the balance of their accounts. The amount of margin used will be subject to interest charges.
Trading Platform & App
Robinhood currently offers a web-based and mobile trading platform through which users can place trades, track their account balances, upgrade or downgrade their accounts, and browse the firm’s selection of available securities and research materials.
Robinhood’s web-based platform is fairly intuitive and user-friendly. It is primarily designed for beginners — it lacks the advanced features other platforms incorporate.
The web-based version includes a search bar investors can use to locate any instrument they wish to trade. They’ll also find a menu tab that lets them jump to the different available features.
Robinhood users can take advantage of elements such as a newsfeed, a trading ideas hub, basic fundamental data on stocks, analysts’ ratings, basic charts with a few indicators, and the ability to set alerts and notifications for multiple events — including price movements, dividend payments, and corporate actions.
The mobile app includes most of these features as well, although the functionality is much more limited due to the reduced screen space.
The following types of trade orders can be placed using Robinhood’s trading platform:
- Stop Loss
- Trailing Stop.
Education and Tools
Robinhood’s educational and news hub, known as Robinhood Snacks, features multiple types of content, including blogs, a podcast, and a daily newsletter that includes the most relevant financial news investors should know to start the day.
Users can subscribe by providing their email. The daily podcast – which consists of a 15-minute take on the three most relevant news reports of the day – can be listened to and followed on Apple, Google, and Spotify’s podcast platforms.
Robinhood Snacks emerged from the acquisition of Market Snacks in March 2019. The goal of this financial news service is to communicate the most relevant news on the financial landscape in a way that anyone, despite their level of financial expertise, can understand.
The Robinhood referral program provides users a free stock if they invite their friends to join the platform.
The program also allows customers who have already signed up with Robinhood the opportunity to earn up to $500 in stock rewards during a single calendar year if their friends sign up.
The free stock Robinhood offers both users and their referrals is picked randomly by the broker’s algorithm. Although there’s a chance that investors may be assigned a high-priced share, there’s also a 98% chance that individuals will end up getting a share valued between $2.50 and $10.00, according to the firm’s website.
Robinhood Pricing & Fees
As far as pricing, users who sign up for a Robinhood Gold account have to pay a $5 monthly subscription fee for access to this level of account (which includes zero-interest charges on the first $1,000 in margin). From that point forward, the interest rate charged on margin balances above $1,000 dips slightly below 5%, and remains flat at that level once the account balance exceeds $50,000.
As we stated earlier, Robinhood does not charge any commissions or fees for trading US-listed stocks, options, ETFs, or American Depository Receipts (ADRs). That said, some ADRs may generate a custody fee.
Aside from this, Robinhood does not charge a fee for domestic or international wires, which is a plus, as most providers tend to charge significant fees for these services — , particularly international services.
Other non-trading fees include a $75 fee for outgoing ACATS, a $20 fee for domestic overnight check deliveries, $5 for paper statements, and $2 for paper confirms.
Finally, Robinhood’s Cash Management account does not generate any fees, with the exception of withdrawals made from ATMs that are not part of Robinhood’s network.
- Inexpensive brokerage services.
- Margin rates below the industry average.
- US-based regulated broker with millions of users registered.
- The instant deposit feature allows users to access needed funds in a matter of seconds.
- Robinhood provides access to cryptocurrencies, which many brokers have yet to make available to customers (as of this writing). .
- The firm provides a free stock upon registration.
- Robinhood is one of the few brokers that lets users trade options for free.
- Fractional shares allow users with a small account balance to get exposure to high-priced stocks.
- The firm’s Gold account provides access to advanced market data and research materials.
- Robinhood lacks an automated portfolio management feature (such as a robo-advisor).
- The firm has experienced outages and downtime during days of extreme market volatility.
- The number of account types offered by this provider is fairly limited compared to its competitors.
- Trades are routed to third-party market makers to generate revenue via Payment for Order Flow (PFOF). While it’s true that you pay no commissions at Robinhood, its PFOF practices are obscure and potentially a conflict of interest.
- Cryptocurrencies can only be bought and sold through the app.
