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Robinhood was founded to help provide everyday people with easy access to the financial markets and pioneered the concept of zero-commission stock trading upon its 2015 launch. But there's a lot more to Robinhood than just free trading. In this Robinhood review, we'll take a closer look at this investment platform, fee structure, and the pros and cons investors should know about before deciding to use Robinhood for their brokerage needs.
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This stock broker is a fit for: Investors seeking a mobile app to invest in stocks, ETFs, options, fractional shares, and cryptocurrencies. Investors needing an IRA account or to buy mutual funds will want to look elsewhere.
Robinhood is best known for pioneering the idea of zero-commission stock trading. While most other top brokers have followed suit, Robinhood still has a favorable fee structure. For example, in addition to not charging flat commissions on options trades, Robinhood doesn't impose a per-contract charge either. That's something that many of the best options platforms still do.
Traditionally, if a stock was trading for $500 per share, you needed to have at least $500 to invest in it. Robinhood lets investors buy fractional shares of thousands of stocks, even if they have only $1 to invest. This can be an incredibly valuable tool -- it not only lets you put 100% of your money to work, but also helps create a diversified portfolio without a ton of investment capital.
If you're interested in cryptocurrencies, Robinhood could be a great choice for you, as cryptocurrency trading is integrated into the company's trading platform. Customers can buy and sell Bitcoin, Ethereum, Litecoin, and other cryptocurrencies any hour of the day.
Some cryptocurrency platforms only allow you to make immediate trades, but with Robinhood Crypto, you can use a limit order to set the price at which you want to buy or sell. At The Ascent, we'd encourage you to follow a buy-and-hold trading approach, which makes you less susceptible to short term price fluctuations. But if you want to set a point to take profits or try to buy the lows, limit orders can be very useful.
Robinhood also offers an appealing cash management account that allows clients to earn returns that fluctuate with prevailing interest rates (currently 0.30% APY) on their uninvested cash. What's more, the cash management account has no fees associated with it, including $0 ATM fees at more than 75,000 ATMs in its network.
While Robinhood is known for being the "no fee" brokerage, it's important to mention that the company does have a premium product known as Robinhood Gold. This version of the platform costs $5 per month, but could be well worth it to active investors. Gold members get access to margin trading (including $1,000 of interest-free margin), instant access to larger deposits (standard accounts can have up to $1,000 instantly available), and access to Morningstar stock research reports.
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Robinhood has faced public scrutiny following a 2021 incident when the brokerage firm froze trading of GameStop shares amid a trading frenzy. The firm has also had some concerning outages. More on this later, but note that the company's issues are reflected in our rating. However, Robinhood's recent problems likely wouldn't be a major concern for long-term buy-and-hold investors, and those are the types of investors we primarily consider when determining our opinion of a stock broker.
Robinhood's platform doesn't support mutual fund and fixed-income investing, a rarity among major brokers. You can certainly invest in bonds through exchange-traded funds (ETFs) with Robinhood's platform, but you can't buy individual bonds.
Robinhood's platform was designed to be a simple, no-frills investment experience. However, if you want access to educational tools, stock research, or an advanced trading platform, you may want to look elsewhere.
Robinhood only offers standard (taxable) brokerage accounts. You cannot invest through an IRA through Robinhood, nor can you open a custodial account, trust, or Coverdell, just to name a few.
Robinhood has not yet launched withdrawal and deposit functionality for crypto assets, though it hopes to do so soon. This means existing crypto holders can't transfer their crypto assets into a Robinhood wallet. And crypto clients who want to trade or spend their digital coins elsewhere will not be able to do so. Robinhood only offers a custodial wallet, which does not give users direct control over their crypto.
With only seven cryptocurrencies, Robinhood's crypto list is disappointing, especially as several major tokens are not available. The selection is disproportionately weighted toward pure "payment" currencies (coins that focus on fast, cheap digital payments). But the world of cryptocurrency is much broader than that -- there are also cryptos that focus on decentralized finance, supply chains, entertainment, healthcare, and much more. Investors who want to access additional coins will have to look elsewhere.
Robinhood was founded in April of 2013 by Vladimir Tenev and Baiju Bhatt, aiming to democratize investing and "provide everyone with access to the financial markets, not just the wealthy."
Its popular trading app launched in March of 2015, and it became one of the first firms to offer stock trading without commissions. More than 800,000 people were on the waitlist for the app when it launched, including many millennials attracted by the elimination of commission fees and the lack of a minimum balance requirement.
In 2018, Robinhood expanded its appeal by adding cryptocurrencies to its trading platform, again leading the way among mainstream brokers to become one of the first to offer an easy way to buy virtual coins -- without transaction fees.
In 2021, Robinhood went public in one of the year's most anticipated IPOs and now trades under the ticker HOOD.
