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Don’t you just love the story of a “little guy” sparking significant change?
That “little guy” is Robinhood. The app launched less than a decade ago by two Stanford grads who saw what they considered a major exploitation by Wall Street: stock trading fees.
Fast forward to today: the app has more than 10 million users and raised over $900 million in VC funding to date. By now, nearly every broker offers free trades — because if they didn’t, they may not have survived.
Many agree that Robinhood is single-handedly responsible for shaking up the world of stock trading (thanks Robinhood! 🙌). The app is now the go-to option for DIY millennial investors.
But as other brokers followed Robinhood by offering free trades, the platform had to continue standing out, in other ways. And surprisingly, it has. The app offers free cryptocurrency trading and seamless access to hassle-free stock trading.
Think Robinhood is right for you? Let’s find out.
- Account Minimum: $0
- Fees: $0
- Best for: Low Costs & Mobile Friendly
- Highlight: Pioneer of Commission Free Stock
- Portfolio Analysis: 7/10
- Education: 4/10
- Commissions & Fees: 10/10
- Usability: 9/10
- Account Options: 6/10
- Investment Options: 8/10
- Overall: 8/10
Investor Warning: Carefully consider the investment objectives, risks, charges and expenses of any investment company before investing. All securities trading, whether in stocks, exchange-traded funds (ETFs), options, or other investment vehicles, is speculative in nature and involves substantial risk of loss. Robinhood Financial encourages its customers to invest carefully and to use the information available at the websites of the SEC at http://www.sec.gov and FINRA at http://FINRA.org.
What is Robinhood?
Robinhood is a new force in the broker industry, and has amassed a whopping 10 million users since its launch in 2013.
They’ve undeniably shaken things up with their free-trading of stocks, options and exchange-traded funds (ETF’s). But that’s not all, crypto-traders can trade without fees too, and for this reason, TD Ameritrade have grown a large crypto-trader customer base, too.
As Robinhood is not a full-service broker, it does lack in areas where some full-service competitors including Charles Schwab and Merrill Edge thrive. None-the-less, their entry to the market has proven to hit a key note with millennials, positioning them as a key player, and influencer in the industry.
Traders looking for a new broker will enjoy Robinhood for their low-cost trades, hassle free trades.
Robinhood Overview and Summary
Robinhood is defined by several key points, which we’ve rounded up to the top five:
- Robinhood launched in 2013 and has already influencing huge changes in the industry.
- Robinhood’s mobile-trading approach has been a hit with millennials as their app recently amassed 10 million users.
- Robinhood has $912M in venture capital funding and is a safe option for online trading.
- Robinhood caused a stir after it was announced that they receive 10 times more in order flow payments than other key competitors. However, their pricing still remains cost-effective.
- Robinhood’s basic offerings makes the platform a poor choice for traders looking for in-depth research, analytics or alerts.
Robinhood’s Growth and What It Means For the Industry
In December 2019, Robinhood announced that their online trading app had just surpassed 10 million customers. This means that, although one of the newest brokers on the market, when Robinhood is compared to E*Trade, Robinhood has the higher customer base.
We pioneered commission-free stock and ETF trading with no account minimums – Robinhood, in their Ten Million Thanks blog
In the space of 6 years, Robinhood has made a real impact in the industry by lowering prices, making investing more accessible to a younger audience. With its commission-free stock, ETF trading and zero account minimums, Robinhood is on a path of acceleration and quickly becoming a customer favorite.
In fact, Robinhood are becoming such a threat to competitors that they are being forced to quickly adapt and change their business structures to compete. A startling reality of this is the recent acquisition of TD Ameritrade by Charles Schwab, announced in late November 2019.
This $26 billion all-stock deal has given Schwab the advantage of a 12 million increase in their client base and $1.3 trillion in client assets. Altogether, this gives the company 24 million clients accounts and more than $5 trillion in client assets.
This positive industry change is happening across the board, and is strongly welcomed by retail investors. Shareholders however, are not taking the change so well. Commission fees have traditionally driven online trading firms.
Now, with Robinhood’s commission free strategy, firms are being forced to think of new ways to make money. This could result in more consolidations in the industry.
Robinhood highlighted the impact they’re having on the industry when they announced their 10 million customer milestone. In their own words:
“…We pioneered commission-free stock and ETF trading with no account minimums. And since then, we’ve added commission-free options trading, commission-free crypto trading…”
Not only does Robinhood offer free stock and ETF trading, they also offer free trading for cryptocurrencies, an addition that has threatened traditional and non traditional brokers alike, and further rocked the industry.
