- Review of: Robinhood App
- Reviewed by:
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Summary: Make stock trades for free, though the service is limited in features. Robinhood requires no minimum deposit and is currently available only on mobile devices.
Formally known as Robinhood Financial, LLC, the Robinhood app takes from the rich and gives to the poor. Well, no it doesn’t do that; it just allows you to make stock trades for free. Robinhood is a no-frills stock broker with no minimum deposit.
To access the service you need to install an app on your iPhone, iPad, Apple Watch or Android smartphone. A web-based interface is something that’s planned in the future but currently has no ETA.
Based on the limitations and focus, Robinhood is obviously catering to the Millennial crowd, with their smartphone being their primary computing device. Millennials typically do not want any of the additional bells or whistles that come with a traditional discount broker.
What is Robinhood?
Right now, it appears Robinhood is targeting bread-and-butter stock trades only, with the eventual rollout of more advanced trades and security types. They do not yet support trading of options, OTC securities, warrants or mutual funds.
A press release last year stated, “Collectively, the community has saved over $22 million in trading commissions.” If I’m to assume $10 a trade, Robinhood has processed over 2.2 million trades since inception, though Robinhood is still a relatively new brokerage house.
Robinhood’s trades are not self-clearing and use Apex for any trades made. Robinhood is registered with the SEC, a member of FINRA and has Securities Investor Protection Corporation (SIPC) insurance.
The founders of Robinhood have made a few rounds of the venture capital circuit (with currently $66 million in funding). They are funded by some well-known players in the industry such as Index Ventures, Ribbit Capital, Google Ventures, and Andreessen Horowitz.
Robinhood Features
| Minimum Deposit | $0 |
|---|---|
| Stock Trades | $0.00 |
| Options Trades | N/A |
| Mutual Funds | N/A |
| Accounts Available | Individual |
| Mobile App | Yes — Apple iOS, Apple Watch and Google Android |
| Customer Service | |
| Promotions | None |
- Scheduled Deposits – You can schedule automatic transfers on a weekly, biweekly, monthly, or quarterly basis.
- Advanced Order Support – Robinhood supports market orders, limit orders, stop limit orders, and stop orders. Certain orders may be entered as good for the day or good till canceled (GTC).
- Robinhood Instant – Instant access to deposits (under $1,000) and immediate access to your funds after selling stocks. You don’t have to wait the typical three business days.
- Robinhood Gold (New) – This features introduces: after-hours trading, line of credit, and larger amounts of instant deposits.
How Does Robinhood Make Money?
The primary question remains how will Robinhood make money if trades are free? In their FAQ they state they will make money through margin lending interest and interest on any uninvested customer cash deposits. See below as they recently introduced Robinhood Gold subscription service.
Will they be able to pull the free service off? As a reviewer of various brokerages, I’m not so sure. Keep in mind, this hasn’t been the first time a stock broker has tried this idea. Zecco was a recent brokerage firm who tried the freemium model. During their existence, Zecco changed their pricing structure several times. And eventually, Zecco determined their business model wasn’t successful and merged with TradeKing.
Currently there are two other firms which are following the freemium model: LOYAL3 and WiseBanyan. Robinhood and LOYAL3 are just straight up stock brokers, whereas WiseBanyan offers robo-advisor services.
Robinhood is much more flexible than LOYAL3 in that they allow you to trade any of the 5,000+ stocks and ETFs listed on the US stock exchanges. With LOYAL3, you can choose from only 70 stocks at this time. Some of the more traditional brokers will offer free trades if you have a minimum deposit, like Merrill Edge’s $25,000 minimum.
Usage
The signup process happens via their iPhone or Android app or on their website. Trading is limited to their mobile app.
They do ask for personal information like your Social Security number, but it’s the same information needed by any stock broker. Robinhood is available for the U.S. market and soon for Australia.
Once you gain access, the user interface is pretty easy to use, but also very simplistic. If you have one of the newer iPhones, you log in to the app via your fingerprint.
To link your bank account, it’s all done within the app. Bar none, it is the easiest way I’ve found to transfer money into a brokerage account. At least with my Chase bank account, there’s no need to enter a bank routing number or wait a few days while Robinhood uses micro-deposits to validate your account. This simplified verification is a neat feature all financial services should model.
