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In its early stages, Robinhood stood out as a disruptor in the brokerage industry. Its biggest competitive advantage was not charging commissions for stocks, options, and cryptocurrency trading. That edge has been neutralized as most of the brokerage industry joined in eliminating commissions. Despite the increased competition on cost, Robinhood has developed a strong brand and niche market with young, tech savvy investors thanks to a clean design and user experience that focuses on the basics. The broker recently added cash management services and a recurring investment feature in an effort to attract new customers and deepen the financial relationship with existing customers.
Although Robinhood’s user base has grown exponentially in recent years, the success has brought more scrutiny to the company. In the last year, the platform has also received criticism for untimely outages and intentional trade restrictions amid market volatility. This led many to suspect a conflict of interest, spurring class action lawsuits and catching the attention of politicians. We’ll dig into some of this as we look at Robinhood and whether it is the right fit for your portfolio.
- In June 2021, Robinhood agreed to pay $70 million to settle regulatory investigations related to misleading customers, approving ineligible traders for risky strategies, and repeated outages affecting users' ability to access the platform.
- New investors are attracted to Robinhood because of their low fees, zero balance requirement to open an account, as well as the easy-to-use interface.
- Robinhood has a limited range of offerings. Customers can trade stocks, ETFs, options, and cryptocurrency, but there is no fixed income, mutual funds, forex, or futures trading.
- Robinhood customers must pay $5 per month for Robinhood Gold in order to trade on margin, view market data, and access in-depth research reports provided by Morningstar.
- Most brokers publish their trading statistics to aid investors with comparing payment for order flow. Robinhood does not disclose this information to the public.
- Robinhood has no phone option for customer service.
Who Robinhood Is For
With more than 13 million users with an average age of 31, it is clear that Robinhood has positioned itself to be ideal for younger investors who want to get skin in the game—even if that means in small quantities through fractional shares. Robinhood’s overall simplicity makes the app and website straightforward and easy to navigate. If you’re interested in trying cryptocurrency investing, Robinhood can help. You will be able to use their platform to trade Bitcoin, Ethereum, and more. Robinhood has also expanded their options trading platform, making the broker a potential choice for options traders, although there are concerns about the quality of trade executions.
Very easy and simple to use
Low trading costs, access to fractional shares and cryptocurrency offerings
Good cash management and recurring investments features
Limited research and educational resources available
Limited investment offerings
Lack of transparency around payment for order flow
- Robinhood’s mobile app is extremely easy to use. Although the broker provides a web-based platform, it is a mobile-first company. This is a key area of differentiation between Robinhood and its competitors. The mobile app is not actually robust. In fact, its features are basic. But for investors who know what they want, the platform is more than enough to quickly move from screen to screen, and place trades.
- You can trade stocks, ETFs, options contracts, and cryptocurrency for free. Robinhood allows you to purchase fractional shares with as little as $1. If you enable the dividend reinvestment program (DRIP) in your account, Robinhood will automatically reinvest any earned dividends from stocks or ETFs—provided the positions support fractional share trading.
- Robinhood’s cash management features will allow you to earn .30% APY. You also don’t have to pay ATM fees at any of the 75,000+ ATMs in their network. The recurring investment tool enables you to automatically invest a fixed dollar amount periodically, such as once per month.
- Robinhood has little in the way of research or educational resources available for customers. If you want more than the basic stock quotes, you will likely need to subscribe to Robinhood Gold. Even then, Robinhood lacks resources when compared to its competitors’ offerings.
- Robinhood doesn’t offer any mutual funds or fixed income investment products and you will not be able to trade any commodities, forex, or futures. Moreover, Robinhood only supports taxable brokerage accounts.
- Payment for order flow statistics are usually published by brokers. It is the best way for investors to compare and ensure accurate and timely trade executions. Robinhood doesn’t disclose this important information to the public and loses points for this lack of transparency.