There are a number of Robinhood alternatives out there offering similar or even better features. Before opening an account it’s wise to check other options.
Webull and Robinhood offer very similar services, although their fees differ. For example, neither firm charges any trading fees for US-listed stocks, ETFs, or options, but Webull does charge a fee for withdrawing and depositing money via wire transfer.
Additionally, Webull’s margin rates are higher than those offered by Robinhood, for accounts with less than $500,000.
That said, Robinhood’s trading interface and advanced charting features are fairly limited compared to that offered by Webull’s platform.
Ally Invest (Self-Directed Trading)
Ally’s Self-Directed Trading solution is more expensive than Robinhood when it comes to options trading — this platform charges $0.5 per contract for options and requires a minimum $250 deposit to open an account.
Margin rates charged by Ally are also higher for accounts with a low balance. They start at 7.75%, although they go lower as the account balance increases.
That said, similar to Webull, Ally’s trading systems are much more advanced than those offered by Robinhood — they include a wide selection of indicators, studies, and tools. Additionally, Ally’s strong banking background makes this firm a much more secure provider.
Who Should Get/Avoid Robinhood
Robinhood’s easygoing approach to trading and investing is what makes this broker appealing to younger generations. That said, the incorporation of cryptocurrencies into their portfolios, along with low margin rates and zero-fee options trades, make this provider an interesting choice for any investor, regardless of their age.
Because Robinhood is a self-directed trading platform, the firm’s services are not a good fit for investors who prefer to let a professional build their investment portfolio.
We’ve found some of the most frequently asked questions about Robinhood and its features, here are our answers:
Is Robinhood Legit?
Robinhood has been around for seven years now, and as of this writing, 13 million clients trust the firm to provide trading services for them.
Additionally, the company is regulated by top-tier US agencies, and it is backed by various institutional investors including DST Global, D1 Capital Partners, Green Oaks Capital, and Thrive Capital.
Is Robinhood Secure?
Robinhood is regulated by top-tier agencies, including the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) of the United States.
These regulators ensure that Robinhood’s operations comply with the policies and procedures established by US laws to prevent any foul play against investors.
How Does Robinhood Protect My Money?
Robinhood Financial LLC is a member of the SIPC, an agency that provides coverage for investors’ accounts, up to $500,000 (including $250,000 in cash claims).
That said, investors’ accounts are subject to market volatility, and any losses caused by market downturns are not covered by SIPC protection.
Further, all the banking products offered by Robinhood are issued by FDIC member banks. The FDIC covers up to $250,000 in cash held in these bank accounts.
Is Robinhood a Good Way to Invest?
Robinhood is a self-directed trading platform, which means that investors have to build their investment portfolios on their own, without the assistance of a financial professional. This increases the risk of losing money, especially if the investor has no prior financial expertise or background.
That said, Robinhood’s inexpensive trading services make this provider a good alternative for those who do prefer to manage their portfolios without involving a third party.
How Do I Get My Money Out of Robinhood?
Robinhood users can withdraw as much as $50,000 per business day from their accounts.
This can be done by clicking the Transfers tab and filling the required fields in the mobile trading platform, or by clicking the Account button located in the upper-right corner of the screen and clicking on Banking within the web-based version.
How Does Robinhood Make Money?
Robinhood makes money from the subscription fees it charges its Gold account holders, along with the interest income it collects on margin accounts.
Additionally, the firm receives rebates from directing their order flow to certain clearing houses, from stock loans made to third parties, and other similar fees.
It is important to note that the sale of Robinhood’s order flow has been the subject of controversy. The Wall Street Journal reported that the SEC is investigating the firm for failing to fully disclose to its clients the true impact that this activity has on the pricing of the different instruments offered by the platform.
Robinhood is an innovative and easygoing self-directed trading and investing platform that offers zero-commission trades for multiple instruments, including stocks, ETFs, ADRs, cryptocurrencies, and options.
Although the firm’s services have primarily been conceived to attract younger audiences, the inexpensiveness of their brokerage services and the offer of other features such as fractional shares make this provider a very appealing choice for retail investors, whatever their age.
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Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.