If you’re a Millennial, then you’ve probably heard of Robinhood. A few years ago, receiving a text message with an invite to join Robinhood from a friend was a commonplace experience. But is it worth the hype? To figure that out, it’s important to take a look at all of the features that this investing app offers.
Robinhood is a mobile app created by two Stanford graduates with a history of working in finance. After witnessing the Wall Street firm experience, these classmates decided that it was time for every American to have easy access to the financial market. They built Robinhood to make investing friendly, approachable, and understandable whether you’re a beginner or an expert in the field.
The Robinhood app provides a free trading platform that you can use on Apple iOS or Android.
When you visit the Robinhood website, you’ll see a couple of different places where you can sign up. Clicking on either button will take you to the same sign-up page.
The first thing that you’ll see on the sign-up page is a button to claim your free stock. According to Robinhood, you don’t need to have any money in your account to receive this free stock. All you need to do is link your bank account during the sign-up process.
Now the sign-up process truly begins. After you click to claim your free stock, you’ll set up your basic account information. Under the continue button, there’s also a link to sign in to your account to complete your application. If you end up taking a break during the sign-up process, it’s good to know that you can come back and log in instead of starting your application over from the beginning.
Then you’ll be asked for your contact information. You must complete all of this information to continue the sign-up process.
Robinhood will next ask for your social security number, date of birth, and your citizenship Like its competitors, Robinhood is required by law and/or industry regulations to collect this information before you can have an account.
The next part of the sign-up process is meant to gather the information that will help Robinhood give you the best investment advice and products. To start, Robinhood asks about your level of experience with investing.
Then Robinhood asks about your employment status.
If you’re employed, Robinhood will then ask you for your employment information. This is also information that they are required to gather when anyone signs up for an account because they need to be aware of whether you’re associated with any financial institutions.
To prevent insider trading, Robinhood needs to know the answer to this next question.
You’ll also need to disclose whether you or a family member work for another brokerage.
That’s the end of the initial application process. After you submit your application, it will be reviewed and your identity will be verified using the information that you provided during the sign-up process.
In the meantime, you can move on and set up funding for your Robinhood account. You can wait and fund your account later if you’d like, but you won’t get your free stock until you’ve set up your funding.
If you decide to fund your account now, you’ll see this pop-up notifying you of Robinhood’s process to link your bank account.
You can then search for and select your bank.
When you’ve found your bank, you can click on it to sign in to your bank account.
If you decide to wait and fund your account later, you’ll see this message when you’re logged into the Robinhood website. Remember, you can’t receive your free stock or start investing until you’ve funded your Robinhood account.
How much does Robinhood cost?
Robinhood doesn’t charge any fees to open or maintain your account. By signing up for a new account, you’ll automatically start with a Robinhood Instant account. This account will give you access to up to $1,000 of instant deposits and extended-hours trading. Having instant access to your funds with this account means that if you sell a stock, you can use the funds from your sale immediately, rather than waiting for a couple of days.
While you do automatically start with a Robinhood Instant account, you’ll be able to downgrade to a Robinhood Cash account if you so choose. The Robinhood Cash account allows you to place zero-commission trades during both standard and extended-hours trading sessions. Unlike Robinhood Instant and Robinhood Gold, this account does not offer access to instant deposits or instant settlements.
At this time (Q4 of 2020), Robinhood does not offer joint accounts, trusts, IRA products, or custodial accounts.
You can also upgrade to Robinhood Gold, which costs $5 per month. (You can try it out with a free 30-day trial.) This level gives you everything that Robinhood Instant has, as well as premium features.
With Robinhood Gold, your instant deposits start at $5,000 and increase based on your portfolio value.
If your portfolio value is over $10,000, you get $10,000 in instant deposits.
If your portfolio value is over $25,000, you get $25,000 in instant deposits.
If your portfolio value is over $50,000, you get $50,000 in instant deposits.
Another benefit of Robinhood Gold is that it gives you access to margin investing. If you invest on margin, this means that you’re borrowing money from Robinhood to purchase stocks. With access to margin investing, you’ll be able to invest more money and take greater risks. You must deposit at least $2,000 before you’ll be able to trade on margin.