Robinhood is extremely easy to set up and use. Thanks to a mobile app with a clean design that focuses on the basics, Robinhood is an easy choice for investors who primarily use devices to manage their accounts. You can also use the web-based platform which has a similar look and feel to the app. Both platforms support the same order types and asset classes.
Once you log into the app, you will see a line chart that shows your portfolio value and buying power. You will find the main menu on the bottom of the screen, where you can easily use the search function to pull up a stock’s chart over multiple time frames. You’ll see information pertaining to the stock, including its highs and lows, market capitalization, and P/E ratio. Robinhood also provides a news feed, a composite of analysts’ rankings, and a company profile. When you’re ready to make a buy or sell decision, the trade button scrolls along with the page, allowing you to submit an order at any moment.
Overall, Robinhood’s user experience is pleasant and the app functions seamlessly. One caveat is that there is very little you can do to personalize or customize the app to your desired trading experience. The mobile app also lacks any charting or in-depth research tools.
The mobile apps and website suffered serious outages during market surges of late February and early March 2020. The founders said in a blog post that their systems could not handle the stress of the "unprecedented load" and pledged to beef up their systems.
The trading experience on Robinhood’s web and mobile platforms is fast, simple, and streamlined. For new investors, Robinhood has the functionality necessary to trade, but more experienced investors will find familiar tools missing. Robinhood has basic watch lists, stock quotes with charts and analyst ratings, recent news, streaming Bloomberg TV, all alongside a simple trade entry process. What you see is what you get with Robinhood, as there are no customizations on the web or mobile platform. You can’t set default order sizes, time periods on charts, or anything else.
Mobile Trade Experience
Robinhood is a mobile-first brokerage aimed at investors who want a simple trading app without the bells and whistles. The broker doesn’t offer the same in-depth tools that larger, traditional brokers do. You don’t have the ability to trade directly from the chart, the platform does not support conditional orders, and you can’t enter multiple orders simultaneously or stage orders for later entry. You can, however, use trailing stops and stop limit orders.
Robinhood’s quote information streams in real time, and you can stream real-time quotes on multiple devices simultaneously. Robinhood recently added a feature called “Recurring Investments”. This feature allows you to schedule automatic investments on a recurring basis for thousands of stocks and ETFs, potentially helping you grow your investments for the future.
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.
- 6900+ symbols can be bought or sold as fractional shares. The broker offers both stocks and ETFs.
- Single and multi-leg options
- Cryptocurrency: Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Dogecoin (DOGE), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC)
- As mentioned, no mutual funds, no fixed income, no futures, no forex, and no futures options.
Robinhood has a limited set of order types. You can either enter market orders or limit orders for the available assets. You will not be able to enter conditional orders. Newer investors and even experienced investors with simple tastes may not feel constrained by this limited selection.
As far as tax lot selection is concerned, the default cost basis election is first-in, first-out (FIFO) for equities. You can change the default cost-basis method for your account or specify different tax lots for liquidation by contacting Robinhood customer support.
Unlike many other brokers, Robinhood does not publish its trading statistics so it's challenging to compare its payment for order flow data to its competitors. 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 does not disclose its price improvement statistics either.
Nonetheless, Robinhood has stated that their systems are built to automatically send your order to the market maker most likely to give you the best price, based on historical performance. This lack of transparency, and recent events involving trading restrictions, may leave investors wondering whether Robinhood is indeed seeking out the best pricing for customer trades.
In keeping with its simplified approach to investing, Robinhood doesn’t allow you to automate a trading strategy or perform backtests.
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 2.5% interest, which is relatively low.
- There is a $75 account transfer
- 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.
- Live broker fee is $25, though it is not obvious how to contact a broker.
How This Broker Makes Money From You and for You
With no fees for equity and options trades, Robinhood has to generate revenue to be a sustainable company. The fees and commissions listed above are visible to customers, but there are other methods that are not as apparent. The online broker has a dedicated web page to inform you on the various ways it makes money.
