Pros & Cons
No commissions on stock trades.
No account minimum.
No retirement accounts.
No mutual funds or bonds.
Limited customer support.
Robinhood is a free-trading app that’s ideal for investors who want to trade stocks, options, exchange-traded funds and cryptocurrency without paying commissions or fees.
The service is innovative, cutting out nearly all costs that are typically associated with investing. But as always, there’s a tradeoff to free: Though Robinhood offers both web and mobile trading, the platforms are purposely bare bones, and some investors may find the range of tradable securities and account options lacking.
Robinhood is best for:
Frequent stock, options or ETF traders.
Individual taxable accounts.
Where Robinhood shines
Commissions: This is obvious: What’s better than free? Robinhood’s commitment to providing 100% commission-free stock, options, ETF and cryptocurrency trades is admirable, and the savings for investors who trade frequently is significant. After all, every dollar you save on commissions and fees is a dollar added to your returns.
Robinhood also seems committed to keeping other investor costs low and took a big step toward doing so by launching Clearing by Robinhood last year. The service allows Robinhood to operate on its own clearing system, which reduces many of the service’s account fees. For example, broker-assisted phone trades that were previously $10 are now free, and bank reversal fees were reduced to $9 from $30.
Account minimum: Robinhood doesn’t have one, which means investors can get started right away. Of course, in order to invest, you’ll need enough to purchase the investment you have your eye on. (Like other brokers, Robinhood requires a $2,000 minimum portfolio balance to open a margin account. This is a Financial Industry Regulatory Authority regulation.)
Ease of use: If you’re accustomed to using a smartphone — and Robinhood’s target user base obviously is — you’ll find the sign-up and account funding process quick and painless. It all happens within the app in a matter of minutes, with just a few quick questions that gather your personal information, contact details, Social Security number and means of funding your account. The company says approved customers are notified in less than an hour, at which point they can initiate bank transfers.
Robinhood uses instant verification with many major banks, sparing users the hassle of reporting micro-deposits to an account to verify information. Bank transfers of up to $1,000 are available instantly for investing, as are proceeds of up to $1,000 from selling stocks. Deposits larger than $1,000 will take four to five business days to process. Users can set up automatic deposits on a weekly, biweekly, monthly or quarterly schedule.
Streamlined interface: This could be a negative, as the service doesn’t offer all the bells and whistles of a typical online stock broker. But for investors who know what they want, the Robinhood platform is more than enough to quickly execute trades. It supports market orders, limit orders, stop limit orders and stop orders.
Both the mobile and web platforms also include a feature called collections, which are stocks organized by sector or category. Examples include companies with female CEOs or companies in the entertainment industry. On web, collections are sortable and allow investors to compare stocks side by side.
Robinhood also recently introduced a new tab bar at the bottom of the app, which offers quick access to portfolio values, watch lists, transaction history and account statements.
Robinhood Gold: Robinhood Gold offers investors the ability to trade on margin, also known as borrowed money. The opt-in service carries a flat monthly fee based on margin — or “buying power,” as Robinhood calls it — and account size.
New investors should be aware that margin trading is risky. You’re trading on money borrowed from the broker, which means you can lose more than you invest.
Improved research offerings: Though Robinhood’s offerings still pale in comparison to other brokers, the company has made strides to increase the tools and research available for customers.
Robinhood offers analyst ratings from Morningstar, an independent investment research company, as well as lists of top movers, earnings calendars and links to earnings calls. Candlestick charts are now available on mobile, and the service resurfaces information from other Robinhood customers in an Amazon-like fashion: Investors can view current popular stocks, as well as “People Also Bought” and “Price Paid” (though “Price Paid” is currently only on web).
Where Robinhood falls short
Limited securities: Mutual funds and bonds aren’t supported. Robinhood also lacks an automatic dividend reinvestment program, which means dividends are credited to accounts as cash rather than reinvested in the security that issued them. The company has said it hopes to offer this feature in the future.
One account option: For investing, Robinhood supports only individual taxable accounts (often called brokerage accounts. For most investors, investing through a taxable brokerage account should come only after they have invested 10% to 15% of their income for retirement in a tax-advantaged account like a 401(k) or IRA.
Customer support: Many brokerage customers understandably expect phone support, and they won’t find it here — Robinhood’s customer support is almost exclusively done through email. The company does not publish a phone number. It does have a useful and well-organized help center online, and the website is easy to navigate and transparent.
Is Robinhood right for you?
“Free” often just means the extra fees are buried deep where you can’t find them, at least not until they show up as a surprise addition to your account statement. Robinhood is refreshing because the service is truly free: You can trade without spending a dime in fees or commissions.
You’ll give up a few things in exchange — namely advanced trading tools, notable research, education and the full range of investment options — but if limiting costs is your No. 1 concern, Robinhood is a solid choice.