At the beginning of October 2019, we saw many major stock brokerage firms change course, slashing their online trading commissions to zero. Charles Schwab was the first to announce this move, and rivals TD Ameritrade and E*Trade followed suit shortly thereafter.
But the popular trading platform, Robinhood, has been offering free trades since it officially launched to the public in 2015. With this move by the major stockbrokers to offer commission-free trades, you may be wondering why you might still want to choose the Robinhood app and if it is the best online broker.
In this Robinhood review, we’ll walk you through what this platform offers to help you decide if it's the best investment app for you.
Invest smarter with commission-free trading via an intuitive, user-friendly online platform.
- When you sign up, a surprise stock appears in your account, up to a $225 value
- No account minimums make it easy to get started
- Trade stocks, funds, options, and cryptocurrencies
What is Robinhood?
Robinhood was founded in 2013 by Stanford roommates and classmates Vladimir Tenev and Baiju Bhatt. The duo had previously built two finance companies that sold trading software to financial institutions in New York City.
Immersed in the world of finance, Tenev and Bhatt quickly realized the discrepancy between what big Wall Street firms were paying to trade stocks and what most Americans were charged for every trade — up to $10 each trade for the average person. This led to the decision to move back to California, where they built a stock trading platform that leverages technology and simplicity to democratize access to the financial markets. Thus, Robinhood was born.
Before Robinhood was made available to the public in 2015, 800,000 people signed up for its waitlist. As of Sept. 9, 2021, there are over 23 million active Robinhood customers.
Robinhood is U.S. Securities and Exchange Commission (SEC) registered broker-dealer and member of the Financial Industry Regulatory Authority (FINRA), as well as a member of the Securities Investor Protection Corporation (SIPC). This means stocks and options in your brokerage account are protected up to $500,000.
How does Robinhood work?
Robinhood gives its users several ways to make their money work harder. Whether you’re trading stocks, funds, or options or buying and selling cryptocurrencies, there are no commission fees. It's also free to open an account and use the platform. This allows you to invest more without having to sacrifice a portion of your investment in trading fees or management fees.
Robinhood offers five different products: Stocks & Funds, Options, Cash Management, Gold, and Crypto. All products are available only to U.S. citizens and permanent residents over 18 years of age.
Stocks & Funds
With the Robinhood app, you have online and mobile access to the markets, where you can invest in more than 5,000 stocks, including most U.S. equities and exchange-traded funds (ETFs) listed on U.S. exchanges. You'll also have the option to invest in over 650 global stocks through American depositary receipts (ADRs).
Additionally, Robinhood offers both IPO and fractional shares investing. With its IPO Access feature, you can request shares of companies before their stock starts trading on major exchanges. And with fractional shares, you can invest in portions of stock with as little as $1, rather than buying entire shares. You choose how much you want to invest and Robinhood converts your dollars to parts, or fractions, of a whole share of stock.
Your new Robinhood account will allow you to use up to $1,000 in instant deposits right off the bat, which lets you begin investing money immediately. Any deposit over $1,000 will take up to five business days to clear before you can start investing that money. You also have the option to add stocks to your 'watchlist' if you're interested in them, but not necessarily ready to invest.
Currently, you are unable to buy or sell the following types of assets on Robinhood:
- Foreign-domiciled stocks
- Select OTC equities
- Preferred stocks
- Tracking stocks
- Mutual funds
- Bonds and fixed-income trading
- Foreign exchanges
- Closed-end funds
- Limited partnerships
- Royalty trusts
Aside from investing in stocks, Robinhood offers its users the chance to invest with options. An option is a contract between a buyer and a seller that gives an investor the right (but not the obligation) to buy or sell an underlying instrument — with Robinhood, this underlying instrument would be another stock. This gives investors a way to actively interact with stocks without actually trading the stocks themselves.
Just as with trading stocks, Robinhood charges zero commissions for options trades, nor is there a monthly fee. You can enable this feature in the Robinhood mobile app or your online account, but you'll need to apply for access to options trading first. In general, options trading tends to be riskier than stock trading, which means you'll need to provide some additional information before you start. Robinhood will ask you questions about your risk tolerance, financial information, and investment goals to determine if options are appropriate for you.
Cash Management is a feature available with Robinhood Financial brokerage accounts that allows you to earn interest on your uninvested cash. Known as a sweep account, your uninvested cash (available cash in your brokerage account that you have not yet invested or spent) is moved to FDIC-insured banks that hold and invest your cash, and pay you interest on a monthly basis. This allows you to earn 0.30% APY (as of Sept. 9, 2021) on your uninvested cash until you decide to withdraw, spend, or invest it.
As a part of the Cash Management feature, you’ll receive a Robinhood debit card that can be used on the Mastercard network to withdraw cash from more than 75,000 fee-free ATMs. There are no account minimums, no transfer fees, and no foreign transaction fees, which gives you even greater flexibility in how you choose to handle your money. The Robinhood debit card is issued by Sutton Bank, member FDIC.
Robinhood Gold doesn’t center on investing in the shiny precious metal, but rather gives users bigger instant deposits, access to professional research, and access to investing on margin for $5 a month (more on that in a minute). It's essentially an upgraded version of a free Robinhood account.
Instant deposits are how much of your newly deposited money you’re allowed to use immediately instead of waiting five business days for your funds to clear. With bigger instant deposits, you can get access to $5,000-$50,000 after making a deposit, instead of the $1,000 you can use with a standard Robinhood investment account. Your instant deposit limit is based on your total account balance. For instance, you can make an instant deposit of $5,000 if your portfolio balance is over $5,000, $10,000 if it's over $10,000, etc.
