Robinhood offers completely commission-free trading for stocks and ETFs with no account minimums — features which set it apart from major competitors, which might offer one of these advantages but not both. However, the low cost comes with a price: There aren’t many research tools available with Robinhood, and the account offerings are limited regarding which securities you can buy.
But if you are interested in stock trading and are willing to give up a full-service online brokerage experience to save on commissions and fees, Robinhood might be a good fit for you.
When you invest using Robinhood, you don’t have to worry about fees or minimum requirements. (Though you will need to have enough money to purchase at least one share of whatever it is you’re interested in.)
Robinhood is intuitive and easy to use for both iPhone and Android mobile devices. It offers real-time market data and limited historical performance information. Unlike Acorns, which offers pre-constructed portfolios using only ETFs, Robinhood allows you to choose all of your investments.
This Robinhood review will cover the app’s biggest pros and cons, as well as help you decide if mobile trading is the right move for you.
Pros of Robinhood
The most significant advantage to using Robinhood is the fact that there are no commissions or fees for the regular trading of U.S. securities. When you don’t have to worry about fees, your real returns are higher.
Not having account minimums is also a major advantage, since you don’t have to worry about committing to invest a set amount each month. As long as you can buy a share of something, you can trade using Robinhood.
The streamlined interface associated with Robinhood is also a big plus. If you have an idea of what you’re looking for, all you need to do is enter it into the search box.
You can also choose from Robinhood’s list of popular stocks. Look at the current price to get an idea of where they stand.
Once you find a stock or ETF you like, click on it to see its performance for up to five previous years. If you want to purchase the stock, all you have to do is click the green “Buy” button.
A connected bank account makes the whole process simple.
Cons of Robinhood
Interestingly, the ease of trading isn’t just an advantage — it can also be a disadvantage. Sure, it’s convenient to buy and sell using your phone quickly, but if you aren’t a seasoned investor, or if you don’t have the risk tolerance for frequent trading, using Robinhood could put you in a worse position.
Other drawbacks to using Robinhood include:
- One account option: You can only open an individual taxable account. There are no IRA options. Consider opening a Robinhood account only after you have adequately funded a tax-advantaged retirement account, such as your 401(k) through work or an IRA.
- Limited asset-class options: There are no mutual fund or bond choices through Robinhood. You can only trade stocks or ETFs. ETFs are similar to mutual funds, but they trade like stocks. However, you do have access to more than 5,000 securities. You can invest in bond or commodity ETFs through Robinhood, but they are derivatives, so you aren’t investing in the actual assets. You need to use another account if you want more asset-class diversity beyond exposure to different assets through ETFs.
- No research tools: While you can look at the current price and see limited performance data, Robinhood doesn’t offer research reports or stock screeners. There aren’t many educational resources, either. Before using Robinhood, it can be a good idea to learn about investing and research potential investments elsewhere. Come to Robinhood when you already know what to buy.
- The cost to transfer from Robinhood to another broker: Decide to move your money out of Robinhood? Transferring from Robinhood to another broker will cost you $75. If you choose to make the transfer, you might be better off closing your account, waiting to receive the funds, and then opening an account with your new broker.
Fees and other products
Robinhood charges no fees for U.S. securities, but you will pay$50 per trade for listed foreign securities. Euroclear and Canadian securities are exceptions, at $35 per trade.
While Robinhood doesn’t charge fees or require minimums for its basic product, the company does have to make money. After all, Robinhood backer Snoop Dogg probably wants to see a return on his investment in the company. As a result, Robinhood offers both freemium and premium products.
Robinhood Instant is a free account upgrade that allows you to use the proceeds for a stock or ETF sale immediately for reinvestment.
In many cases, when you sell investments, you have to wait a few days for the trade to settle, so there’s a delay in available funds to reinvest. Not with Robinhood Instant, though.
On top of that, with this upgrade, you can access the first $1,000 of pending deposits instantly.
However, Robinhood Instant does come with minimum rules. To use Robinhood Instant, you need to have at least $2,000, as required by federal regulation.
Margin accounts power Robinhood Gold. You can apply to receive “upgraded buying power” based on your account. You must have at least $2,000 in your account to be eligible for Robinhood Gold, keeping in line with margin-trading regulations.
Rather than paying interest on your margin account, though, you pay a flat monthly fee based on your tier. (There is an exception once you borrow more than $50,000, however. Those amounts come with a 5.00% APR.)
The more you borrow at certain tiers, the higher your monthly payment.
Robinhood Gold comes with other extras, including extended-hours trading and instant settlements and deposits. You get more access to faster trading.
However, it’s important to understand that trading on margin is considered risky by many. While you have the chance to magnify your gains, you can also increase your losses. Because you are borrowing from the broker, if you lose money on a trade, you still have to repay the loan.
Understand these very significant risks before you sign up with any margin account.
How to sign up with Robinhood
Even though you can sign up online, there is no online platform for trading. Once you join, even online, all your trading must be done through the mobile app.
However you chose to sign up, you are required to answer certain questions about your identity. You need to share your name and email address to get started. You also need to create a Robinhood username and password.
As with other investment accounts, you will need to provide Robinhood, with the following information:
- Social Security number
- Bank account information (for funding)
Robinhood also has you ascertain your level of skill at investing by asking you what level you feel you are at out of a group of five options.
Robinhood works with several banks for instant verification. This streamlines the process of opening an account. Just provide your login information, and you’re ready to go. No need to wait for microdeposits (the bank transfer of a tiny amount of money — usually less than a dollar — used to verify your account).
However, if your bank isn’t on the list for instant verification, you will have to provide routing and account numbers. In that case, you will have to wait a few days for the microdeposits to show up and verify your account that way.
It can take up to five business days for transfers to go from your account into the Robinhood account. Once the money’s there, you can start trading.
Robinhood customer service
Have a few questions not answered in this Robinhood review? Robinhood has a neatly organized help center with FAQs on a variety of subjects related to using the app.
Should you use Robinhood to invest?
For the most part, Robinhood is best for those who have experience and confidence with investing. It’s easy to use, no matter your ability, but that can lead to overtrading (and loss) for someone without experience and knowledge.
Robinhood is for those whose main concern is trading fees, which is why it’s attractive to frequent traders. On the other hand, you forfeit easy access to trading tools, research, education, and a wider variety of investment options when you go this route.
Carefully consider your investment goals before trading with Robinhood. Even though “free” is attractive, it doesn’t always mean it’s the best choice for you.
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