Robinhood’s Commission-Free Crypto Trading
In February 2018, Robinhood launched 7 commission-free cryptocurrencies in New York, expanding its customer base, and threatening traditional and non-traditional brokers across the industry. Unlike many in the industry, Robinhood had no interest in making a profit. Its interest revolved around democratization, with the simple hope of breaking even. Speaking on this at the time, Robinhood co-founder Vlad Tenev told CNBC that,
“We will connect to many exchanges, up to a dozen or more, over the next several months…We want to break even on this business, not to profit from it. We view this as an opportunity to expand our customer base and give our customers more access to functionality.”
By October 2019, Robinhood had introduced commission-free crypto trading to 8 more states, including Kentucky, Louisiana, Delaware, Maryland, Maine, Nebraska, Minnesota, and Vermont, offering crypto to a total of 46 states and Washington D.C. If you’re outside of the available regions then you won’t be able to sign up, but Robinhood has promised to continue its expansion across the country.
Which Cryptocurrencies Can You Trade With Robinhood?
Along with the ability to buy and sell 7 cryptocurrencies including, bitcoin, Ethereum, Dogecoin, and more commission-free, traders can also track price movements and news for an additional 10.
Available Robinhood cryptocurrencies include:
- Bitcoin (BTC)
- Bitcoin SV (BSV)
- Bitcoin Cash (BCH)
- Ethereum Classic (ETC)
- Ethereum (ETH)
- Litecoin (LTC)
- Dogecoin (DOGE)
In comparison to other crypto exchanges, this is quite a limited selection.
A Simple User Interface, But No Crypto App
In comparison to other exchanges, Robinhood Crypto’s trading interface is quite basic, but this does compliment the company’s overall plan to create accessible and simple trading. If you’re after a more advanced interface, Robinhood will not suit.
Interestingly, the exchange does provide access to fiat trading which makes it an appealing option.
The Safety of Your Coins is a Priority for Robinhood
With this growth, Robinhood is prioritizing the safety of traders’ coins. The brokers’ custody system uses top-class cryptographic controls to provide a high level of security. It has a cold storage, where most coins are held that is built with fully offline systems, which means there is zero internet connection to these systems, which adds an additional layer of protection against any potential breaches.
Furthermore, the company states that is has relevant systems in place to protect against the movement of coins by any one person, and that any movement requires multiple levels of approvals.
Robinhood’s Free Trading is Really Free
Free trades are Robinhood’s strong-point. They allow you to trade stocks, options, ETF’s, and cryptocurrency – all at no cost. The mobile-centered company have shown their understanding of their customers needs and produced. But not only do they offer free trades, they’re one of the best free stock trading brokers on the market.
Free trades are a big deal if you’re an investor, but especially if you’re an options trader. While Merrill Edge are winning in free stock trades, and Fidelity Investments and Schwab at commission-free ETF trading, Robinhood are the clear champs of free options trading.
Options traders will know how easily costs can rocket when you’re trading in and out of the market. The reason for this is because there’s usually a broker fee as well as an added fee per contract. That’s why traders consistently hunt for the best options brokers they can find.
This layout of hidden, extra costs really add up in the end. Robinhood has cut these costs completely, charging a total of $0, making them a great potential for any options investors out there.
Trade Options for Free with Robinhood
Robinhood once described options, like equities, as a thing of the past in an age where trade executions are fully electronic.
The broker is all about simplicity and “the belief that sophisticated investment tools don’t need to be complex or reserved for the wealthy.”
With this in mind, options capabilities and strategies offered by the broker range from fairly simple to more advanced. You can buy calls and puts, or sell covered calls and puts, and fixed-risk spreads. Multi-leg options offered by the app include straddles, strangles, iron condors, call and put debit spreads, and more.
This variety of strategies is superb because it allows investors to both go long on a stock when they speculate a rise in its value, while also enabling the shorting of a stock when a price dip is expected.
Stop Limit Orders
The company also offers stop limit orders for options. These add a trigger to your trade that gives you more control over your order execution. It gives you peace of mind that once an option contract reaches the stop price you set previously, a limit order will be triggered, and executed, as long as options contracts are available at your specific limit price or better. This is a really handy feature that can be used to help minimize risk or protect a profit.
Not only this but, while competitors offer a couple hundred fee-free ETFs, Robinhood has over 2,000. This huge choice could put the broker in top place in many people’s books for 2020.
How to Trade Options on Robinhood
If you’re wondering how to trade options with Robinhood, we’ve outlined this in five steps below.
- Click the magnifying glass in the top right corner of your home page
- Look for the stock you’re interested in trading options for
- Click the stock that you’re after
- Click the “Trade” button in the right corner of the stock’s “Detail” page
- Click “Trade Options”.
And that’s it, it couldn’t be simpler, although anyone considering beginning options trading should keep in mind that it’s not for everyone.