Robinhood Gold also gives you access to more detailed reporting and research. You’ll receive access to Level II Market Data, which shows the full depth of orders on the Nasdaq stock market. You’ll also receive access to premium in-depth stock research reports from an independent investment research company called Morningstar.
There are some fees associated with Robinhood that you need to be aware of. When you invest, there are fees charged to Robinhood and any other online broker that sells orders. Robinhood passes these fees on to customers. Robinhood charges:
Regulatory transaction fee
Regulatory transactional fees are a fee that is passed down from the Financial Industry Regulatory Authority (FINRA) to its members, including Robinhood. Robinhood then passes this fee down to you. The fee is intended to cover costs incurred by the government for supervising and regulating the securities markets and is ultimately paid to the Securities and Exchange Commission (SEC.)
According to Robinhood, “The SEC fee is $22.10 per $1,000,000 of principal (sells only) and is rounded up to the nearest penny. Robinhood does not pass this fee on to customers for sales with a notional value of $500 or less.”
Trading activity fee
FINRA also charges a fee to recover the costs of supervising and regulating brokerage firms, called the trading activity fee.
For equity sells, the trading activity fee is $0.000119 per share. For options sells, the fee is $0.002 per share. If you only purchase 50 shares or less, you will not be charged a trading activity fee.
American depositary receipt (ADR) fees
If you’re interested in foreign stocks, you’ll need to be aware of this fee. These are certificates that represent foreign stocks traded on American exchanges. The certificates are issued by banks, and they may come with custodial fees that usually range from $0.01-$0.03 per share.
Robinhood offers the option to upgrade to Cash Management, a feature that lets you use Robinhood to spend and earn interest on your swept cash. Swept cash is uninvested cash in your brokerage account. If you upgrade to Cash Management, this money will be moved over to where it can begin earning interest at 0.30%. You’ll also be able to use this to fund your brokerage account.
By upgrading to Cash Management, you’ll receive a digital and physical debit card that you can use for routine spending such as paying bills and buying groceries. The card receives fee ATM withdrawals at more than 75,000 ATMs. It also has FDIC insurance of up to $1.25 million.
Robinhood’s referrals program is a popular incentive for both current and new Robinhood users. Once you have signed up for a Robinhood account, you can invite friends to join Robinhood. If the person that you invite has their Robinhood application approved and is not a current or past client of Robinhood, you’ll each receive a free stock. You must claim the free stock bonus within 60 days through your Robinhood platform.
Robinhood claims that you can receive up to $500 in free stocks per year. The shares of free stock that Robinhood gives you are chosen randomly and may be worth anywhere between $2,50 and $200.
Robinhood Crypto offers commission-free cryptocurrency investing to customers in most states. The available cryptocurrencies include:
Robinhood Crypto supports real-time market data for cryptocurrencies including Bitcoin Gold, Dash, Ripple, and more
You can check here to see if Robinhood Crypto is currently available in your state. If it’s not available in your state currently, you should receive an in-app notification as well as an email when Crypto is available to you.
Robinhood offers options trades with either an Instant or Gold account. There are no monthly fees for options investing, nor is there a commission fee to buy or sell options.
Who is Robinhood best for?
If you have no idea what you’re doing but know that you probably should be investing, Robinhood may be a good option for you. The sign-up process is relatively simple, and you can start small without racking up fees or making a financial commitment to the platform. The fact that Robinhood doesn’t have an account minimum to sign up means that you can use the platform even if you only have a few bucks to play around with.
Experienced traders that want to trade on margin
Robinhood’s margin trading is available with the Gold account, which only costs $5 per month. I mention that this is a good option for experienced traders only because margin trading is overall much riskier than the type of trading that is suitable for beginners. Since you’re trading borrowed money with margin trading, you could end up losing more money than you had to invest to begin with. This can open up a whole world of issues and end up hurting your finances overall.
Who shouldn’t use Robinhood?
Investors that are interested in bonds
Most of the competitors that I’ve looked into have the option to invest in bonds or mutual funds. Unfortunately, Robinhood does not offer this type of investment. Of course, you could always set up another account elsewhere for these investments. But if you’re interested in bonds and mutual funds, it may be better to find a platform that can offer all of the investments that you plan to use.
