For years there was a race against all discount brokers and investment banks to the bottom in terms of charging their clients commissions on trades. It used to be that a single stock trades cost at least $9.99 per trade! Slowly, institutions kept lowering their trade commission to attract more business. Then, Robinhood came along and did the unthinkable, offering an in-app trading platform that charged zero trade commissions!
In short, Robinhood is a pioneer of commission-free trades and has nearly forced every other investment bank to follow in their footsteps of zero trade commissions, else the competition would lose a lot of business to the new modern investment app.
What is Robinhood? What makes them different from any other investment account today? And are they worth using to invest in the stock market?
In this detailed Robinhood review, we’ll answer these questions and more to help you get a firsthand insight of the real value Robinhood has to offer.
Overview of The Robinhood Investing App
Robinhood is a modern investment app that lets consumers invest in the stock market and other related investments for zero commissions. Furthermore, Robinhood allows investors to purchase fractional shares rather than requiring whole share amounts to be purchased. This allows anyone to trade with as little as $1 in any company they want, regardless of the share price.
They provide an elementary brokerage account that simplifies the investing process and analysis of individual investments. They offer both free accounts and premium accounts (called Gold memberships) that provide additional investment research tools if needed, as well as access to purchase options contracts, trade on margin, and even invest in cryptocurrency.
Fees & Minimum Balances
While some brokers have followed in the footsteps of Robinhood offering zero-commission trades, many will have hidden fees elsewhere or back-end fees on the sale of your investments.
When it comes to trading options contracts or trading with a margin account, there are low options contract fees and low-interest rates on margin accounts with a $5 monthly fee to use a margin account.
Robinhood has no required minimum balance to open an account and no dollar amount requirements on how much you can trade into each stock. This means you can purchase $1 worth of Amazon (which costs thousands of dollars for a whole share).
Available Account Types
Robinhood offers multiple types of accounts on their investing platform, including:
- Individual brokerage accounts
- Margin accounts
- Cash management accounts
The individual brokerage account is the most basic account, allowing investors the ability to invest in stocks, funds, crypto, and options trading. The margin accounts enable investors to upgrade their individual accounts to trade on margin. The cash management account is your most basic account that comes with a debit card and pays a variable interest rate.
With any Robinhood account, you can invest in the following types of securities:
- Exchange-Traded Funds (ETFs)
- Options contracts
You can trade almost any publicly listed company, nearly any ETF available, and the most established and popular cryptocurrencies.
The cryptocurrencies available on Robinhood as of this writing are:
- Bitcoin (BTC)
- Ethereum (ETH)
- Bitcoin Cash (BCH)
- Litecoin (LTC)
- Dogecoin (DOGE)
- Ethereum Classic (ETC)
- Bitcoin SV (BSV)
Robinhood may add more cryptocurrency options as the company grows. Furthermore, they have another ten cryptocurrencies available to add to your watchlist. Should they add more cryptocurrency to trade with, it only seems logical that one of the coins on the watchlist options may be the next addition to the platform.
Want to start investing? Check out our article 10 Legits Ways to Get Free Stocks. See the table below for more free stock offers.
|Robinhood||Commission-free trades of stocks, ETFs, and options||Free stock when you sign up||Robinhood review|
|M1 Finance||Free automated investing||$30 signup bonus||M1 Finance review|
|Public||Social investing||Up to $5 signup bonus||Public review|
|Webull||Commission-free trades of stocks, ETFs, and options||Free stock when you deposit $100||Webull review|
|Stash||Buy fractional shares||$5 bonus when you invest at least $5||Stash review|
|Nvstr||Social aspect allows you to benefit from collaborative wisdom||Up to $1,000 signup bonus||Nvstr review|
Why Invest with Robinhood?
What makes Robinhood different from any other investing app available? Why not use a traditional discount broker that’s been around for years, such as Fidelity or TD Ameritrade? Some of the popular features offered on Robinhood attract people due to the ease of use, the zero-cost approach, and the availability of the most popular investment options in one place.
Commission Free Trades
As previously mentioned, Robinhood is considered a “pioneer” of the commission-free trade. Once they launched, all other brokers had no option but to follow in their footsteps. Naturally, this is the main attraction for new investors looking to save money on building a successful stock portfolio.
Zero commissions to buy new stocks, and zero commissions to sell your current positions.
Invest in Cryptocurrency
Sure, some brokerages have followed the zero-commission trading trend, but very few investment brokerages allow you to invest in both stocks and cryptocurrency in the same portfolio.
If you think investing in the stock market sounds complicated, investing in options is even worse. However, Robinhood has made it very simple for anyone to invest in options contracts while also showing individuals how options work, your potential loss, and potential gain.
You could even say that Robinhood’s options trading feature is a great place to start for new options investors because it’s quite visual and informative while remaining very simple and easy to use.
Trading on margin means you’re borrowing the bank’s money to increase your current positions in the stock market, thus allowing you to potentially make a lot more money (or lose a lot more money). Traditionally, brokerages only allow a select few investors to have a margin account due to the riskiness of the transaction.
However, Robinhood has structured their account so that you pay a small fee of $5 per month, plus a standard interest rate on the margin account, allowing most individuals to invest on margin should they choose.