With that, while competitors offer a couple hundred fee-free ETFs, Robinhood has over 2,000. This huge choice could put them in top place in many people’s books.
Crypto-traders will also be happy to know that Robinhood allow you to trade certain cryptocurrencies commission-free, too. Right now, the service is available in most states but if take not that they’re making it available in more soon.
Account Minimum and Instant Deposits
To begin with, Robinhood has no account minimum for investors. Their quick fund process is another area where they stand out. Anyone who’s had to fund a brokerage account will know the waiting-game that’s played before any funds actually appear, and there’s nothing you can do about it.
Well, Robinhood removed this irritation by enabling real-time transfers. Using banks instant verification, Robinhood eliminated the nuisance of reporting small deposits into your account.
This means you can move anything up to $1,000 into your account instantly on the app, and you’ll get the rest in a couple days. Since it’s so easy to get up and going with Robinhood, we say they’re one of the best online stock brokers for beginners.
Robinhood & Robinhood Gold: A Mobile App
Robinhood is a mobile-trading firm and so, one of their most notable features is their app. Their easy-to-use, simple and stripped-down style is one of the best stock trading apps you can find. We can see this through their recent 10 million customer milestone.
Customers can click on the search icon to view collections of stocks and give you some ideas. You can make your way through watch-lists, stock quotes, news feed and key metrics all alongside a visible trade order form.
The app is fast with no real issues, an important factor for millenials who don’t appreciate being slowed down by technology.
The apps focus on efficiency can be seen through the trade button that follows you as you scroll down the page, ready and waiting for when you want to make an order.
Robinhood Gold is an upgrade available on the website or app. With this, you can borrow money through a loan, or margin, to buy securities. It has a bit of a learning curve to it but once you get the hang of it you might love it.
Robinhood recently rolled out two new premium features:
- Professional research – You’ll have access to comprehensive research reports from Morningstar. The reports are regularly updated to include important company events and are available on 1,700 stocks.
- Level II market data – You can keep track of bids and asks from Nasdaq in real time
Robinhood Gold’s Pricing
Robinhood Gold can double your accounts buying power. And while most brokers charge you daily, you’ll incur just one flat monthly fee of $5. This will include access to premium features, however, if you don’t have money in your account it will simply be added to your margin.
Once you use over $1,000 of margin, you’ll be charged a 5% interest rate on the amount you use above this. You’ll also have immediate access to funds after you sell stock.
Something to note: All margin accounts will be required to have a minimum of $2,000 in it.
Robinhood’s App: Is it Worth Its Weight?
Okay, so the app has been very well received, that can’t be denied. It must be noted though, that those well-receiving it are more than likely millenials and newer traders who like the idea of not being overwhelmed by too much information and being able to act quickly. For anyone who’d like more information, research and/or analytics, the app falls short.
The watch lists are basic and there aren’t many columns past the last price and percentage change. Users can also restricted to one watch list at a time.
You have to enable alerts for all of your positions on your watch lists, currently. So, there’s not really an option to customize your alerts to focus on certain stocks for example, which is definitely not efficient.
The stock charts are also basic enough and can’t be changed past 6 default date ranges. You also can’t conduct any technical analysis.
The theme here is basic, which depending on the audience has good sides and bad sides to it.
Where Robinhood Fall Short
Robinhood may be pushing industry boundaries for the good but they’re not a full-service broker they are at a disadvantage to some competitors. Robinhood’s research and education tools are not up to scratch, their customer support could do an upgrade and if you’re looking for a joint account, then you’re all out of luck. If this is a deal-breaker for you, we recommend looking at the pros and cons of Webull — a commission-free stock app with tools and analytical resources available.
Research and Education
Unlike Merrill Edge and Fidelity who are leading the way in this area, it’s not one of Robinhood’s selling points. Of course, novice traders who want to keep the information they receive to a minimal, or indeed more experienced investors who don’t need much guiding, generally won’t find this to be a deal breaker.
The research that Robinhood do offer is from Morningstar, an independent investment research company. However, it’s only available for Robinhood Gold members.
Either way, it’s not really worth mentioning when compared to competitors that offer outstanding educational platforms for investors, including Charles Schwab.
Robinhood isn’t here to help, educate, guide or nurture traders. It’s not their focus and we can’t blame them for it when they’re doing so well without it. They’ve pushed brokers to offer their customers good prices, but bringing customers good support unfortunately isn’t included in that.
Their customer support starts and ends with a set of FAQs on their help page and automatic responses from their chatbot. Try and get any information outside of this and you might find yourself at a loss. If you want to speak to an actual person then this probably isn’t the broker for you.
Robinhood offer only one account type. Because they’re not a full-service broker, it could be said to give them less of a disadvantage over competitors who offer several account types. So don’t expect any joint or retirement accounts.