Anyone looking for a retirement account
Unfortunately, Robinhood also does not offer retirement savings accounts. While Robinhood does say that it may add other accounts in the future, it’s probably best to look elsewhere if you want to do more goal-based investing for retirement.
Robinhood vs. competitors
Starting minimum balance
$0 - $5/month
$0 for any plan, but $2,000 to open a margin account
0.25% annual digital; 0.40% annual premium
$0 digital, $100,000 premium
$1 - $9/month
$0 for all of the plans
$1 - $9/month
Betterment is a robo advisor that offers several plans with somewhat more robust offerings when compared to Robinhood. You can choose from a digital or premium plan, based on your interests and needs. Like Robinhood, you can start using Betterment with a $0 minimum balance. However, you will have to pay an annual fee that is based on your account balance.
Betterment also offers advice calls with financial experts to help you create and refine your investing strategy. These calls come at an extra charge starting at $99. You can sign up for several accounts with Betterment. In addition to its investment products, Betterment offers a checking account, high-yield cash account, and retirement accounts.
Ellevest was created with women in mind. As such, the Ellevest investment algorithm factors in gender pay gaps, career breaks, and a women’s longer average lifespan. Like both Robinhood and Betterment, this platform is a good option if you’re new to investing and don’t require a minimum account balance.
In addition to focusing on serving women, Ellevest emphasizes using your investments to create a positive social impact with their Impact Portfolios. While Ellevest does have a small monthly fee to become a member, it offers banking accounts, retirement accounts, coaching access, and more for you to choose from.
Stash was also created by former Wall Street investors who believe "everyone should have access to tools, guidance, and confidence to grow personal wealth and live a better life."
From $1 to $9 per month, beginners can receive an investment account, life insurance, and a bank account with a Stock-Back debit card with additional tiers providing retirement accounts, double stock rewards, and a monthly market insights report.
Robinhood offers the ability to dabble in the world of investing without making any serious commitments. You can sign up for Robinhood with no monthly fees and no minimum account balances. This is what makes the platform so approachable for new investors.
Robinhood offers the ability to invest in cryptocurrencies in most states. Cryptocurrencies are newer to the world of investing and have proven to be quite popular in recent years. If investing in cryptocurrencies appeals to you, then it’s good to know that you can choose this investment type with Robinhood.
Robinhood doesn’t have nearly as many investment products as some of their competitors. While the sign-up process is simple and the platform is relatively approachable, you may find yourself wanting more soon after you sign up. The fact that Robinhood doesn’t offer the goal-based strategy of some of their competitors can be a deterrent.
Some may find Robinhood’s customer support to be lacking. When you visit the website’s support page, you’ll notice that there’s no phone number to be found. Instead, Robinhood offers a long list of frequently asked questions and a link to email Robinhood’s support team for further assistance.
What investments can I make on Robinhood?
Robinhood offers a variety of assets, including stocks and options. There are over 5,000 stocks that you can invest in with Robinhood, which includes most U.S. equities and exchange-traded funds (ETFs). Robinhood also offers options trading and access to global stocks through American Depositary Receipts (ADRs).
What are fractional shares?
Fractional shares are just that, a fraction of equity stock. Robinhood offers these shares for as little as $1 so it helps you create a more diversified portfolio.
Can you trade penny stocks on Robinhood?
Robinhood only offers United States exchange-listed stocks found on NASDAQ and NYSE, which is not common for penny stocks. These are companies that trade less than $5 a share. However, some can be found on Robinhood.
The bottom line
Most anyone can appreciate the simple and straightforward process that Robinhood offers. It’s a great stepping stone if you’re a beginning investor that is looking to get comfortable with investment strategies. You can even make higher-risk investing choices as you become more experienced.
Some of Robinhood’s features can be appealing to many beginners, as well. Millennial investors can especially appreciate the friendly and approachable nature of the platform. The fact that you can earn free stocks by inviting your friends is also a major plus if you’re in this age group since most of your friends are probably in a similar position and may be interested in learning more about investing.
Overall, Robinhood can be a good option if you’re looking to dip your toe into the water of investing. While it doesn’t offer the array of products that some of its competitors do, it does offer enough for you to get started as an investor with a minimum commitment.