Robinhood is a revolutionary commission-free stock, ETF, and cryptocurrency trading app for investors who want to save money on trading fees and grow a substantial equity portfolio over time.
The company, headquartered in California, was founded in 2013 by Vladimir Tenev and Baiju Bhatt who were upset at the current broker options available to the average investor.
Due to the app’s massive success, Robinhood went public and trades on the NASDAQ under the ticker symbol: HOOD.
Who is Robinhood For?
The app is used mostly by millennial investors who are new to investing and want to grow their portfolios over time.
The average Robinhood user is 31 years old with a median account balance of $250 (source).
However, I think all investors can benefit from zero cost stock trades because that extra money saved on fees can be reinvested in your portfolio and will boost your overall return
Pros & Cons
- $0 commission free trades
- Fractional share trading
- Extended Hours trading
- Fast mobile app
- 24/7 Phone Customer Support
- Trade Cryptocurrencies
- 0.30% APY Cash management account w/ debit card
- Automatic scheduled deposits
- Zero hidden fees
- Dividend Reinvestment (DRIP)
- Stock Lending Program
- No OTC stocks
- Cannot Transfer Crypto Assets
- No beneficiary in case of death
- No retirement accounts available
- No forex trading
- No short selling
- Occassional outages
Account Opening Process
Robinhood app is a wonderful free stock trading app but it’s only available to US citizens, US permanent residents or aliens with a valid US visa.
To apply for a Robinhood account, you will need the following:
- Over 18 years of age
- Have a valid Social security number
- Have a legal US address
The signup process is simple and easy but before you sign up, use this link to get a free share of stock as a gift.
Fill out the application and link your checking account to make your first deposit into your Robinhood account.
Robinhood Alternatives for Non-US Citizens
If you live outside the United States then you cannot open a Robinhood account. Firstrade is a good alternative to Robinhood if you want to trade US publicly traded companies.
If you live in Europe then check out this list of Robinhood alternatives in Europe.
Website & App Usability
I use the Robinhood mobile app every day but they also have a desktop website.
Mobile App Design & Usability
The mobile app is lightweight (17.7 MB), well designed, and easy to use.
I enjoy browsing through dozens of stocks each day and I find it simple to research new stocks I never heard of using the Browse tool.
In the Browse section, you can review the “Top Movers”, popular collections of stocks, or even read headlines from major news sources like MarketWatch, CNBC, and Yahoo! Finance.
You can view your account balance, watchlist, holdings, and notifications on the main page.
On the second page, you can search for stocks by ticker symbol or classification. Robinhood organizes thousands of stocks into categories based on price, industry, and popularity.
The desktop website site is extremely bare and lacking. I rather use the desktop version but you can buy and sell from your laptop as well.
Range of Offerings
Robinhood only offers stocks, several ETFs, REITs, cryptocurrencies (bitcoin & others), and options trading. You cannot open an IRA, short stocks, or buy mutual funds or bonds using the app. They lack a lot of full-service brokerage features in order to offer free stock trades to their customers.
Nasdaq, AMEX & NYSE stocks are available on Robinhood. You can buy and sell popular stocks like Tesla, Amazon, Apple, etc.
Unfortunately, you cannot trade OTC stocks on Robinhood.
Finally, options traders can rejoice! Robinhood offers free options trading using the 4 basic order types:
- Buy Call
- Sell Call
- Buy Put
- Sell Put
Simply click Trade -> Trade Options to view a symbol’s options chain. Most equities have both near to expiration and long term contracts available.
Bonds are offered on Robinhood as bond ETFs that track on major US exchanges. You can buy or sell these bond funds to diversify your portfolio allocation mix.
There are lots of different ETFs on Robinhood that track major indexes. For example, SPY is a well-known ETF that tracks the S & P 500.
Real Estate Investment trusts (REITS) are publicly traded stocks that allow investors to invest their money into a pool of real estate properties and collect regular dividend payments.
For example, Simon Property Group (SPQ) and Realty Income (O) are well known REITs.
You can trade cyyptocurrencies 24.7 with Robinhood using their new Robinhood Crypto platform. First, you need to verify your ID to unlock your trading account.
Here’s a list of available Cryptocurrencies to buy and sell:
- Bitcoin Cash
- Ethereum Classic
- Bitcoin SV
However, only US residences in the following states can trade cyptryo: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Indiana, Illinois, Iowa, Kansas, Massachusetts, Michigan, Mississippi, Missouri, Montana, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Washington, D.C., Wisconsin, and Wyoming.
The trading experience is very smooth. Robinhood supports both standard market hours (9:30AM to 4PM EST) and extended hours (9AM to 6PM EST) for equities while you can trade cryptocurrencies 24/7.
Placing a trade is very simple to do and I usually start off by clicking the search icon and typing in the name or company symbol.
From there, tap the floating TRADE button on your mobile device and select from Buy, Sell (if you already have shares) or trade options. Not every stock or ETFs is available for options trading. Be sure to check beforehand.