Looking to save for retirement? See our top IRA brokers report.
How Robinhood Makes Money: Order Flow
With commission-free stock, ETF, and options trading, many wonder: How does Robinhood make money? The answer: Order-flow compensation.
For various reasons, different firms get different order flow prices from wholesalers. Although Schwab, E*Trade and TD Ameritrade receive $1 million in fees from order flow executed, Robinhood receive more than 10 times that.
To see order flow details, you can look at the company’s 606 disclosure; each brokerage in the US must file a 606 disclosure which details their order-flow price and who they sold it to. This offers transparency and certain protections for customers.
Here are the 606 disclosures for some top brokers:
A report from Logan Kane in September 2018 outlines that Robinhood receive around $260 per $1 million in order flow they sell. To put this into context, other discount brokers like TD Ameritrade and E*Trade both make around $22 per million sold.
How do they manage this?
Kane suggests that it’s because Robinhood users are the “least-informed novice traders.” He also suggests that the app is essentially there to lead traders down the path of least resistance when placing a trade.
As we mentioned above, the app is basic; basic analytics, charts and news updates. It fails to give customers the whole picture and may leave novice trainers in the dark.
This won’t really affect long-term investors in a major way. However, anyone looking to dip their toe in and out and do some short-term trades will find it adds up per trade.
Comparison of Brokerages
A comparison of Robinhood, Merrill Edge, and Charles Schwab reveals the following:
- Overall rating: Robinhood 7.5/10, Charles Schwab 9.5/10, Merrill Edge 9/10
- Account min: Robinhood $0 Merrill Edge $0, Charles Schwab
- Fees: Merrill Edge $2.95, Charles S $0 , Robinhood $0
- Highlight: Merrill Award-winning research, Charles best online broker for stock traders, Robinhood Pioneer of commission free stock
How Does Robinhood Work?
It will take about four minutes to set up your Robinhood account.
Here’s what you’ll need:
- Social Security number
- Bank information
- A mobile or iPad
1. Set up an account
Start by going to Robinhood’s sign-up page. Once there, you’ll fill in a short form with your details and create an account. Then, you’ll be asked if your mobile is iOS or Android.
You’ll be asked this because Robinhood are a mobile company, which means Robinhood’s trading is on mobile only. If you want to use a computer, then Robinhood aren’t for you.
2. Enter your contact information
On step two, you’ll be asked to fill out more personal information like your address and a contact number. If you’re unsure about why they need certain information, then you’ll see that Robinhood has answered why they need it on the right of the screen.
3. Verify your identity
On step 3 you’ll need to prove your identity. This page will give a thorough explanation as to why it’s asking for the information that it’s requesting off you.
4. Fund your account
Transfer over some money to your account. Robinhood don’t charge for any transactions it or out of your accounts, so it won’t cost you a penny.
5. Submit the application
Once you’ve read the apps terms and conditions just click submit and you’re nearly done. You should be notified by email once it has been accepted.
6. Download the app
Once you click submit you’ll be redirected to either, the iOS or Android version of the app to download.
7. Login to the app
Now, login to the app using the same login you created in step 1. Click on “Add funds” to enter your bank information and start your investment journey with Robinhood.
Who is Robinhood Best For?
Robinhood is best for you if you consider yourself one of the following:
- Low minimums
- Options traders
- Smartphone users
- Cyber-currency traders
- Quick trades
Robinhood is best for traders looking to make a quick and efficient trade with minimal hassle.
Final Thoughts: Robinhood Review
Robinhood has its faults, but based on their recent 10 million app use milestone, and their push for more accessibility in the industry, they’re on the right side of their customers.
Robinhood are more suited to those looking to make quick and simple trades, with no hassle. If you’re looking for better tools, research, and more assets, then we suggest you review Charles Schwab or check out the pros and cons of Fidelity Investments.
If research and analytics are your priority then Merrill Edge offer extensive analyst reports through their award winning BofA, Merrill Lynch research team. Whichever broker you choose, this is an exciting, diverse time for the industry and traders will only reap the benefits.
Find out how Robinhood stacks up against the competition.
- Robinhood vs. Vanguard
- Robinhood vs. Fidelity
- Robinhood vs. Stash
- Robinhood vs. E*Trade
- Robinhood vs. TD Ameritrade
- Robinhood vs. Ally Invest
- Robinhood vs. Schwab
- Robinhood vs. Firstrade
- Robinhood vs. Webull
- Robinhood vs. M1 Finance
- Robinhood vs. Stockpile
- Robinhood vs. Betterment
- Robinhood vs. Wealthfront
- Robinhood vs. Stash Invest
- Robinhood vs. Acorns
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