First, Robinhood is a zero-fee discount broker in the United States. It was founded in 2013. Significantly, it is regulated by top-tier financial regulators such as the U.S. Securities and Exchange Commission (SEC). In addition to the brokerage service, Robinhood offers Cash Management to assist consumers in earning income on uninvested cash. Nevertheless, you can read this review for more information about this outstanding broker.
List of Contents
Robinhood: Website
Minimum Balance: $0
Cost per stock trade: $0
Cost per options trade: $0
Promotion: Free share of stock
Commission-free: All
No-transaction-fee mutual funds: None
Securities: Stocks, ETFs, options, cryptocurrency
Customer service: Email, chatbot, and 24/7 callback
Account fees: $75 transfer out fee
Mobile applications: Robinhood app on the Apple App Store and Google Play Store
Robinhood’s Overview
Robinhood was started in 2014 by two former Stanford roommates, Vlad Tenev and Baiju Bhatt. It was launched to increase access to the market by lowering entry barriers, and the platform soon attracted young traders and tech-friendly traders. Notably, there are over 14 million active users and $64 billion in assets managed as of the 30th of June in 2022. Thus, it is evident that Robinhood’s brand has succeeded.
In addition, trading with no fees and minimums makes it simple for new investors to begin investing. Moreover, the flexibility to trade fractional shares gives users access to a wider variety of assets. The trading app and experience can both be simplified, which includes direct bitcoin trading in addition to equities. Options trading is also available, though various restrictions on order types and worries about trade execution quality may hinder more serious investors.
However, the limits of Robinhood are a recurring issue for experienced traders. They are significant enough to encourage knowledgeable investors to seek alternate broker options that better correspond with their trading strategy. For example, Robinhood does not offer fixed income, mutual funds, foreign currency, or futures trading, making it more challenging to put up a multi-asset trading position. Moreover, this limitation of assets, combined with a general lack of tools, calculators, and advanced charting features, makes executing more complex trading strategies extremely difficult.
Nevertheless, Robinhood’s platform is also gaining attention in other regions. Fund management innovations such as increased interest rates on uninvested cash and a cash card product aim to attract new customers. Despite this, concerns continue to be raised regarding the dependability and motivations of Robinhood as a result of significant platform outages, the fallout from restrictions placed on certain meme stocks, and Robinhood’s practice of misleading customers regarding sources of revenue related to order routing.
Customer Service
- All customer service is performed via the app or website.
- Robinhood offered 24/7 client service and extended hours, allowing trading to begin at 7 a.m. until 8 p.m. EST.
- Since there is no phone number, you cannot contact Robinhood for assistance. However, you can enter your phone number for a callback. Furthermore, you can also contact the support team on social media as a customer.
- Robinhood offers a chatbot.
Products of Robinhood
Trading in stocks, ETFs, options, and cryptocurrencies are the only asset classes supported by Robinhood. This restricts the app’s overall functionality. Notably, you cannot trade commodities, foreign currency, or futures with Robinhood. Additionally, the platform does not support mutual funds or fixed-income products. However, you can invest in the following markets if you choose Robinhood as your broker.
- Non-Custodial Wallets: Robinhood is developing a web3 wallet that will allow clients to control cryptocurrency through a unified, decentralized web experience. Nevertheless, just a waitlist is currently available.
- For the stocks, there are only long stocks available.
- Partial share orders are available for stocks worth more than $1.00 per share and with a market capitalization greater than $25,000,000. The broker provides stocks as well as ETFs.
- Cryptocurrency: A variety of coins can be traded.
- As previously stated, no mutual funds, fixed income, futures, FX, or futures options are permitted.
- As previously stated, no mutual funds, fixed income, futures, FX, or futures options are available.
- Options for single and multiple legs.
Order Types
There are only a select few different types of orders that can be positioned using Robinhood. There is a selection of market and limit orders available, but conditional orders are not supported at this time. In addition, there is no order staging present. Due to the significant restrictions placed on trading techniques as a result of these limits, all kinds of investors are impacted.
Support for more advanced order types, like order-triggers-other (OTO), is essential. The reason is that these order types assist traders in navigating risk, quickly entering and exiting positions, and taking gains off the table. Consequently, traders who use conditional orders are able to spend more time researching the market and planning their next move as they are relieved of the responsibility of closely monitoring their present trades. Thus, this indicates that Robinhood is not designed for active traders.
When it comes to tax optimization, first-in, first-out (FIFO) is the default setting for tax lots for all equity investments. If you contact Robinhood’s customer service, you will be able to adjust the default cost-basis method associated with your account and select various tax lots for liquidation.
