TL;DR: Robinhood set the stage for commission-free trading but has lost that distinction as more services have gone zero-commission. Now it stands apart for its commission-free cryptocurrency trading and extremely intuitive interface.
Everyone knows the story of Robin Hood, the dashing rogue whole stole from the rich and distributed those gains to the poor. The investment app Robinhood is built on a similar principle—giving everyday people the means to build their own wealth.
Robinhood has been one of the most popular investment apps since its inception in 2013 and was one of the first mobile trading apps that offered $0-commission trades. Now that many other online brokers have jumped on the commission-free trade, what does Robinhood have to offer that makes it stand apart?
We put together this comprehensive Robinhood review so you can see what benefits the platform brings.
Robinhood is an online investment app that orients its focus towards millennial investors. To that end, they offer a wide range of commission-free stocks and ETFs. Robinhood has expanded its repertoire of offerings in recent years and now works with some more non-traditional assets such as options and cryptocurrencies.
Originally founded back in 2013, Robinhood has amassed over 10 million happy customers in its relatively short lifespan. With an average account size of $3,000, Robinhood holds approximately $30 billion in assets under management. With no account minimums and no transfer fees, it is easy to see why the service has become so popular.
Robinhood also offers a useful cash management service for gaining interest on deposits and for paying bills. They even added their own stylish debit card for customers.
Robinhood is also known for its streamlined, mobile-optimized interface. It does not have as many fancy features as some other online brokerages but the stripped-down app is highly user-friendly. Robinhood originally made waves by being one of the first mobile trading apps to take away fees and commission on regular day trades. But, as commission-free trading has become virtually standard in the online brokerage world, Robinhood is no longer the undisputed king of app-based investing.
App interface. Robinhood’s selling features is its streamlined app interface. The service is optimized for mobile phones and you can sign up in just a few minutes. The trading interface is uber-simplified and not as fancy as some other services, but it’s straight, to the point, and allows for the basic bevy of transactions such as market orders, limit orders, and stop orders, among others. The Robinhood app is available on both the Apple Store and Google Playstore.
Robinhood has a list of technical tools for charting stock performance, including the basic indicators like moving averages, candlestick charts, and more. You can also browse earnings calendars, analyst ratings, and filter stocks by popularity and recent movement.
Robinhood also has a web-based application with the same features. Not too much is different, though, in our opinion, the true Robinhood experience is being able to make trades on your smartphone wherever you are.
Commission-free trading. Robinhood was one of the first brokerage apps to nix commission on regular day trades and now many other apps have followed suit. WithRobinhood, you do not have to pay commission on stocks, Crypto, or ETF trades (although ETFs still incur expenses at the asset level).
Instead of commissions, Robinhood makes money through its premium accounts. Market maker rebates, stock loan income, interchange fees, and selling trades. As a result, you do not have to pay anything to trade with Robinhood.
Cryptocurrency trading: Robinhood also offers commission-free cryptocurrency trading through its Robinhood Crypto service. You can trade cryptos 24/7 directly through the secure platform. Robinhood has trading for most popular cryptocurrencies including Bitcoin Ethereum, Dogecoin, Litecoin, and more.
Stocks and ETFs. Robinhood’s main trading fare is stocks and ETFs. Robinhood has listings from the largest stock exchanges in the world and has over 100 distinct ETFs to invest in. Major players on their traded ETFs include the Vanguard S&P 500 as well as the SPDR S&P 500, among others.
Alerts & notifications Robinhood allows users to set up a watchlist that keeps track of selected stocks. The app will then give you notifications when there are significant price movements of your selected assets. You can also set up alerts and notifications for assets in your portfolio so you are always kept up to date.
Fractional shares. Robinhood has also recently expanded its offerings to include fractional share investing. You can invest in fractional shares for as little as $1, even if the full price of the share is $100+ Fractional shares provide an extremely low-cost way to have a diversified portfolio even if you do not have a lot of funds to invest.
Cash management. Robinhood began offering cash management services in 2019 including a deposit account that pays 0.30% APY. Robinhood’s cash management accounts come with a free debit card, free withdrawals from over 75,000 ATMs nationwide, and up to !.25 million in FDIC insurance. Cash management accounts also do not have any deposit minimums, no transfer fees, and no foreign transaction fees.
Robinhood Gold: Gold is Robinhood’s premium service, which comes with instant deposits, professional research, level II market data, and margin investments. Gold accounts cost just $5 a month. You can also borrow money from Robinhood using the funds in your margin account as collateral. However, since Robinhood Gold is a margin account, there is an increased risk.
