At the beginning of October 2019, we saw many of the 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 privately held 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 everything Robinhood has to offer, if Robinhood is the best investment app for you, and a couple alternatives if an account with Robinhood doesn’t sound like it fits your needs.
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
Is Robinhood safe?
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 Dec. 4, 2019, Robinhood had more than 10 million accounts.
Robinhood is an 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 investing work?
Robinhood gives its users a number of ways to make their money work harder. Whether you’re trading stocks, funds, or options with Robinhood Financial or buying and selling cryptocurrencies with Robinhood Crypto, there are never any commission fees. This allows you to invest more without having to sacrifice a portion of your investment in fees every time you want to buy or sell a security.
Robinhood offers a total of five different products: Stocks & Funds, Options, Cash Management, Gold, and Crypto. All products are available only to U.S. citizens and residents over 18 years of age.
Stocks & Funds
The company’s flagship product, Robinhood shows individual investors how to invest commission-free in individual companies or groups of investments. 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. Your new 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
There is no minimum required to open an account with Robinhood, and the company is currently working on offering fractional shares as well. This feature will let you invest in thousands of stocks with as little as $1. You’ll choose how much you want to invest and Robinhood will convert your dollars to parts, or fractions, of a whole share. This will allow you to customize your portfolio with pieces of different companies and funds to help reduce your risk. When this feature goes live, it will be a great option for new investors. There are currently more than 1.2 million people already on the waitlist.
Just as with any investment, there’s no avoiding the risks involved in investing in the stock market. Just as stock prices can rise, they can also fall, so it’s critical to keep in mind both short-term and long-term risks.
Aside from investing with 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. Before you can begin trading options with Robinhood, though, you need to have some stock trading experience on your account. After you’ve made some trades and your investment profile reflects the appropriate risk tolerance, you should be able to access options trading. You set your own risk tolerance in your investment profile, and unless it shows that you have a high tolerance for risk, Robinhood won’t make options trading available to 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 May 17, 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).
Instant deposits are how much of your newly deposited money that 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 you make a deposit, instead of the $1,000 you can use with a standard Robinhood investment account.
In addition to the professional research provided by Morningstar, a global financial services firm that offers independent research and ratings, Robinhood also partnered with Nasdaq to give Gold members access to 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 also gives users 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.
Robinhood also lets you trade cryptocurrency without the trading fees. Robinhood Crypto launched in early 2018 and is currently available in 47 states. You can check the Crypto section of the Robinhood help center to see whether Crypto is available in your state.
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 cryptocurrencies are currently available for 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 ten cryptocurrencies, which are not available for trade through Robinhood:
- Bitcoin Gold (BTG)
- Dash (DASH)
- 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.
How much you can earn with Robinhood depends on the securities you invest in, how long you allow your investment to grow, and general 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 being said, Robinhood has an intuitive mobile app for Android and Apple and a simple browser-based trading platform. This user-friendly approach makes the platform a great broker for beginners.
Since Robinhood is relatively young in the investment world, it may be helpful to compare it to a traditional brokerage firm accessible to beginners such as TD Ameritrade. 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 is 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 such as round-ups and automated transfers 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 provide basic contact information such as your name, email, address, phone number, date of birth, and Social Security number. Once you’ve provided this information, you’ll need to fund your account before you can start making stock trades. You can do so by linking your bank account.
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 $3 per month for an account that includes investing, an individual retirement account (IRA), and a checking account. This might be a sound option if you’re looking for a passive investing strategy.
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 firm that allows you to get started investing in real estate for as low as $500. The company’s eREITs and eFunds open the door to affordable real estate investing in a variety of property types.