January 16, 2020

Robinhood Review 2020: Free Trades (But Is It Good?)

Stocks

This post may contain affiliate links, which means the site may receive a commission if you purchase or sign up through these links at no extra cost to you. Please read full disclaimer for more information.

The Robinhood app might not steal from the rich to give to the poor, but it has certainly struck an arrow through the heart of the investing industry. Let’s find out what it’s all about in this Robinhood review.

What Is the Robinhood App?

Robinhood is a brokerage service that allows users to invest in a range of products. Users can trade stocks, options, ETFs, and even cryptocurrencies without paying any fees or commissions.

The app also claims that its platforms are intuitive for investing newbies and trading experts alike. There’s both web and mobile trading, along with user-friendly features and tools.

Robinhood sprang onto the scene in 2014. It was revolutionary — free trades, zero minimums, and trendy features such as cryptocurrency trading.

The app quickly became one of the most popular apps for trading among millennials. And it was likely a factor that led to many online brokerages eliminating commissions on trades in October 2019.

So now that Robinhood is one of several free brokers, how does it stack up?

How Does Robinhood Work?

Once you sign up for a new account, you’ll get access to features like extended-hours trading and instant deposits. In other words, you don’t have to wait for any incoming funds to process before you buy or sell stocks up to $1,000.

To make a deposit, all you need to do is to link a checking or savings account (Robinhood recommends a checking account). Once that’s successful, you can start transferring money — up to $1,000 per business day — into your account by tapping the “Transfer to Robinhood” option in the app. You can also pre-schedule automatic transfers.

Robinhood offers customers more than 5,000 stocks and ETFs on U.S. exchanges to choose from. There are also more than 250 global stocks, as well as cryptocurrency and options trades. The app also provides users with educational features to help them get started with trading. These include market data insights, creating watchlists, candlestick charts, and company report cards.

If you’re reading up on particular stocks, Robinhood has a feature that lets you look at the most popular stocks based on what other users are buying.

Robinhood Gold

If you want to take your investing to the next level, there’s Robinhood Gold. With this higher tier of membership, you’ll receive an upgraded set of data, strategies, and tools to help you earn more wealth. Plus, Gold will let you instantly deposit up to $50,000 per business day.

Robinhood Gold gives you access to professional research such as reports from Morningstar and Level II data from Nasdaq.

Investors with Gold memberships also get access to investing on margin, meaning you can borrow money from Robinhood to invest in stocks. As with any type of investing, there are definitely risks involved with margin trading, so make sure you do your research before proceeding.

Is Robinhood Totally Fee-Free?

Even though Robinhood doesn’t charge any commissions, you still need to pay some fees.

Granted, these fees don’t go to the platform. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) charges these fees whenever you sell a stock:

  • SEC Fee: $20.70 for every $1 million of principal, founded to the closest penny.
  • FINRA Trading Activity Fee (TAF): $.000119 per share rounded up to the closest penny. It won’t be more than $5.95.

Robinhood doesn’t charge any fees for incoming transfers, but there may be fees for outgoing bank and wire transfers.

As for Robinhood Gold, there is a $5 monthly fee to access its premium features for your first $1,000 of margin. Any more than that and you’ll need to pay 5% annual interest based on how much you use over $1,000. If you’re on the fence about a Gold membership, the company gives you a 30-day trail to try it for free.

Robinhood Review: Pros

There’s a lot that’s appealing about Robinhood:

Free Trading: Who doesn’t love free stuff? You don’t need to pay any commission fees for cryptocurrency, stocks, ETFs, and options.

Robinhood also launched its own clearing broker system, meaning the app has reduced many of its other service account fees. Other competitors may charge for things like broker-assisted trades, but Robinhood doesn’t.

Instant Access to Funds: Investors who’ve tried to invest with other brokerages before can tell you that it can take a few days to get money into the account before being able to invest it. That’s why Robinhood’s instant account feature is so appealing.

Once you move funds into your trading account, you can start using the money right away — up to $1,000 in deposits. The rest of your money will arrive within four to five days after you initiate a transfer.

Intuitive Mobile App: Regular smartphone users will rejoice knowing that they can make trades right from their phone.

Signing up for an account can take minutes, and you’ll be able to instantly verify your information with most major banks. The app itself is also sleek and minimal — once you understand where to find features, it’s fairly simple to find what you’re looking for. Anytime you’re confused, you can use the Robinhood app search bar at the top of the screen.

Users can easily pull up information on a stock — including dividend yield and market cap — and other types of investments. The app also provides a newsfeed. Plus, with just a simple scroll, you can buy and sell investments.