Robinhood Gold (New)
A new premium service that introduces a monthly fee to the once previously free service. Similar to the also recently introduced Motif BLUE service these low cost brokerage firms are hoping to make up on the lost revenue via monthly subscription fees.
Robinhood Gold introduces functionality that’s really for the advanced/active trader:
- After-Hours Trading — Robinhood will extend trading 30 minutes before the market opens and two hours after it closes. The purpose is for this functionality is many companies announce earnings reports usually after the market closes. Do keep in mind though liquidity is usually less during after-hour sessions so the bid/ask spread will be higher.
- Credit Line — Otherwise known as a margin account but Robinhood does not charge any interest when it is used. Instead, it is covered in the monthly fee. Because of regulations, you must have at least $2,000 to qualify for any line of credit. The amount of the line of credit will depend upon a number of factors such as your investing experience. Best case situation is you’ll have double the amount of cash you have at Robinhood. This is no different than other brokerage firms. Just like other firms with margin, it is possible to get a margin call when using this service.
- Larger Instant Deposits — A previously introduced feature where money deposited is instantly available for investing. Previously it was limited to $1,000 and with Robinhood Gold it has been pushed to $2,000 or more depending upon your account size.
It took me awhile to figure this out, but the three-tiered pricing for Robinhood Gold depends upon the amount you have deposited within Robinhood. The more deposited the more the monthly pricing will be. All tiers get access to the after-hours trading and instant deposits. You can cancel at any time.
So think of it as a margin account you get charged monthly regardless if you use it and get some additional features as well.
Robinhood Screenshots
Pros
- Free Trades — Zero, zip, nada, naught, zilch for any trade.
- Easy To Use — The service was easy to sign up for and use when making trades.
Cons
- Stock and ETF Trading Only — You currently cannot trade options, OTC securities, warrants or mutual funds.
- No Retirement Accounts — Currently only individual taxable accounts are available. Joint or custodial accounts aren't available either.
- No ACAT Transfers — Currently there is no way to transfer existing brokerage assets into Robinhood.
Summary
On the positive, we think the service is easy to use, and is a cheap (free) way to invest in individual stocks or ETFs. For traders wanting more advanced trading options and features, you’ll have to look elsewhere. No formal testing was done, but I suspect Robinhood has to sacrifice trade execution speed, which affects price spreads, in order to work within their free trade parameter.
The other concern I have is their business model and whether it’s sustainable. Only time will tell. With the many negatives, especially the inability to transfer an existing brokerage account, I suspect most users of Robinhood will be kicking the tires and testing their service, but this limitation will restrict the ability to put serious money into Robinhood.
Disclosure: For purpose of testing I have opened an account with Robinhood and invested $100 with their service.
Comments
Anyone using Robinhood is being ripped off!! They are actually very expensive. What you don’t understand is they are trading against you. They are supplying wide bid/ask quotes.. not REAL market quotes. When you buy – you pay too much.. they take the other side – and immediately close the trade at a risk free profit against you. Same thing on the sell side. They are principal traders – not agency traders. You are paying MORE than a commissioned brokerage!!
Hey millennials – there is no free lunch.. in your quest for free – you’re being screwed!
Personally, I love robinhood. I always dreamed about becoming a day trader and with this app I can. No trade fees besides the ~.02 they charge per trade, that’s insane. I’ve been trading with RH since November making only a $50 deposit, and of course adding more when I could. I’ve invested $1000 of my own money and I’m currently 20%+ on my trades. I have my own trading method, as should all. I will not disclose the way I trade because I believe everyone should find their own. But I will say this: Take full advantage of the limit buys and stop loss/limit. Also, damn, only one share of FB since post at $75. I know you wish you had bought more, lol. But honestly, this is the greatest thing for us that cannot afford a broker and want to learn to invest. 5 star rating on my behalf.
Love the idea of this app but there are some more draw backs. When the market first opens, it usually takes about 30 or so minutes for my portfolio to sync up. Not everything resets immediately so when you open the app, you actually are still looking at the previous days performance. I have to use an external website (barchart) to monitor the prices when the markets first open. Also, I’ve noticed that the market price might not be as accurate as it should be when purchasing so I tend to use a limit order to avoid overpaying on something. All in all, it’s a good product but would like to see a web interface with more tools and the phone app to refresh a little more accurately.