Robinhood has been the subject of controversy numerous times. While these issues are important for Robinhood to navigate and important for investors, we do believe Robinhood is a solid broker to consider, which is reflected in our overall rating.
Here are some of the serious issues that have arisen.
If you want a mobile investment app that offers IRAs: Webull receives high marks. Where it outshines Robinhood is that it's one of the few mobile-focused brokers that offers IRA accounts. Webull also matches Robinhood's feature set well, including cryptocurrency trading, competitive margin rates, and $0 commissions for stocks, options, and ETFs.
If you're seeking a full-featured broker: TD Ameritrade offers some of the most comprehensive investing and banking experiences among big brokers, including a high-quality trading platform, $0 commissions for stocks and ETFs, mutual fund access, and IRAs. One downside, compared to Robinhood, is that TD Ameritrade doesn't offer cryptocurrency trading.
Robinhood's claim to fame is its no-commission approach to trading, so this section shouldn't be too much of a surprise. The platform charges $0 for stock, exchange-traded fund (ETF), cryptocurrency, and option trades placed through its app or website.
|Stocks and ETFs||Stock options||Cryptocurrencies||Mutual funds|
|$0||$0 (no per-contract charge)||$0||Not offered|
The $0 options trading commission is a rarity in the industry. While most of the brokers who have dropped their standard stock trading commission have also dropped the base commission on options trades, a lot of them still charge a small per-contract commission. Robinhood allows traders to buy and sell as many options contracts as they want with no commissions at all.
Since Robinhood offers zero-commission stock trades, this also means that you can trade ETFs free of charge.
However, Robinhood doesn't currently offer mutual fund trading at all, which is a big negative differentiator from many of its competitors. While it may integrate mutual fund capabilities into its platform someday, for the time being, it's not possible to buy shares of your favorite mutual funds through Robinhood.
Learn more: How to invest in mutual funds
Robinhood offers seven cryptocurrencies on its platform, which is not a huge range but would work well for new crypto investors who want some exposure to digital assets. Crypto clients can place market or limit orders with zero commissions, and Robinhood's crypto security features are in line with other major cryptocurrency exchanges.
Learn more: How to invest in cryptocurrency
To be perfectly clear, Robinhood doesn't charge commissions for stock, ETF, and options trades placed through its online and mobile platforms. However, that doesn't mean that Robinhood is completely fee-free; there are some things you might still have to pay for. Here are a few of the more common charges you might face:
For much of its history, Robinhood was a trading app, and a leading one at that. Customers who value simplicity love Robinhood's trading platform. But beyond the app previously, there wasn't much of a functional web portal.
That's changed, as Robinhood has rolled out expanded capabilities through the web version of its platform. Both the web portal and mobile app versions are simple in design and are intended to be easy to learn and use.
Related: Best Free Stock Trading Apps
If you pay $5 per month for the Robinhood Gold premium version of the platform, one of the perks you get is the ability to invest with margin (aka borrowed money).
Not only that, but the first $1,000 of margin balances are absolutely free, meaning you won't pay any interest on smaller margin trades. Plus, Robinhood charges a flat margin interest rate on the portion of your balance in excess of $1,000, and it's quite a competitive rate. Robinhood's margin rate is just 2.5%, which is lower than most competitors.
It's also worth mentioning that you'll need $2,000 in your account to use margin. This is a regulatory requirement that applies to all brokerages, not just to Robinhood.
The standard (free) Robinhood platform is light on features, and research is one of them. In fact, the only research offered on the Robinhood app is available only to its premium Robinhood Gold customers who have access to stock research reports from Morningstar. If you want access to stock research from several different firms, Robinhood likely isn't the best choice for you. Similarly, if you're looking for extensive cryptocurrency research or resources for beginners, you'll need to look elsewhere.
This is another negative of Robinhood's "no frills" approach: Customer service is primarily handled through the help page on Robinhood's website, or through its automated chat system. You can email customer service, but it's tough to get a quick (and human) response to a question.
That said, Robinhood has invested heavily in customer support in the past year. It has expanded the available service options and now offers live phone support. It has also tripled the size of its support team in 2020 and plans to hire more people in 2021.
In any combination of the below scenarios or for individual needs, Robinhood is a solid pick.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.
This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and Publisher, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. Publisher is not a member of FINRA or SIPC.
Robinhood Crypto disclosure
This advertisement contains information and materials provided by Robinhood Financial LLC, Robinhood Securities LLC and its affiliates (“Robinhood”) and Publisher, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC, a member of FINRA and SIPC and a wholly-owned subsidiary of Robinhood Markets, Inc. Cryptocurrency trading offered through Robinhood Crypto LLC. Robinhood Crypto and Publisher are not a members of FINRA or SIPC and cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC insurance.
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