Usability
The Robinhood app is straightforward to navigate. Since Robinhood primarily emphasizes providing a trading experience accessible via mobile devices, the platform is a natural fit for investors. The web-based platform offers a look and feels comparable to mobile applications. Traders can expect the same kinds of orders, assets, and functionality regardless of their version.
Significantly, it has user-friendly menus that make it simple for investors to see both the value and the positions of their portfolios. Furthermore, traders are provided with a comprehensive summary of a stock’s details through the search functionality. It includes a stock’s highs and lows, P/E ratio, and market capitalization. Traders are given even greater insight into a company profile by having a news feed and a composite of analysts’ rankings. In addition, the “Trade Symbol” will accompany you as you read through the information on a stock. As a result, it allows you to purchase or sell shares as soon as you have decided whether you want to buy or sell them.
Interestingly, in August 2022, Robinhood released updates to its charting functionality. It is a pleasure for traders who have been requesting modifications for a considerable time. Moreover, traders can see and analyze stock trends through new chart elements such as moving averages.
Overall, the actual experience of trading itself is very satisfying. However, there are still some restrictions on how much you can personalize the experience. There is not much you can do to tailor the app to your interests further. This means you cannot customize the app as much as you want. Moreover, the severe disruptions that the platform had in February and March of 2020 make the app less user-friendly than it would be.
Trade Experience
The trading experience provided by Robinhood is rapid and straightforward to use. This makes it particularly enticing to new investors as it enables them to start trading quickly. Additionally, traders are able to enter, exit, and monitor positions in a streamlined manner of the elegant mobile app’s uncomplicated layout. Furthermore, because of its emphasis on straightforward functionality, Robinhood is best suited for investors that employ straightforward trading tactics.
In addition, users of Robinhood get access to basic watch lists and stock quotations, as well as charts, analyst ratings, and news. The enhanced chart overlays provide investors with a more thorough view of stocks and their holdings. Aside from that, there are not many in-depth insights or customization options. Even with the enhancements to charting functionality, sophisticated traders are unlikely to discover everything they need to execute more complex trading strategies.
Mobile Trade Experience
Robinhood is a mobile-first brokerage that promises to simplify trading without confusing the experience with more advanced capabilities. It seems to be the reason that more sophisticated trading tools and research alternatives are mostly absent from the mobile trading experience. For example, there are no charting tools available on mobile, and trades cannot be executed immediately from charts. Order staging and simultaneous order entry are also not options.
More basic order kinds, like trailing stop orders and stop limit orders, are about all you will receive from the app. However, conditional orders are not supported. Quotes from the Robinhood app are streamed in real-time.
Security and Reliability
- Within the last four years, Robinhood has reported data breaches. The most recent occurred in 2021, affecting over 5 million client accounts but resulting in no financial losses to these accounts.
- Robinhood is a member of SIPC. Thus, it can protect its members’ securities consumers for up to $500,000, including $250,000 for cash claims. In contrast to other brokers, Robinhood does not carry excess Securities Investor Protection Corporation (SIPC) insurance.
- New logins from unidentified devices must additionally be validated with a six-digit code delivered through text message or email if two-factor authentication is not enabled.
- Robinhood recommends that users enable two-factor authentication.
- Users of the mobile app can log in using their face, a biometric scan, or a personalized pin.
Transparency
Robinhood was previously a game-changing fintech player in the brokerage business, assisting youthful investors in entering the market. In recent years, the company’s motives have been called into doubt, with criticisms concentrating on data, transparency, and trust. The SEC penalized Robinhood $65 million in December 2020 for misleading customers regarding income sources and failing to satisfy the duty of best performance. The SEC declared that between 2015 and 2018, Robinhood failed to inform clients that its primary revenue source was obtained from the market makers to whom it directed customer orders. This technique resulted in trades that netted customers less money than they would have received from other brokers.
Robinhood also mistakenly claimed on its website that the quality of its execution was comparable to or better than that of its competitors. The SEC concluded that Robinhood’s lower trading costs cost investors on its platform $34.1 million.
In January 2021, Robinhood was thrust into the spotlight after it opted to restrict access to specific equities like GameStop, AMC Entertainment, Nokia, and others. Citadel Clearing, one of Robinhood’s key market makers, owns a stake in the hedge fund Melvin Capital. It was one of the largest short sellers of GameStop and other companies. The move to limit customer buy orders for these stocks raised concerns about a conflict of interest, prompting class action lawsuits and attracting the attention of some members of Congress.