Robinhood is a fabulous way to trade on the go, and, though I had to purchase an IPad to use their service from the local Best Buy, it paid for itself several times. I trade small trades, very frequently, and if I had been charged a commission during this time, I would have several thousands of dollars for the trades I made during the last few months, and it would have been a losing battle. As it is, I’m beating the major indexes with my investments, and very happy. If I paid a commission, I would only be beating my head against the wall. Can’t wait for margin trading and a web interface.
It’s a great way to invest for the little guy who won’t get his profit skimmed off the top by the brokerage firm in the process (not to mention what’s left, by the IRS).
I hope they last a long, long time, and encourage others to join in the revolution!
Michael
When Robinhood made the app available for Android, I grabbed it immediately. I’ve had a traditional online broker for years, but free trades? Sign me up! The updates to the app since its launch have been intuitive and useful. It displays plenty of information on your current holdings giving you the basic tools to make decisions on when to sell or hold. Because you are not gouged by trading fees, a stock price doesn’t have to move that much to make some money. I have seen comments from some that because of the free trade platform and the no min balance that this forms risk for the uninformed market trader. I don’t believe that for a second. I don’t consider myself an expert trader, but in a down market, I am up over 3% in just a month and a half of trades with no losses. I like the app so much that I have exited all my holdings at my traditional broker and now just hold cash there so I can use their tools. If Robinhood wants to make money off my un invested cash, let them. It doesn’t amount to much each month anyways and when it comes down to it, it’s a bargain for free trades. I’m making much more on the trades and saving a lot more without the trading fees than I would be missing from the interest paid on cash held in the account.
The only concern I have is, can they keep it up? I’ll stick with them as long as they can. I have read comments from others where they don’t like the fact that it takes time to transfer money in and out of the account and after a trade, your money is tied up for 3 days afterwards. News flash: All brokerages have the T+3 rule. You might be able to invest money you just freed up from another trade on a traditional broker account, but you wouldn’t be able to sell the holding for 3 days afterwards anyways due to SEC rules. In the case of moving money in and out of the account, I don’t have an account with a well known bank, so my initial setup took a bit longer, but once it is set up, the transfers take no longer than any other online broker. In fact, Robinhood will make deposits right to my account while my other broker sends a paper check. The wait times are the same.
I recommend the app to anyone wanting to play the market. Having a source of trading tools elsewhere does help.
D,
“News flash: All brokerages have the T+3 rule.”
News flash: That is incorrect.
I have accounts with Scottrade and Fidelity. If I ACH money to either account (no wire, no fee), the money is available right then, right there. As in immediately. I can transfer money from my bank account to my brokerage account and buy stock one second later. No waiting three days like you have here with Robinhood.
You still have the settlement to contend with, which is true of all brokerages, but the deposit availability concern is brokerage-specific.
Cheers!
News flash, you’re trading on margin.
Just three weeks ago, my transferred funds from my bank are instantly available as buying power on Robinhood, Great Improvement. Hope the proceeds from the stocks sales will soon be available as buying power too!!!
Jason,
You are right. My husband transfers money all the time to his brokerage and it is there immediately and he trades the same day.
I think Robinhood is still great for people who are just starting out and want a feel for the market.
i hate it! i use TD ameritrade and decided to try Robinhood so i transferred 1000 bucks to see if it really works. the platform is way too simple but when you want to get our cash out of this app all hell breaks lose, failed transactions for some reason that does no make sense, a lot of emails with no responses since they don’t have phones at their office. it feels like they are doing it on purpose so that you give up and keep the money there.
I downloaded this app a few weeks ago. I’m not going to play around on it until my Roth IRA is fully funded, but thanks for the review!
I’ve been using Robinhood for 6 months, and I find the email support team responsive and the app intuitive. I’m a “buy-and-hold” investor, so their policies meant to limit day trading don’t really concern me. I was concerned about the lag for order execution, and I just place limit orders as a hedge against volatility in the prices of thinly traded stocks. Altogether, I’ve found Robinhood to be an excellent substitute for most of my investment activities with Scottrade.