Enter the number of shares and choose your order type from Market, Limit, Stop Loss or Stop limit.
Market trades get executed immediately while limit trades are safer if the stock is experiencing extreme volatility.
Robinhood requires you to have at least a 5% premium on limit trades so you may have to deposit more money if you don’t have the extra 5%.
Once you enter your trade, you simply swipe up to place the trade. Your order status will either be queued or placed. Let’s quickly define the differences:
- Queued means the trade has not executed yet and you will have to wait until the order is placed
- Placed means the order was successful and your account will reflect the changes.
Robinhood does a good job of trying to enter your trade at the lowest price and I’ve luckily bought several stocks at their 52 week low dips thanks to Robinhood.
You receive a mobile confirmation of your trade along with an email. If you want to turn off these notifications, go to Settings -> Notifications.
Cost & Fees
Robinhood became a leading stock trading app by disrupting the retail investment sector with free stock trades. However, there are some other fees to take note of:
- Stock and ETF trades: $0
- Options trading: $0 (no per-leg or per-contract fees)
- Margin Trading: Trading on margin requires a $5 Robinhood Gold subscription, which includes $1,000 of margin. The margin interest rate is 2.5% on any amount above $1,000.
- Account transfer fee: $75
Robinhood offers a lot of the standard SPIC insurance protection & SSL security that many full-service brokers offer.
Equity securities are protected by the SPIC up to $500,000.
Crypto assets aren’t protected by the SPIC and are subject to loss.
Your sensitive details like social security number and passwords are encrypted before they are stored to protect your account from hackers.
Robinhood also offers TouchID, FaceID, fingerprint, and custom PIN codes to protect your account.
For enhanced security, use 2FA (two-factor authentication) via text that requires a special PIN code to access your account.
Robinhood added 24/7 phone customer support for all its users in October 2021. You can open a support ticket and request a call back within 30 minutes. This makes Robinhood the first cryptocurrency broker to offer 24/7 phone support and hopefully, other competitors like Webull and Coinbase do the same.
Robinhood offers a cash management account that’s similar to a bank checking account.
Robinhood pays 0.30% APY annual interest plus you can sign up for the Robinhood debit card to use your account to pay bills.
Cash Management accounts are FDIC insured for up to $1.5 million and serve as a nice alternative to high yield checking accounts.
Pattern Day Trading
Robinhood enforces a “Pattern Day Trading” rule that limits you to no more than 3 day trades over 5 trading days if your account balance is less than $25,000.
The Pattern Day Trading Rule is enforced by the FINRA/SEC and cannot be overruled by Robinhood.
If you make more than 3 day trades over 5 consecutive trading days then your account will be suspended rom buying & stocks for 90 days.
One way to avoid the Pattern Day trading rule is to turn off instant deposits and use a cash-only account. The downside is you must wait 5 business days for your deposit to clear.
I like Robinhood’s instant deposit feature so I simply wait to buy stocks/options near the end of the day’s trading session then sell them at the beginning of tomorrow’s market open.
That’s a simple strategy to avoid the dreaded Pattern Day Trading 90 day ban.
What is Robinhood Gold?
Robinhood Gold is the premium upgrade for select users who want access to increased benefits like:
- In-depth Morningstar Research Reports
- Bigger Instant Deposits
- Access to Margin Investing
There are different pricing tiers depending on your account size and desired instant deposit limit:
I think Robinhood is a fantastic product and expect to see great things from the brokerage in the future.
Of course, nothing is perfect and I have no plans of getting rid of my Fidelity account in the future.
It’s the best overall app for commission-free trading and I haven’t had any serious issues with the app yet.
Robinhood isn’t for everyone so just make sure you realize the pros and the cons before you become a Robinhoodie.
What is Robinhood’s business model? How do they make money?
They earn revenue from several different models including interest on cash deposits, rebates from order flow, and the Robinhood gold membership. Futher reading on how Robinhood makes money.
Does Robinhood pay dividends?
Yes. Dividends are credited to your account according to the pay date. However, Robinhood does not offer dividend reinvestment plans (aka DRIP) for investors. You can use the extra cash to buy more shares once you have enough. Here’s more information on how Robinhood distributes dividends.
Does Robinhood charge expense ratios?
Yes. They charge expense ratios on ETFs and make money by sharing a cut of the fee with the fund company.
Does Robinhood offer mutual funds?
No. You can trade ETFs that track major mutual funds instead.
Does Robinhood offer short selling?
Current Robinhood Promo: Get a Free Share of Stock
Robinhood is offering both you and me a free share of stock if you sign up under my referral link. Chances are you will receive a cheaper stock around $5 for but there is a 1 in 200 chance of receive a more valuable stock like Microsoft or Berkshire Hathaway.
Here’s a list of all the free stocks I got for inviting friends to Robinhood:
- 3 shares of GRPN
- 1 share of INSYQ
- 2 share of FIT
- 1 share of SIRI
Special thanks to those of you who have already signed up: Benjamin J, John D, Antonio S, Randall H, Willie Lee J, Ernest H, and Vincent P.