Robinhood's claim to fame is that they do not charge commissions for stock and options trading. Their initial offering was a mobile app, aimed squarely at millennials, and in November 2017 they launched a website that they say “is the best one out there” for teaching new investors.
Robinhood currently ranks in the following category:
Robinhood's overall simplicity makes the app and website very simple to use, and charging zero commissions is appealing to extremely cost-conscious investors who trade small quantities. However, the offerings are, in fact, very light on research and analysis, and there are serious questions about the quality of the trade executions. Our Robinhood app review covers the most crucial pieces that a trading platform should deliver on.
Trading costs are very low
The website and the mobile app are easy to use
Trades appear to be routed to generate payment for order flow, not best price
Quotes do not stream, and are a bit delayed
There is very little research available
Trade tickets are very simple for equities – just fill in the number of shares you want to trade. Both the app and the website default to sending market orders. To place a limit or stop order, tap or click on Order Types. We compared the prices displayed on the app and website to another platform with streaming real-time prices, and the bid and ask prices displayed are delayed slightly. This delay can make it difficult to figure out an appropriate limit order price in a fast-moving market. We suggest having a separate financial app or website that shows current pricing available when you place a trade.
All customers have instant access to deposits and immediate access to funds after closing positions, and your buying power is increased as soon as you initiate a deposit into your account.
Robinhood does not publish their trading statistics the way all other brokers do, so it's hard to compare their payment for order flow statistics to anyone else. Their payment for order flow techniques were a large focus in our Robinhood app review. The industry standard is to report payment for order flow on a per share basis, but Robinhood reports theirs on a per-dollar basis instead, claiming that it more accurately represents the arrangements they have made with market makers. 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: a sale above the bid price, or a buy below the offer price. We have written about the issues around Robinhood’s payment for order flow issues here.
Both the app and the website are extremely easy to use, but there is very little that the client can do to customize or personalize the experience.
Mobile and Emerging Tech
The platform itself was initially launched as a mobile app which is well-designed and very easy to use. Click on the search icon to view collections of stocks if you are looking for trading ideas. Watchlists are synced between the app and the website.
Range of Offerings
You can trade stocks and ETFs long on Robinhood, but if you want to sell them short, you are out of luck. You can also trade options and six cryptocurrencies. Options trading capabilities are fairly simple, and there is little help for choosing a strategy. On the website, you can buy single leg Calls and Puts, or sell a covered call after opening a long stock position. You can also sell cash covered puts or exercise in-the-money options. The mobile app allows a few multi-leg options strategies, including such as iron condors, straddles, strangles, call and put debit spreads, and call and put credit spreads.You cannot trade mutual funds or fixed income.
News and Research
The news feed includes stories from Yahoo Finance, Seeking Alpha, Associated Press, Marketwatch and several other sources. Clicking on a news headline on the website opens a new window, so your browser will get messy in short order. Research capabilities are on the light side, but since you're not paying commissions, you can look for research elsewhere. Charting is extremely basic, and there are only 5 years of price history available.
Robinhood launched Robinhood Snacks, a brief daily newsletter and podcast, in March 2019. In April 2019, Robinhood updated their Gold subscription model, and gave customers who pay $5 per month access to additional research and data as well as margin loans. Robinhood Gold subscribers can read Morningstar research reports on over 1,500 companies. In addition, the firm plans to add Nasdaq Level 2 market data in the near future, which is extremely helpful in determining the demand and supply of shares being traded for each stock. Brokers who offer trading capabilities for frequent traders have access to Level 2 market data, so this will be a welcome addition to the platform. Robinhood customers can try the Gold service out for 30 days for free.
Portfolio Analysis and Reports
Portfolio analysis is limited to viewing the current value of your stock or option holdings, with a chart showing the changes in value. You can change the time period shown on the chart with a tap or click, but your only options are 1 day, 1 week, 1 month, 3 months and 1 year.
Customer Service and Help
All customer service is done via the app or the website; you cannot call them for assistance. You can place a trade through a live broker for $10, but they are not there to offer help otherwise. The FAQs and other educational material is found under the Account tab. If you enter the wrong user ID or password, you don't get an error message, which can be confusing.
Education and Security
There are limited education offerings in Robinhood's Help center. Most of the content is dedicated to using the app or website, with little to say about learning to trade. The firm does not hold live events and has no plans for webinars.
Trades are free, for the most part, but you will pay $5 per month fee to access margin borrowing in a Robinhood Gold account. That $5 gives you up to $1,000 in margin, plus additional research and data, described above in the "News and Research" section. Margin loans of over $1,000 are assessed 5% annual interest, which is well below average. The previous margin offering was very unusual, with customers paying in advance by the month. If you didn't use the margin you paid for, the cost could be quite high. We are pleased to see Robinhood move to a pricing model that is more in line with the rest of the industry.
What You Need to Know
When it comes to free trades, you won’t get what you’re not paying for. Most online brokers charge a fee that ranges from $1 to about $7 per transaction, and they offer an abundance of research, news, charting, and educational resources alongside the trading engine. Robinhood’s marketing message implies that a brokerage commission is a ripoff and that the research provided by other brokers is overrated. But keep in mind that if you are not paying a commission, you’re not the customer – you’re the product, and your trades are sent to market makers who pay Robinhood for that business, which means you may not get a quality fill on your order.
Robinhood disputes this opinion about their order routing practices. Vice President of Product Josh Elman says, "We send your orders to the market maker that’s most likely to give you the best execution quality, which includes price improvement." The price improvement statistics reported to us for this survey were much lower than the industry average, however.
Robinhood's commission-free trading make them an excellent option for those looking to keep costs low. See how they compare against other online brokers we reviewed.
Robinhood Broker Review 2019
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