Another insightful review of an online broker from you Larry. What I worry about is the incredible proliferation of firms that are offering cheaper and cheaper options with very little access points if things go wrong. Trading stocks is great if you’ve got the talent and cool to do it well. But are some of the cheaper options going to attract investors who could easily get pounded by extreme market volatility, when an email question is barely more useful than mailing a letter.
Thanks Tracey.
Waited less than two weeks to get invitation after having six friends respond to my “get on the list” link. Without those signups, I’m thinking the wait would have been months based on my place in line before/after those additions. Easy to transfer $ from Citi checking account. 24 hours & Robinhood account still in “application” review. I’ve heard it may take a few days for $ to transfer from Citi & get approval to trade. I’m primarily a buy/hold long term investor with primary account at CapitalOne Sharebuilder, $6.95 a trade. Plan on using Robinhood for “trading” some MAD $ penny stocks. As a retired guy, I’m not in the millennial target group but I do luv me all things Apple, especially my iPhone 6+. And free is FREE!
I’m thinking of opening an account with robinhood. My intent is to buy shares in increments until I reach 100 shares of paticular securities. Eventually I would like to transfer each security that reaches a 100 shares to Ameritrade. Is this possible?
Hi Jane,
Currently Robinhood does not support ACATS. In plain English this means you cannot transfer in, or out, to perform a like/kind exchange. Whatever you invest in Robinhood you must for now keep at Robinhood until they offer this service.
The big question. Should robin hood fail close or bankrupt. Do I lose my money
Robinhood is SIPC insured.
Noticed, in your example above, that a market order is placed. Are limit orders also possible? Can advanced sell orders be placed?
Yep. Currently, market, limit, stop loss and stop limit orders can be placed.
Im new to investing in the market, robinhood would be the first trading account Im considering opening since they are fairly new and others have failed with this style of free trades, what would happen if I sign up/buy stocks and the site goes under. Would it be a pain to transfer my holdings to a long term legit site?
I have traded with several other sites over the past 17 years. Some have mediocre service, some have slighly better. I’ve never found one which was perfect. Robinhood’s service is not the best, but, there are several reasons why I would not want to trade anywhere else. A lot of people fear that they’ll “go under”, or that this type of trading site will cause people to do stupid things. First, they are insured, as Larry L. has stated and, second, stupid investors abound all around the world who will make stupid trades without provocation. Robinhood allows you to trade “safer”, in my opinion. Consider this:
Let’s say you have a beginner’s portfolio with $10,000.00.
1) Diversification… If you want to diversify as you really should, typically, you would have to pay possibly $5-20 (or more), depending upon a firm’s commission rates, for each stock’s “round-trip” (one purchase and eventually, one sale). This means that it would cost you $50-200, just to split your investment into 10 separate sectors. You are starting with a one half to two-percent loss, in commissions alone, before you even begin. With Robinhood, it is essentially free to split it up even more, if you like. Hence, diversification is encouraged.
2) Less penalty for human error. If you make a mistake with a stock purchase, it will cost you relatively little (pennies) to sell and start over, to correct your mistake. I’ve been there and done that (embarrassingly) many times.
3) Invest as little as you like. Experiment. Learn without losing your shirt. It won’t cost you an arm and a leg for the education, if you’re careful and start out slow. You are much more likely to sell at a gain or at a smaller loss when you haven’t got a brokerage firm taking a chunk whether you win or lose.
I’m a fairly active trader with a small portfolio, and I’ve been trading with Robinhood for over a year, now. During that time, I have “swiped up to submit” my orders, literally thousands of times. I’ve made deposits and withdrawals and had no problems. I can tell you that, though not everyone will have the same experience, I was up nearly 20% during the past year. That’s right, 2015, the year everyone else went sideways. If I had been trading with ANY other firm, I’d have spent most of my earnings on commissions, and I would have been wasting my time making someone else tens of thousands of dollars that I would rather keep for my family.
Many of the issues stated by other posters above appear to have been corrected. I have spoken with phone support on quite a few occasions. They are helpful, and seem to be improving the service, all the time.
I believe that Robinhood still has some issues for full-time traders (I am not a full-time trader at present):
1) Their execution and trade notifications can occasionally be painfully slow.
2) There is no way to “short” a stock.
3) “Options” trading is not available.
4) Margin trading is still only available for margin-beta customers.
