Robinhood started out as an innovative disruptor in the brokerage industry and its brand has since grown to be very popular with tech-savvy investors and new traders, thanks to a no-fee model and sleek, easy-to-use trading experience. Originally, the company’s biggest differentiator was fee-free trading; however, many competitors have since lowered their fees in response. Users can easily trade stocks, ETFs, and cryptocurrencies on the platform, but it lacks more sophisticated financial tools, asset categories, and research capabilities that advanced traders look for in a broker. While there has been a clear focus on improving access to a growing library of educational content and enhancing basic charting capabilities, there is still much work to be done before the platform reaches standards being set across an increasingly competitive landscape. We’ll explore Robinhood in more detail so you can determine if the platform makes sense for you.
Robinhood was founded in 2014 by two former Stanford roommates, Vlad Tenev and Baiju Bhaat. Launched with a desire to expand access to the market by reducing barriers to entry, the platform quickly found a home with young, tech-friendly traders thanks to a simple design and intuitive trading experience. It’s clear that Robinhood’s brand has struck a chord, with more than 14 million active users and $64 billion in assets managed as of June 30th, 2022.
No-fee and no-minimum trading makes it easy for beginners to get started with investing, and the ability to trade fractional shares gives users access to a greater range of assets than they might otherwise be able to afford. The platform provides a simple menu of assets such as stocks, ETFs, and direct cryptocurrency trading, further streamlining the app and trading experience. Options trading is offered as well, although some limitations in order types and concerns about quality of trade executions may deter more serious investors.
Robinhood’s limitations are a recurring challenge for advanced traders, and are significant enough to drive sophisticated investors to seek alternative broker options that better align with their trading approach. For example, Robinhood offers no fixed income, mutual fund, foreign exchange, or futures trading, thereby making a multi-asset trading position more difficult to set up. This lack of assets combined with an overall lack of tools, calculators, and advanced charting features makes it very difficult to execute more complex trading strategies.
Educational content, while improving, still isn’t up to par with many of Robinhood’s competitors’ offerings. An intentional focus on enhancing this area is apparent, though. Robinhood continues to expand their Learn section with more material and has enhanced the onboarding questionnaire to help users understand investing basics while setting risk parameters that match their tolerance.
Robinhood’s platform is receiving focus in other areas as well. Cash management enhancements such as providing a higher interest rate on uninvested cash as well as a cash card product aim to round out the platform and draw in more clients. Still, questions linger about Robinhood’s reliability and motivations due to significant platform outages, fallout from restrictions placed on certain meme stocks like GameStop in January 2021, and misleading customers about sources of revenue related to order routing.
Pros & Cons
Very simple, intuitive trading experience
No trading fees or commissions
Fractional share trading and direct cryptocurrency access
Solid cash management features and recurring investment functionality
Limited investment offerings and account types
Limited research and educational content
Lack of transparency
- Very simple, intuitive trading experience lets investors trade in the market seamlessly. The sleek mobile app design reflects Robinhood’s mobile-first disposition, although a web-based platform is available as well. Robinhood leans into its expertise as mobile offering, catering to traders who are looking for basic features that are easy to navigate quickly.
- No trading fees or commissions is the hallmark of Robinhood’s platform. Thanks to their innovative challenge to the industry, many brokers were forced to reduce or eliminate their trading fees to remain competitive.
- Fractional share trading and direct cryptocurrency access lets traders expand their investment options. Fractional share purchases can be made with as little as $1, and the dividend reinvestment program (DRIP) automatically reinvests dividends from stocks or ETFs (provided the positions support fractional shares). Direct crypto access allows traders to buy and sell different coins with ease.
- Solid cash management features and recurring investment functionality helps traders manage their money more seamlessly. An innovative cash card lets users invest rewards earned from purchases. Interest on cash sweep accounts allow users to earn up to 1.5%. The recurring investment feature is straightforward to set up, allowing users to quickly automate how much they put in the market at a cadence that makes sense for them. Robinhood Gold members can now earn 3.0% on uninvested cash.
- Limited investment offerings and account types prevent users from taking advantage of a wide range of trading strategies and saving towards financial goals. Robinhood doesn’t offer all of the assets some investors are looking for, such as fixed income, mutual funds, foreign exchange, or futures trading. Moreover, only brokerage accounts can be opened on the platform, so investors miss out on retirement and other savings accounts.
- Research and educational material at Robinhood don’t measure up to competitor standards, making it difficult for traders to get the most out of the platform. There are no stock or ETF screeners available at all, and other research tools are rudimentary at best. Education material is improving, but there's still a lot of room for this area to grow in terms of both the topics covered and the formats available.
- A history of lacking of transparency on outages and trading restrictions with meme stocks will give many traders pause before utilizing Robinhood as their preferred platform. Investors may not have full confidence that they’ll have access to their positions. Robinhood has become more transparent about payment for order flow and publishes its 606 report, but the reliance of Robinhood on PFOF is still not as widely understood as it probably should be.