- Interest paid on cash: Robinhood generates income on uninvested cash that isn’t swept into the cash management network of program banks, primarily by depositing this cash in interest-bearing accounts.
- Payment for order flow: There are many brokers that generate income by accepting payment from market makers for directing their customer’s equity and options to those trading venues. This is called payment for order flow (PFOF). We discussed Robinhood’s lack of transparency around PFOF above, and it appears to be a major revenue stream for the broker.
- Stock loan programs: Robinhood’s stock loan program generates revenue for the broker by lending margin securities to counterparties. Robinhood retains all income it generates from loaning your stock and does not share it with you.
- Margin interest: Robinhood’s margin interest rates are much lower than average. It's also worth noting that using margin requires membership to their Gold program which is $5 per month.
- Portfolio margining: Portfolio margining, which can lower the amount of margin you may need, is not available at Robinhood.
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.
Robinhood does not offer a stock screener.
ETF and Mutual Fund Screener
Robinhood does not offer an ETF or mutual fund screener.
Robinhood does not offer an options-specific screener.
Fixed Income Screeners
Robinhood does not offer a fixed-income screener.
Tools and Calculators
Robinhood does not offer any financial tools or calculators.
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 Snacks, a podcast, newsletter, and video series which delivers 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.
Both the web and mobile platforms have charting capabilities, which was built in-house. While line, candlestick, and volume charts are available on the mobile app, there are other charts that are only available on the web. As with all of Robinhood’s functionality, charts are not customizable.
Robinhood does not support money market funds. However, its cash management brokerage feature offers 0.30% on balances as low as $0.01 to customers enrolled in the deposit sweep program.
Dividend Reinvestment Plans
As a Robinhood user, you will be able to specify dividend reinvestment at the time you purchase a dividend paying stock. There are over 6,900 securities that can be bought as fractional shares.
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’s education offerings aren’t as robust as they should be considering they are a broker whose ideal client is new to investing. Robinhood currently offers Snacks, a podcast, newsletter, and video series which delivers the day’s top financial news stories to its customers every weekday. According to the broker, there were more than 20 million people subscribed to the weekly newsletter and 2 million monthly active podcast listeners as of August 2020. Robinhood has recently implemented video as a new format for their Snacks content, with an aim to provide exciting and helpful visuals to make financial news less intimidating.
Robinhood has also added a Learn resource, which offers financial information, definitions, and market explainers to educate you on financial terms and concepts. Robinhood says it has published more than 650 articles on Learn and saw more than a 250% increase in average unique daily visitors to their Learn pages since January 2020.
- All customer service is done through the app or the website.
- Robinhood has chatbot capability.
- 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.
- Mobile app users can log in with face or fingerprint recognition 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 2020 impacting an estimated 2000 customer accounts.
Robinhood was once a disruptive fintech player in the brokerage industry helping young investors get into the market. Now the company’s motives are being 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. Considering this, it's not a surprise that the broker does not release statistics on payment for order flow.
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.
If you’re new to investing and have a small balance to start with, Robinhood could be the place to get you accustomed to investing. The mobile-first broker sports a simple app and website, providing a seamless on-ramp to investing in stocks and ETFs. Although the user experience cannot be customized, the app and website have all the essentials a new investor would need. The recent controversies with Robinhood may have tarnished its reputation with some of the younger investors it craves, but the company still has commission free stocks, ETFs, options, and cryptocurrencies, and borderline addictive app to trade them on. New investors should consider the lack of transparency payment for order flow and other issues before making a decision.
If you’re an active investor or trader, however, there are much better options on the market as Robinhood does not support robust charts, screeners, and so on. Although most brokers charge for options contracts, and some still have ticket charges for equity trades, you will have access to research, data, trading tools, customer service, and educational offerings in exchange. Even if you are a new investor only interested in buying and holding stocks, there are other zero-fee brokers with more resources that are worth serious consideration.
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system.