Educational materials. Don’t know much about stocks and investments? Not to worry, Robinhood has you covered. Robinhood has a fairly large library of research and educational materials that runs the gamut from basic topics like how investing works to more complex niche topics like how margin trading works. You do not have to have a Robinhood account to use these materials either. Robinhood’s library is not as impressive as some other finance apps but it greatly improves the on-boarding process for new customers.
How Does Robinhood Work?
Robinhood takes all the pain out of singing up and creating a brokerage account. First, you just provide your name, email address, and set up a password. Once you verify your account through email, you will have to enter your social security number. This information is required by federal law.
Once you input your info, Robinhood will ask about your investment experience. If you have 0 experience with investing, then you can choose “None” but you can also choose between “Not much”, “I know what I’m doing”, and “I’m an expert.” Robinhood uses answers to this section to curate a list of recommended investments.
Next, you need to connect your bank account and deposit your funds. Robinhood has no minimum deposits and there are no deposit fees. You don’t actually have to invest any money you move right away either; you can just let it sit in your Robinhood account for the time being. Your account can be approved in as little as 1 hour or a few days, depending on which institution you use. You may also have to send a picture of a recent government I.D. to verify your identity.
Robinhood is commission-free, so you don’t have to pay anything for regular day-trades. However, there are some third-party costs that they pass along to you. The most obvious is the FINRA fee which costs $22.10 per $1,000,000 of principal. You will not have to pay this fee if your sales have a notional value of less than $500.
You may also have to pay a small trading activity fee. This fee is equal to $0.000119 per share for equity sales and $0.002 per share for option sells. These fees are so small though and they will not charge more than $5.95 so most investors on the platform will hardly notice them in the long term.
They also have fees for American Depositary Receipts (ADRs). These fees are collected by banks that issue the certificates and typically charge between $0.01-$0.03 per share. Also, of course, ETFs incur expenses at the level of underlying assets. ETF expense ratios are typically under 0.5%.
Where Does Robinhood Fall Short?
For all its great features, Robinhood is not perfect. Here are a couple of areas we think that they could improve on.
Taxable brokerage accounts only
As of the time of writing, Robinhood only allows customers to create standard taxable brokerage accounts. There is no option for retirement accounts such as a traditional IRA or Roth IRA. Most people who get into investing do so for retirement reasons so it seems like Robinhood is missing out on a lot of activity.
While they do offer cryptocurrencies, Robinhood does not offer trading for bonds or mutual funds. Robinhood used to lack any kind of dividend reinvestment features but they recently added one within the past few months.
Weak customer support
Robinhood strangely does not have phone or live chat customer support. All customer support is done through emails. They do have a self-help FAQ page on their website but the company does not even publish its phone number.
Robinhood is not a roboadvisory so it will not manage any funds for you. For more experienced investors, this is a good thing but if you are a beginner, you are kind of thrown into the investing world on your own. Fortunately, they have a decent selection of educational materials and portfolio customization options like watchlists, alerts, and earnings reports to help you out.
Robinhood Pros & Cons
- Streamlined interface. Robinhood has a simple interface that makes trading easy. It lacks a lot of the bells and whistles other trading apps have but what it does have works well and is easy to get used to.
- Commission-free trading. Robinhood does not charge commission on any kind of regular day trades, even for cryptocurrencies. However, they are not the only service that has a no-commission trading structure anymore.
- No account fees or minimums. You can make an account and start investing with as little money as you want. There are no account fees and no fees for withdrawals and deposits.
- Fractional shares. Robinhood recently added fractional shares, which are an accessible and low-cost way to have a diversified portfolio.
- Educational resources. Robinhood has a decent library of education resources on basic and advanced investment topics.
- Limited assets classes. You can only trade in stocks, ETFs, options, and cryptocurrencies. Robinhood does not allow trades for bonds or mutual funds which are two very popular investment vehicles.
- Limited account types. You can only make a standard taxable brokerage account. There are no options for retirement accounts, 401(k)s, custodial, or joint accounts.
- Research is limited. Although Robinhood offers educational articles on investment topics, their research library on investments is severely lacking compared to some other online brokerage services.
Robinhood deserves praise for being one of the services that brought mobile-focused commission-free trading to the forefront, but they are losing ground to other investment services that have picked up the commission-free trading structure. That being said, Robinhood is still worth giving a shot, especially if you are a beginner investor and want to learn the ropes. They have a decent selection of stocks and ETFs to choose from and also have options for cryptocurrency trading. They also offer fractional shares which is a great option for the investor on a budget.