Robinhood’s app is very simple and user-friendly. Robinhood’s mobile-first approach to their trading experience makes it an easy choice for investors who prefer to trade from their phone. The web-based platform has a similar look and feel to the app. Traders will find the same types of orders, assets, and functionality from either version.
The main menu is easy to navigate, with intuitive screens that let investors easily see their portfolio value and positions. The search functionality gives traders a good overview of a stock’s details, such as highs and lows, P/E ratio, and market capitalization. A news feed and composite of analysts’ rankings gives traders even more insight into a company profile. As you’re looking through a stock’s information, the “Trade” icon follows you as you scroll, allowing you to buy or sell just as soon as you’ve made a decision.
Notably, Robinhood rolled out improvements to its charting functionality in August 2022, much to the delight of traders who have long requested changes. New chart features such as moving averages let traders better visualize and analyze stock trends to make more informed investment decisions.
Overall, the trading experience itself is excellent. However, there are still some limitations to how much you can customize the experience, as there’s not much you can do to further tailor the app to your preferences. The user-friendliness of the app is dampened, however, by the platform’s significant outages in February and March of 2020, which still linger in many traders' minds.
Robinhood’s trading experience is fast and easy to use, appealing to new investors in particular as it allows them to get up and running quickly. The sleek mobile app has a straightforward design that lets traders seamlessly enter, exit, and monitor positions. Robinhood’s focus on a simple functionally makes the platform more geared towards investors using uncomplicated strategies, regardless of experience level.
Robinhood users get access to basic watch lists and stock quotes paired with charts, analyst ratings, and news. The improved chart overlays give investors a more comprehensive look into stocks and their positions. Beyond this, there’s not much in the way of in-depth insights and customization ability. Sophisticated traders will likely not find all they need to execute more complex trading approaches, even with the improvements to charting functionality.
Mobile Trade Experience
Robinhood is a mobile-first brokerage that aims to make trading simple, without complicating the experience with more in-depth features. It makes sense then that more complex trading tools and research options are largely absent from the mobile trade experience. For instance, no chart drawing tools are available on mobile and trades can’t be executed directly from charts. Order staging and simultaneous order entry options are also not available.
More basic order types, like trailing stop orders and stop limit orders, are about the extent of what you’ll get through the app. Advanced traders will notice that conditional orders aren’t supported. That said, quotes from the Robinhood app do at least stream in real-time.
Range of Offerings
Robinhood’s range of offerings is extremely limited in that it only offers stocks, ETFs, options, and cryptocurrency trading. Robinhood doesn’t support mutual funds or fixed income products and you can’t trade commodities, forex, or futures. If you choose Robinhood as your broker, you can invest in:
- Stocks, long only. No short selling. Over 300 new American Depository Receipts (ADRs) were introduced in July, 2022.
- Stocks worth over $1.00 per share with a market capitalization over $25,000,000 are eligible for fractional share orders. The broker offers both stocks and ETFs.
- Single and multi-leg options
- Cryptocurrency: A range of coins are available to trade.
- As mentioned, no mutual funds, no fixed income, no futures, no forex, and no futures options.
- Non-Custodial Wallets: Robinhood is building a web3 wallet that allows customers to control crypto in a seamless, decentralized web experience. Currently, a waitlist-only option.
- Stock-Lending: Announced in May of 2022, Robinhood users can lend out fully-paid stocks in their portfolio.
Robinhood has a limited number of available order types. A range of market and limit orders are offered, but no conditional orders are supported. Order staging is also absent. These limitations affect all types of investors since it meaningfully restricts trading strategies.
Support for more sophisticated order types, like order-triggers-other (OTO) is important because they help traders navigate risk, quickly enter and exit positions, and take gains off the table. As a result, traders using conditional orders can spend more time analyzing the market and looking for their next move without having to watch current trades as closely. This is another sign that Robinhood isn’t meant for active traders.
As far as tax optimization, tax lots are defaulted to first-in, first-out (FIFO) for all equities. You can change the default cost-basis method for your account or specify different tax lots for liquidation by contacting Robinhood customer support.
The way a broker routes your order determines whether you are likely to receive the best possible price at the time your trade is placed. This best price is known as price improvement. Robinhood states that their trading systems are set up to automatically route your order to the market-maker most likely to give you the best price, based on historical performance. Robinhood reports that 95.53% of orders are executed at National Best Bid and Offer (NBBO) or better. The average price improvement is $0.0193 per share on stocks, but the company doesn’t report figures for options.
In terms of other trading technology, Robinhood gives you the ability to make recurring investments, which is a helpful feature. In keeping with its simplified approach to investing, Robinhood doesn’t allow you to perform backtests or offer a demo account.
