Robinhood burst onto the investing scene a few years ago, captivating young stock traders (and some older ones) with a slick mobile app and free stock trades. That splash got investors to pay attention, and Robinhood has continued to build out its offerings from there, providing free trades for exchange-traded funds (ETFs), options and, most surprisingly, cryptocurrency.
Free stock trades are a mighty fine trick, but thereâ€™s no question that much of Robinhoodâ€™s budget goes toward making that splash. Whatâ€™s left dry are all the other tools and toys a trader needs to get through the day â€” news and research reports, for example. Still, like its roguish namesake, itâ€™s hard not to like Robinhood at its core even if the broker doesnâ€™t do it all for you.
Who should consider Robinhood
Robinhood is great for beginning and young investors because of its slick and familiar mobile interface. Beginners also will really like the commission-free trading. When youâ€™re just starting out, every dollar matters. Robinhood is great for stock traders, but itâ€™s even better for pricier options trades â€” especially if youâ€™re trading frequently â€” offering serious savings over rivals. Those looking to get into cryptocurrency also have something to work with here.
Investors who know what theyâ€™re doing and who are looking for the lowest-cost experience will find a lot to like. But if you need extensive research or customer support (a group that may include many new investors), Robinhood may not be for you.
Robinhood fees and features
||Share of stock for new customers who are referred by an existing Robinhood account holder
|Stock trading fees
|Account fees (annual, transfer, inactivity)
- $0 annual fee
- $75 full account transfer fee
- $0 yearly inactivity fee
|Commission-free ETFs offered
|Mutual funds (no transaction fee) offered
|Offers automated portfolio/robo-advisor
|Ease of use
Strengths of Robinhood
Hereâ€™s where Robinhood really excels:
- Low costs: It doesnâ€™t get cheaper than free, and Robinhood has this part of the market locked down. Free trades â€” stocks, options, ETFs, cryptocurrency â€” put a halo around the head of this app-turned-broker. The stock trades are one thing, but options traders also can save a fortune on commissions if theyâ€™re turning high volume given the relatively higher pricing of options trades. The broker even added multi-leg options trades in June 2018 for a more sophisticated experience that can require less capital than separately entered trades.
- Easy-to-use interface: Itâ€™s remarkably easy to trade via the Robinhood app. After signing in with a PIN, you can quickly enter trade details and swipe up, and your order is out there on the market, quite literally in seconds. Robinhood doesnâ€™t have dozens of trade types like the full-service guys, but it does support all the basics â€” things like market, limit and stop orders â€” with efficiency.
- Here, simplicity is a virtue. The design is clean and largely intuitive, and when you first open the app, youâ€™ll figure out where youâ€™re going in minutes. On the appâ€™s home screen, your portfolio holdings appear, and your portfolio value is tracked over time. You can set up watchlists and quickly click through to see charts and other trading data for each individual stock youâ€™re tracking.
- Start trading in minutes: In an age when even a good full-service broker has reduced its sign-up time to 15 minutes or so, Robinhood is a standout. You sign up in minutes, and when youâ€™re ready to fund your account, the broker verifies your bank details instantly (if youâ€™re with a major bank).While it still takes several days for the money to actually arrive in the account, Robinhood fronts new customers up to $1,000 of their incoming deposit so they can trade immediately. With this feature, youâ€™re in the market in minutes, unlike the days it takes at other brokers.
Drawbacks of Robinhood
Hereâ€™s where Robinhood falls short:
- Not a full-service broker and limited support: While Robinhood will appeal to new and younger investors, this is exactly the group thatâ€™s likely to need more customer support. And Robinhood is not a go-to broker for support. While the broker does offer an extensive and searchable help library, sometimes the answer isnâ€™t there. A phone number is next to impossible to find on the site, so youâ€™ll have to send a message to support and hope for a reply or contact Robinhood Help on Twitter at @AskRobinhood. Along the same lines, customers need to be aware that Robinhood is not a full-service broker. It offers only individual taxable accounts, nothing more at the moment. It doesnâ€™t offer mutual funds or trust accounts or IRAs. And if you want to buy securities in the more obscure corners of the market, theyâ€™re out too. Thatâ€™s the price of free trades.
- Limited research: If youâ€™re a beginner and you need research to help guide your trades, then Robinhood may not be the best option for you. Many brokers offer clients free research, but Robinhood offers a news feed of recent articles at best. And other educational elements? Not here either. Again, this is the price you pay for free trades. However, even investors who do use full-service brokers often subscribe to newsletter services for ideas and advice, so limited research may not be a negative.
- Selling order flow: This is a more advanced issue, but it cuts to the heart of Robinhoodâ€™s business and its self-proclaimed ethos of helping small investors. Robinhood partially funds free trades by selling its order flow to high-speed traders, who then add pennies (or fractions of them) to the cost of each share when you trade, pushing your costs up secretly.While this is not an unusual practice for brokers, they donâ€™t claim to stand for the little guy like Robinhood does. If youâ€™re a true buy-and-hold investor, this shouldnâ€™t be a deal breaker for you, however.
Is Robinhood safe?
It seems like there must be a catch if a broker is offering free trades, but Robinhood is the real deal. It can get you in and out of the market for free, though that doesnâ€™t mean you wonâ€™t lose money on your investment. The broker is a member of the Securities Investor Protection Corporation (SIPC), meaning that if the brokerage is closed, youâ€™re guaranteed to get your assets back up to $500,000 in stock and options (including cash claims of up to $250,000).
The company is fully legally compliant, and itâ€™s been growing like a weed. In October 2018, the broker reported that it had tripled its accounts since 2017 to more than 6 million, putting it ahead of E-Trade, one of the most successful online brokerages.
Finally, while you may need to type in your bank password to initially transfer money, Robinhood does not store those credentials. Theyâ€™re used only once to verify your access to the account.
If youâ€™re a new investor or even a seasoned one, Robinhood can be a welcome addition to your trading game. On balance, the appeal of no-fee trading is simply too strong to outweigh some of Robinhoodâ€™s negatives â€” its lack of research and tough-to-access support â€” making the app a great option for those who know what they want to trade and need the cheapest way to get there.
But for those who need more research, more investor education or a firmer hand at customer support, Charles Schwab is a fine option. Schwab is well-known for its support, its wealth of educational resources for traders and its reasonable trading fees, now just $4.95 per trade.