(As a word of warning, if you’re new to investing, please don’t attempt margin trading due to the higher risk.)
Any individual account can be upgraded or downgraded at any time to Robinhood Gold, a premium Robinhood account that offers additional tools and resources for investing. Robinhood Gold accounts give you access to:
- Professional Research Reports: You get access to reports provided by Morningstar, a top investment and stock market research company, to over 1,700 different stocks.
- Trade On Margin: With a margin account, you can use the bank’s money to invest more into your favorite companies, or even use the margin credit to take advantage of great opportunities while you’re waiting for access to your deposited funds.
- Larger Instant Deposits: You can deposit anywhere from $5,000 to $50,000 and get instant access to your money so you can begin trading immediately.
- Additional Market Data: When analyzing stocks, you can view multiple bids and asks to help determine what trends are occurring and determine proper prices to purchase.
If you’re familiar with traditional investing accounts and most of the leading brokerage accounts available today, you’ll know that when you invest in individual stocks, you have to purchase whole share amounts. This means that if you want to buy one share of Amazon, you have to commit thousands of dollars for one share. The same is true for all companies that have high share prices.
Fractional shares investing allows investors to purchase a certain dollar amount of stock, and not share amounts. You can invest $5 or $500 in any company you want; you’ll just receive a fraction of a share rather than the whole share, depending on the stock price.
This eliminates the obstacle of not having much money to start investing for individuals who otherwise would never have invested in the first place.
Robinhood Cash Management Account
The cash management account is an FDIC insured bank account with a debit card that also earns interest on uninvested funds. You can spend money in that account for everyday expenses, let it sit in a cash position and earn interest, or build up money to invest in the stock market.
The cash management account has no minimum balances and no monthly fees associated with opening an account. You can even access over 75,000 ATMs for free, giving you immediate access to cash whenever needed. The cash management account is a Mastercard and can be used anywhere that Mastercard is accepted.
Robinhood isn’t just a basic investing app with zero fees and convenient tools; they also provide fundamental investment news, tips, tricks, and economic events to aid you in building a successful portfolio. Robinhood Snacks is a newsletter that gives updates on the financial markets every day in just 3 minutes.
They also have a popular podcast that you can listen to every morning to get market updates and the latest investment topics and techniques.
Where Robinhood Falls Short
Despite the convenience of zero commissions, ease of access to investments, fractional shares trading, options trading, and margin accounts, Robinhood has a few areas that may be seen as an inconvenience to some investors (like any brokerage, platform, or investing app). Here’s where Robinhood falls short that might make or break them as the investment option for you.
As an investor in individual stocks as well as sophisticated investment instruments like options trading and trading on margin, it’s essential to have the proper tools and technical analysis research reports available to you to make informed investment decisions.
In short, Robinhood only offers some simple graphs, brief research reports, and info on what others are trading and at what prices their bid and ask prices are. Their research tools are basic and may not meet the needs of some investors.
If you’re looking to get technical and research investments using Robinhood, you will likely need an outside source to do your analysis on your chosen investments. Some examples of useful research tools include Yahoo Finance, MarketWatch.com, Seeking Alpha, and Fidelity.
Can an Investing App Be Too Simple?
It could be argued that Robinhood is such a simple investment app that it’s almost too easy to manage. In fact, some of their navigation menus don’t actually have navigation, but instead, you have to tap or click on the screen somewhere to even know the navigation is there.
What’s Unique About the Cash Management Card?
Most of Robinhood competitors such as M1 Finance, Acorns, and Stash all have a debit card associated with their investment accounts. So, it seems as though Robinhood had to simply follow the competition to not lose out on customers.
But the problem is that its debit card is nothing unique in and of itself. Robinhood promotes that it offers a variable interest rate on the cash in the account, but to be frank, that’s not a major motivating factor for most people.
So, what makes the Cash Management Card unique? There is nothing. This is perhaps a small issue that could be addressed if they are to beat the competition. Investment apps like Acorns, Stash, and M1 Finance all have cashback offers with their debit cards, plus interest rates on cash positions. If Robinhood offered something similar, they’d be taking ten steps in the right direction.
No Bonds or Mutual Fund Options
For those of you who like to diversify your portfolio outside of just stocks and ETFs, you might find Robinhood a disappointing app to use. Why? Robinhood doesn’t offer bonds or mutual funds, two popular investment vehicles that have been around for ages.
The alternative is the potential to invest in ETFs that may have bonds included, but most ETFs are passively managed investments without an active fund manager watching the fund day in and day out.
Who Is Robinhood Best Suited For?
Robinhood is the investing app for the modern investor. Regardless of whether you have years of experience investing in stocks, or you’re just getting started, Robinhood offers the bare essentials to invest for free.
Robinhood will work best for individuals with the following traits or investment needs:
- Individuals interested in stocks and cryptocurrencies only
- People looking to start investing in stocks with little money to start
- Anyone who wants to save money on costly trading commissions
- Those who wish to conveniently trade options and have access to a margin account
While there are always ways to improve, Robinhood certainly has created an exceptional modern investment app that caters to new-age investors such as millennials, digital natives, and beginner investors.
VitalDollar is an affiliate of Robinhood and we earn a commission if you sign up for the app through our affiliate link. The content of this article has not been influenced by this affiliate relationship.