Similar to most of its competitors, Robinhood does not charge trading fees. There are some other fees unrelated to trading that are listed below.
- All equity trades (stocks and ETFs) are commission free.
- No fees for options trades
- Trading on margin requires a Robinhood Gold subscription at $5 per month, which includes $1,000 of margin. Margin usage above $1,000 is charged 5.75% for Robinhood Gold members and 9% for non-Robinhood Gold members.
- There is a $100 account transfer out fee
- There are no domestic or international wire fees.
- There are no account opening, account maintenance or account inactivity fees.
- Check fees: $20 to send a domestic check overnight.
How This Broker Makes Money From You and for You
The fees and commissions listed above are visible to customers, but there are a few behind-the-scenes ways Robinhood makes money from you (and for you):
- Interest on cash: Like most brokers, Robinhood generates interest income from the difference between what you are paid on your idle cash and what it can earn on customer cash balances. Some brokers pass part of these earnings on to customers. At the time of the review, U.S. Robinhood clients earn 1.5% interest on cash balances.
- Payment for order flow: Many brokers generate income by accepting payment from market makers for directing orders to those trading venues. This is called payment for order flow (PFOF). Robinhood-Pro clients can route their orders as they please and the default routing doesn't seek PFOF. Robinhood-Lite clients get zero commission trading and fixed rate US equity options, but those orders are run to market makers who provide Robinhood with PFOF. Robinhood’s PFOF is $0.00499 per share on stocks and $0.53 per contract on options.
- Stock loan programs: Stock loan programs generate revenue for brokers when stocks held in customer accounts are loaned to other traders or hedge funds, usually to sell that stock short. Robinhood pays you 50% of the income it earns from lending the shares. The program is available to customers who have been approved for a margin account or have a cash account with at least $50,000.
- Price improvement: Robinhood's smart order router seeks out price improvement and attains an average of $0.0193 per share traded.
- Portfolio margining: Eligible Robinhood clients can apply for portfolio margining, which can lower the margin you need based on the overall calculated risk. Typically, portfolio margining works best for customers who trade derivatives that offset the risk inherent in their equity positions.
Account and Research Amenities
Although the overall account and research amenities are meager in comparison to larger rivals, there are some useful features including cash sweeps and basic charting. However, no screening functionality is available.
No stock screeners are offered by Robinhood.
ETF and Mutual Fund Screener
No ETF or mutual fund screeners are offered by Robinhood.
No options screeners are offered by Robinhood.
Fixed Income Screener
No fixed income screeners are offered by Robinhood.
Tools and Calculators
No tools and calculators are offered by Robinhood.
Robinhood rolled out improvements to their charting capabilities in August, 2022. The new features include more advanced charts and indicators such as moving averages, relative strength index (RSI), moving average convergence divergence (MACD), Bollinger Bands, and more. Line and candlestick charts are also available for stock and crypto trading.
Both the web and mobile platforms include these updates. These improvements help investors get a better sense of a position’s trends so that more informed trading decisions are made. However, you can’t customize charts and drawing tools aren’t provided.
Trading Idea Generators
Robinhood does not offer trade idea generators. However, you can access trusted news sources for free through the newsfeed.
As a Robinhood customer, you can stay up-to-date with WSJ Markets coverage in-app, as well as news from Reuters and Barron’s, and video from CNBC Business, Reuters, and Cheddar. Additionally, Robinhood offers Robinhood Snacks, which is accessible on the homepage and also pops up in the app for daily ease-of-use. Snacks come in podcast, newsletter, and video series formats which deliver the day’s top financial news stories every weekday.
Robinhood provides Morningstar analyst ratings to all customers in the stock detail page in the app. Morningstar provides Robinhood Gold members unlimited access to their premium, in-depth stock research reports. As a Robinhood Gold member, you will have access to Nasdaq Level II Market Data powered by NASDAQ Totalview. These reports are available on 1,700 stocks and are updated frequently to reflect important company events.
Robinhood does not support money market funds. However, its cash management brokerage feature offers 1.50% on uninvested cash balances to customers enrolled in the deposit sweep program. Robinhood Gold members can now earn 3.0% on uninvested cash. The auto sweep feature is enabled by default, which is an added bonus. You also don’t have to pay ATM fees at any of the 75,000+ ATMs in their network.
An innovative Cash Card was introduced in March, 2022, letting users earn cashback in the form of stock and crypto rewards. The card builds on Robinhood’s mission of democratizing finance and investing in a new, enjoyable format.
Fractional Dividend Reinvestment Plan (DRIP)
As a Robinhood user, you will be able to specify dividend reinvestment at the time you purchase a dividend paying stock. If the stock is eligible for fractional shares, the DRIP will purchase them with any leftovers.