5) You must have an IOS or Android capable device to trade. (I desire a browser-based solution, myself, but this may not bother other traders as much as it bothers me).
But… Robinhood’s price is second to none. That, alone, changes just about everything for the small investor. For most people, there is simply no reason to trade anywhere else. As far as I am concerned, other firms are behind the times, and they are the ones who will change or “go under”.
By the way, your comment about a “…long term legit site”? Right here, Stephen, right here.
Long live Robinhood.
Good luck & smart trading!
All brokerage firms have SIPC insurance which covers for this type of issue.
https://en.wikipedia.org/wiki/Securities_Investor_Protection_Corporation
If the firm did go under it is unlike FDIC insurance where it make take some time to get the money back, but you will get it back.
Who is the custodian of the stocks that are purchased through Robinhood? How are dividends handled.
Apex Clearing is the custodian/clearer of the transactions. Currently dividends are not automatically reinvested.
Very good review. Just to add a couple comments. It might take awhile before everyone can take advantage of Robinhood Instant. I’m on the waitlist for it but I keep moving back in the list since I’m unable to get friend and family referrals to move up the list. To add insult to injury now my deposit take 5 days to clear instead of 3 days. Other than this recent change I’ve really enjoyed using Robinhood.
Hi Larry- another great article!
Any thoughts on how Ustocktrade compares to Robinhood for a beginning Investor?
We’ll add Ustocktrade to our list to review.
Thank’s Larry! Would I get notified of the review if I am signed up for the newsletter?
But of course.
How is a 1099 or tax forms sent to you?
If I wanted to withdraw money that I had invested in RobinHood, how is that done, and how long would it take to get into my account?
More Cons
– No margin account, no short selling
– No pre market, after hours trade
Be leery about this app they won’t let you withdraw your money I’m having that problem right now and the call center doesn’t answer most of the time and when they do they just put you on hold
One significant downside of Robinhood is the time it takes to transfer money into it (for me it’s been 2-3 days) and then the time it takes to settle trades when you sell (again, 3 days). This means if you want to be able to day trade you need to keep a rotating balance that is available at all times to invest since you can’t sell a stock and use the proceeds immediately…or even close to immediately!
I agree with what Tempo36 says. Robinhood should be able to speed up the process of transfering money from our bank account to Robinhood account and also to settle trades so that we can do daily trades with our funds.
It does take 2-3 busines days since it uses ACH deposits (automatic clearing house). This is industry standard. ALL financial companies use this and it’s the exact same number of clearing time for deposits and transfers.; 2-3 business days. Only way to avoid this delay is if you do wire transfers, which is not free.
3 days to settle trades (buy or sell) is also standard and ALL brokers are bound by this. Robinhood can’t do anything about it unless the industry regulators speed up the process
This is the case with ANY cash based brokerage account. I’m guessing in your other accounts you have “margin approval”. This is what allows you to make trades with transfers immediately and to buy/sell same day with the same cash. In the background, your brokerage is actually “lending” you the money in between settlement dates.
Once Robinhood adds Margin trading you should be able to do what you’re looking to do.
I’m calling BS on the 3 day wait for settling trades. Try up to 8 days, including weekends- at least that’s how long my last settlement took. Cash availability- or the general lack thereof- before and after trading has been the only cost so far. That alone can be infuriating when you want to buy a stock that is climbing to a new high the day you plan to buy while RH sleeps with your cash. Robinhood Instant should eliminate the waiting period, however. Despite the current setback I will never pay a commission for trading equities again if I can help it.
Overall, a great product.
Garbage. I had 3 deposits over 3 days for a total of $170. I had sold stock so it was settling up for that. They said they did the deposits. Didn’t add it to total. 14 emails layer I still don’t have it. They also skim off the top too. So if you want to sell at say 1.50 a share you will only get 1.48 per share. Ya Robinhood working for the king.
I went to Ustocktrade and it costs me $1 per month membership and $1 a trade but instant settlement and they answer my emails. Makes it worth it to me. Deposits take 2 days. RH advertising 3 and taking 6.
You will have your deposit immediately when you are new then they all of a sudden make you wait 5 days or more. When you penny trade this really screws you over. You cannot trade with any unsettled funds from sales either. Stay away it’s junk. Go to a cheap broker.