News and Education
As a Robinhood customer, you can get WSJ Markets coverage in-app, news from Reuters and Barron’s, and videos from CNBC Business, Reuters, and Cheddar. Moreover, Robinhood also provides Robinhood Snacks, which can be found on the homepage and appear in the app for everyday convenience. Every weekday, Snacks present the day’s most significant financial news items via podcast, newsletter, and video series.
For education, the platform improves the “Learn” section. It now includes more articles on investing basics, market insights, and general knowledge-building content than prior versions. In January 2022, a new First Trade Recommendation feature was implemented. The tool is intended to assist new investors in starting their financial journey. Moreover, there is also content available to help traders learn more complicated options trading tactics. Say Technologies’ purchase allows traders to take more ownership of the companies in which they invest and empowers users to participate by asking questions of companies and leadership teams.
All of these elements contribute to the advancement of investor knowledge. Robinhood also provides Snacks, a podcast, email, and video series that provides its consumers with the day’s top financial news headlines daily. Snacks have a sizable fan base of 40 million members as of April 2022. The Snacks content type is designed to deliver entertaining and valuable images to make financial news less stressful.
Pros & Cons of Robinhood
Pros
- No trading fees or commissions
- Very user-friendly trading experience
- Trading fractional shares and direct access to cryptocurrencies
Cons
- Lack of transparency
- Few investment products and account types
Pros Clarified
- No trading fees or commissions
The platform of Robinhood has no trading fees or commissions. Because of their creative industry challenge, several brokers were obliged to decrease or remove their trading costs to remain competitive.
- Very user-friendly trading experience
A straightforward and intuitive trading interface enables investors to trade on the market quickly. The modern appearance of the smartphone application reflects Robinhood’s mobile-first orientation. However, a web-based platform is also available. Moreover, Robinhood capitalizes on its expertise as a mobile service, catering to traders who seek basic, easily navigable features.
- Trading fractional shares and direct access to cryptocurrencies
Adding fractional share trading and direct cryptocurrency access expands the investing alternatives available to traders. The dividend reinvestment program (DRIP) automatically reinvests dividends from stocks or ETFs when fractional share purchases are made with as little as $1. Direct crypto access enables traders to buy and sell various coins quickly.
Cons Clarified
- Lack of transparency
A record of lack of transparency regarding downtime and trading limits with meme stocks may discourage many traders from selecting Robinhood as their platform of choice. Investors may lack confidence that they will be able to access their positions. Robinhood has become more honest regarding payment for order flow and has released its 606 reports. However, its reliance on PFOF is probably not as well recognized as it should be.
- Few investment products and account types
Insufficient investment options and account types prevent users from utilizing a variety of trading tactics and saving for financial objectives. Some investors seek assets such as fixed income, mutual funds, foreign exchange, and futures trading, which Robinhood can not provide. In addition, only brokerage accounts can be opened on the platform, depriving investors of retirement and other savings accounts.
Is Robinhood A Worth Broker to Get?
Robinhood began as an innovative disruptor in the brokerage business. Its brand has since risen in popularity among tech-savvy investors and new traders due to its no-fee approach and streamlined, user-friendly trading experience. Initially, fee-free trading was the company’s most distinguishing feature. However, many competitors have since reduced their fees in response.
Moreover, the website makes it simple for users to trade stocks, ETFs, and cryptocurrencies. However, it lacks the advanced financial tools, asset categories, and research skills that advanced traders need in a broker. While there has been a clear emphasis on expanding access to a growing library of educational content and improving basic charting skills, there is still much work to be done before the platform meets the standards set across an increasingly competitive market.
Conclusion
To conclude, if you want to buy and sell investments without paying a commission, Robinhood is the platform for you. Moreover, it is ideal for active options and margin traders. It might not be a good choice if you want to invest in mutual funds or automatic investments. However, it might be a suitable alternative for you if you want to invest in cryptocurrencies.
FAQs
Robinhood is a well-known brokerage business that offers commission-free trading of stocks, options, and cryptocurrencies. It was launched in 2013 and has quickly gained in popularity owing to its simplicity, low costs, and smart mobile app.
Robinhood provides a variety of financial services to its customers, including commission-free stock, option, and cryptocurrency trading. They also provide financial research tools, instructional materials, and a wide range of investment products such as ETFs and mutual funds.
The minimum investment needed to start a Robinhood account is $0. They do not have a minimum account balance or deposit requirement, making it simple for consumers to begin investing.
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Source: Investopedia