Of course, you can use your phone to check up on your portfolio and access the knowledge base if you need help troubleshooting.

Ability to Trade on Margin: Robinhood Gold is an excellent feature if you’re interested in trading on margin. Opting into this services means you’ll need to pay a flat fee starting at $5, but it could be worth it, depending on your goals. Remember, margin trading is risky because you’re borrowing money to invest. In other words, you could lose more than you’ve invested.

Robinhood Review: Cons

Of course, there are drawbacks to just about any investing product.

Research Offerings: While Robinhood does offer some investing tools, it’s best for those who are beginners, rather than experienced investors. If you fall into the latter category, you may be turned off by the bare-bones offerings.

However, you can use Robinhood to simply execute your trades and find your research tools elsewhere. Or you can sign up for a paid Robinhood Gold app.

Limited Account Types: You’re not going to find all the trading options that other full-service brokerages offer. Sure, you’ll get some beginner-friendly trades such ETFs, but you won’t be able to trade bonds or mutual funds.

In addition, Robinhood doesn’t offer tax-advantaged accounts such as IRAs. You’ll need to look elsewhere if you want to invest in a retirement account.

Lack of Customer Service Options: Robinhood has a very well-organized website featuring a robust help center to help answer common questions. However, if you’re the type who likes to get an immediate response from a person, you’re out of luck. There are no phone numbers to call or live chat boxes to open.

Fees for Selling: Robinhood charges outgoing wire and transfer fees, so if you’re a very active investor, you could end up paying quite a bit. If you’re an investor who wants to buy and hold for a while, Robinhood may still be a good option for you.

Robinhood Review: How Does It Compare?

It used to be that Robinhood’s defining feature was its lack of commissions. However, with brokers from Charles Schwab to Ally Invest now offering commission-free trading, Robinhood is no longer an anomaly.

Experienced traders will find Robinhood’s tools and research a bit sparse. That’s especially the case when you compare it to the likes of E*TRADE, which has eliminated commissions and features the award-winning thinkorswim platform.

Meanwhile, the beginning investor will find plenty to help them on their way at Ally Invest… plus access to Ally Bank, one of the top online-only banks. Ally can become your one-stop shop for investing, whereas Robinhood is strictly for trading.

Now, Robinhood has announced that it will start offering a Cash Management account that pays a higher-than-average interest rate. Your money will be accessed through a debit card. However, the company attempted a similar feat last year, but it was shut down after scrutiny from the regulators. You can sign up for a Cash Management waitlist if you want to see if this materializes.

How to Open a Robinhood Account

If you want to try out Robinhood, right now is a great time. Use this promo link to sign up and receive a free stock.

To open a trading account at Robinhood, you’ll need to meet the eligibility requirements:

  • Be at least 18 years old
  • Be a U.S. citizen or permanent resident or hold a valid U.S. visa
  • Have a legal U.S. residential address
  • Have a valid Social Security number

In some instances, Robinhood may require you to send in additional documents to verify your identity. In that case, you may need to wait up to seven days for your account to be approved. To send documents, you can do so by taking a photo of it in the app or by uploading a document using a secure link Robinhood sends you.

Once you’re approved, you can fund your account by linking it to a U.S. bank account. All you need to do is navigate to “add new account” within the linked accounts section and enter your bank account details.

You may be able to get instant verification if you use one of Robinhood’s supported banks or verify your account manually. In that case, Robinhood will initiate two small deposits to your bank account and you’ll confirm those amounts once you’ve receive them. It typically takes up to 48 hours for those deposits to show up.

That’s it! Now you can browse investments, do some preliminary research, and start buying securities. Remember, your first $1,000 is available instantly, so if you want to invest more, you’ll need to wait until the rest of your money is processed. This may take a few days.

Who Is Robinhood Best For?

Robinhood is best for new investors who are interested in opening an individual taxable brokerage account and want to save some money trading. It’s also good for anyone who wants to trade cryptocurrencies for free.

Considering the margin trading options are pretty straightforward, more experienced investors who are frugal minded will like the flat fee for Robinhood Gold and the lower margin balance amounts compared to other brokerages.

Savvy smartphone users will also love Robinhood since it offers a simple and robust app experience. The research options are tailored to beginner investors. If that’s you, you won’t be put off by the lack of other research options. Unless you’re looking for much more support like in-person or telephone customer service, Robinhood can perfectly suit your needs.

Will you give the Robinhood trading app a try? Remember, if you use this promo link, you’ll receive a free stock.

Logan Allec, CPA

Logan is a CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

Back to top  

LEAVE A COMMENT

Your email address will not be published. Required fields are marked *