SRI/ESG Research Amenities
Although there are no socially responsible investing (SRI) or environmental, social, and governance (ESG) screeners per say, Robinhood Lists will enable you to search and discover various sectors and themes within the market, including companies focusing on SRI and ESG.
Robinhood offers very little portfolio analysis, especially in comparison to its larger rivals. You can see real-time balances, margin, and buying power, but that’s about it. The home screen shows a one-day graph of your portfolio value and you can click or tap a different time period at the bottom of the graph to see specific dates and values.
There is no asset allocation analysis, internal rate of return, or way to estimate the tax impact of a planned trade. There is also no trading journal. To perform any kind of portfolio analysis, you'll have to import your transactions into another program or website.
Robinhood has made improving education a core focus of late. An enhanced Learn section of the platform contains more far-ranging articles on investing basics, market insights, and general knowledge-building material than previous versions. A new First Trade Recommendation feature was introduced in January, 2022. The tool is designed to help new investors begin their financial journey. Content helping traders understand more advanced options trading strategies has also been launched. The acquisition of Say Technologies lets traders take more ownership of the companies they invest in, empower users to participate by asking questions to companies and leadership teams.
All these features help to advance investor knowledge. Robinhood also offers Snacks, a podcast, newsletter, and video series which delivers the day’s top financial news stories to its customers every weekday. Snacks boasts a robust following of 40 million subscribers as of April, 2022. The format for Snacks content is intended to provide exciting and helpful visuals to make financial news less intimidating.
- All customer service is done through the app or the website.
- Robinhood has chatbot capability.
- On October 13, 2022, Robinhood announced the addition of 24/7 live chat support.
- There is no telephone number so you cannot call Robinhood for assistance. However, you can enter your own phone number for a callback. As a customer, you can also contact the support team on social media.
- Robinhood introduced 24/7 client support coverage and extended hours, enabling trading from 7 a.m. to 8 p.m EST.
Security and Reliability
- Mobile app users can log in with face, biometric scan, or with a custom pin.
- Robinhood encourages users to enable two-factor authentication.
- New logins from unrecognized devices also need to be verified with a six digit code that is sent via text message or email in case two-factor authentication is not enabled.
- Robinhood is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Unlike other brokers, Robinhood carries no excess Securities Investor Protection Corporation (SIPC) insurance.
- Robinhood has reported data breaches within the past 4 years. The most recent was in 2021 impacting more than 5 million customer accounts, without financial losses to these accounts.
Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.
Robinhood was once a disruptive fintech player in the brokerage industry helping young investors get into the market. In recent years, the company’s motives have been questioned and the issues are centered around data, transparency, and trust. In December of 2020, the SEC fined Robinhood $65 million for “misleading customers about revenue sources and failing to satisfy duty of best execution." The SEC declared that Robinhood failed to tell customers between 2015 and 2018 that its largest revenue source was derived from the market makers to which it routed customer orders. This is a practice that ultimately resulted in trades that generated less money for customers than they would have gotten at other brokers.
Robinhood also falsely claimed on its website that its execution quality matched or beat that of its competitors. The SEC concluded that Robinhood’s inferior trading prices ultimately deprived investors on its platform of $34.1 million.
Robinhood was brought into the spotlight again in January 2021, after it decided to restrict access to certain securities such as GameStop, AMC Entertainment, Nokia, and others during the market frenzy surrounding the Reddit short squeeze on the stocks. One of Robinhood's primary market makers, Citadel Clearing, has ownership in the hedge fund Melvin Capital which was one of the largest short sellers of GameStop and others. The decision to restrict customer buy orders for these stocks led many to suspect a conflict of interest, spurring class action lawsuits and the attention of some members of Congress.
What Type of Account Should I Open at Robinhood?
Robinhood only offers brokerage account options as either margin or cash accounts. This limitation severely restricts the ability of traders with more robust financial goals from using the platform.
Robinhood’s focus on delivering more access to the markets and reducing barriers to entry is clear from the way the platform is designed. A user-friendly, expertly designed trading experience lets users enjoy a refreshing way to enter the market. No fees, commissions, or account minimums help empower investors to start their trading journey without financial commitments. Traders can seamlessly invest in stocks, ETFs, and cryptocurrencies and get useful, albeit relatively basic, insights into the market and their positions.
Beyond this though, Robinhood isn’t a place for either sophisticated investors or users who want to execute anything more than the most simple trades. A lack of assets like fixed income, mutual fund, foreign exchange, or futures trading options is a serious limitation. Order types, trading tools, and research amenities are still very limited or excluded altogether. While educational content and some features, like charting, are improving, there's still a lot of work to do to meet the standards being set by other brokers and to match the expectations of advanced users. A history of lacking of transparency on outages and trading restrictions is another key consideration. Overall, Robinhood provides a platform that makes it easy to trade, but a shortage of features and functionality means the app won’t be the primary broker for many traders.
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