Robinhood Gold subscribers also get access to professional research provided by Morningstar, a global financial services firm that offers independent research and ratings, and Nasdaq Level II market data. Level II market data can provide enormous insight into a stock’s price, the type of trader buying or selling a stock, and the direction the stock is likely to head, among other things.
A Robinhood Gold account can also provide access to margin trading. This gives you more flexibility and extra buying power for day trading, and reduces your time spent waiting to access deposited funds. Investing on margin means you borrow money from your broker to buy stocks. This lets you invest more money for greater potential gains — or losses.
Because you’re investing with borrowed money, there are additional risks and responsibilities you should keep in mind. For instance, if a stock you buy on margin loses value, the losses are deducted from your account value, not the funds you borrowed. Because you will still owe Robinhood for the money you borrowed, it’s possible for a margin account to increase your losses.
For those interested in how to buy cryptocurrency, Robinhood also lets you trade cryptocurrency without the trading fees. Robinhood Crypto launched in early 2018 and is currently available in most states, though it's not available in Hawaii, Nevada, New Hampshire, and West Virginia at this time.
Robinhood Crypto allows you to buy and sell cryptocurrencies 24/7 without paying a commission. Upon opening a brokerage account, you’ll be able to access the Robinhood Crypto platform right from your dashboard (as long as it’s available in your state).
The following assets are currently available for cryptocurrency trading, per the Robinhood site:
- Bitcoin (BTC)
- Bitcoin Cash (BCH)
- Bitcoin SV (BSV)
- Dogecoin (DOGE)
- Ethereum (ETH)
- Ethereum Classic (ETC)
- Litecoin (LTC)
All investors on Robinhood can monitor and track real-time market data for these seven available cryptocurrencies, as well as the following cryptocurrencies, which are not available for trade through Robinhood:
- Bitcoin Gold (BTG)
- Lisk (LSK)
- Monero (XMR)
- NEO (NEO)
- OmiseGO (OMG)
- Qtum (QTUM)
- Ripple (XRP)
- Stellar (XLM)
- Zcash (ZEC)
How much can you earn with Robinhood?
Robinhood is an investment platform that allows you to invest in stocks, funds, options, and cryptocurrencies without incurring commission fees on your trades. As is true with any investment, there’s no guarantee on the amount of money your investment will return. You could also lose money when you invest.
How much you can earn with Robinhood depends on the securities you invest in, how long you allow your investment to grow, and general stock market conditions.
Who can earn money with Robinhood?
Anyone has the potential to earn money with Robinhood, but again, there are no guarantees. If you’re simply trying to figure out how to make extra cash, consider the many different side hustles out there.
That said, Robinhood has an intuitive mobile app for Android and Apple and a simple browser-based trading platform. This user-friendly approach could make the platform a great broker for beginners.
If you're new to investing, it may be helpful to compare it to a traditional brokerage firm accessible to beginners such as TD Ameritrade to better understand your options. By directly comparing TD Ameritrade vs. Robinhood, you can more easily see what exactly Robinhood is doing differently and which approach is a better fit for your investing goals.
Common questions about Robinhood
Is Robinhood really free?
It is free to set up a Robinhood account that provides commission-free investing in stocks, funds, options, and cryptocurrencies. However, to access Robinhood Gold and its suite of tools, you’ll have to pay $5 a month.
Does Robinhood affect my credit score?
No, investing with Robinhood has no effect on your credit score. Robinhood does not run a credit check on users who open an account with them.
Is Robinhood good for beginners?
Robinhood could be a great option for new investors who want to start investing their money. Aside from Robinhood’s simple, well-designed web platform, the company also offers in-depth research tools and access to customer support if you have questions. Robinhood’s blog provides numerous articles to browse, and you can also sign-up for Robinhood Snacks, the company’s daily newsletter for ongoing financial news.
If you're looking for automated features that can take some of the friction out of investing, consider Stash. Beginners can compare Stash vs. Robinhood and see which makes it easier to get a strong start in investing.
Is Robinhood Cash Management FDIC insured?
Yes, the uninvested cash within your Robinhood Cash Management account is deposited in FDIC-insured banks.
What is the minimum deposit for Robinhood?
Robinhood does not have a minimum deposit to open a brokerage account. You can deposit however much you want to start investing in the stock market.
How to sign up for Robinhood
If you want to sign up with Robinhood, the process is quick and shouldn’t take more than a few minutes. You’ll need to be a U.S. citizen or permanent resident over the age of 18 to sign up. To get started, you'll provide basic contact information such as your name, email, address, phone number, date of birth, and Social Security number.
You may be required to upload photos of certain documents to the mobile app for verification purposes. For instance, Robinhood might request a copy of your driver's license. Once you’ve provided this information, you can link your bank account to fund your Robinhood account, and you'll be ready to start making stock trades.
As a new user, you’ll also receive one share of free stock in a randomly chosen company when your brokerage application is approved to help get you started. Because the shares are chosen randomly, the value of your share can be anywhere between $2.50 and $225.
Other investment tools to consider
If you’re eager to start investing but Robinhood doesn't sound like it’s the best trading app for your situation, there are some other options to consider.
Acorns is a finance company that allows you to round up purchases and automatically invest the spare change in ETFs. In addition, the company provides a checking account and options for investing for retirement. Prices start at just $1 per month for an investment account and top out at $5 per month for an account that includes investment accounts for both you and your children, an individual retirement account (IRA), and a checking account. This might be a sound option if you’re looking for a passive investing strategy.
Read our full Acorns review.
If you’re not interested in investing in stocks at this point but still see the enormous value in investing your money, you might want to consider Fundrise. Fundrise is an online real estate investing platform that allows you to get started investing in real estate for as low as $10. The company’s eREITs and eFunds open the door to affordable real estate investing in a variety of property types.
Read our full Fundrise review.