Robinhood is a popular brokerage for active and mobile traders, notable for being the first major brokerage to offer commission-free stock trades. In addition to their commission-free stock trades, Robinhood also offers ETF, options, and cryptocurrency trades and account options with no recurring fees. But is the cheapest stock brokerage the best for your needs? Here’s a closer look in our detailed Robinhood review.
Robinhood Pros & Cons
Not long ago, the promise of free stock, ETF, options, and cryptocurrency trades were huge perks that set Robinhood apart, but now many other brokerages have raced to match Robinhood pricing. However, it remains popular for active traders and newer investors looking for a straightforward self-managed investment experience.
Who is Robinhood For?
Robinhood is best for beginner investors and active traders. With no recurring fees on basic accounts and no commissions on trades, investors can use this brokerage effectively fee-free if they choose. And thanks to support for fractional trading, investors can dip their toe in the investment pool with Robinhood without the cost of buying whole shares.
Dedicated active traders may want to upgrade to Robinhood Gold, a premium account with a $5 monthly cost. Gold members can access improved market data, larger instant deposits, and margin trading.
Robinhood is responsible for a considerable portion of active trading volume from individual investors. If you want to buy and sell at high volumes, you’re in good company at this brokerage.
|Investment Types||Stocks, OTC/Penny Stocks, ETFs, Mutual Funds, Bonds, Options, Forex, Cryptocurrencies, Futures|
|Broker Assisted Trade||N/A|
What Makes Robinhood Great?
Robinhood offers three levels of accounts, each having varying levels of access to Robinhood’s core features. Here’s a rundown of the most important Robinhood features to know about:
The primary reason many users choose Robinhood is the cost. With standard accounts, there are no recurring fees. Additionally, there’s no charge for trades. You can buy and sell, and buy and sell without ever paying a penny in commissions to Robinhood.
The only trading fees are required by all brokerages, notably the Securities and Exchange Commission (SEC) fee and the FINRA Trading Activity Fee. These are very, very small. Robinhood doesn’t require this of its customers for sale orders under $500 or transactions with less than 50 shares.
Plus>>Brokers Offering Commission-Free ETFs.
Once logged into Robinhood, the platform is easy to navigate and use. There are not a lot of extra bells and whistles. The main focus is on your investments, basic investment data, and easy access to the trade button.
Robinhood isn’t the most robust trading platform and doesn’t offer all of the advanced charts and trade types that expert, experienced traders may want. But the basics are covered, making it a good choice for beginner investors and casual investors.
Unlike many competing brokerages, Robinhood supports cryptocurrency through a dedicated Robinhood Crypto account section. Robinhood doesn’t charge any commissions to buy or sell crypto, just like other products.
Serious crypto traders should be aware that Robinhood only supports a relatively short list of digital currencies, and users aren't yet able to withdraw to outside crypto wallets. The good news is that Robinhood recently added four new supported currencies (COMP, MATIC, SOL, and SHIB). Crypto Wallet support is also on the way and users won't charged any fees to send, receive, or withdraw crypto from their wallets.
If you’re looking to buy the most popular currencies and hold them at Robinhood, the price is right. But if you're looking for a crypto-specific broker or exchange, these platforms have some sweet sign-up bonuses on offer.
Robinhood Gold Features
Robinhood Gold is a premium account with additional features and improves upon other features with higher limits. The main reasons to sign up for Robinhood Gold are margin investing, Level 2 NASDAQ market data, and professional research reports from Morningstar. Gold customers also have higher instant deposit limits than customers with a basic account.
You can try Gold with a 30-day trial before paying the $5 monthly subscription fee. However, many large brokerage firms offer research reports, all available market data, and margin accounts without requiring payment for a subscription.
Further reading>>Why Are the Online Brokers Going Commission Free?
What Are Robinhood’s Drawbacks?
While fee-free trading seems great on the surface, Robinhood has downsides too. Here are some of the biggest to look out for:
Order Selling Process
If Robinhood offers free accounts with no commissions, you may be wondering how Robinhood makes money. The brokerage relies on a controversial practice called payment for order flow (PFOF). Robinhood makes hundreds of millions of dollars per year from selling customer orders.
The basic idea is that Robinhood gets a small payment from market makers who pay for the right to execute the transaction. This is bad for the customer because it means they may not get the best trade price when entering an order, effectively costing them money on every “free” transaction.
History of Outages and Regulatory Missteps
While the issue isn’t isolated only to Robinhood, the company has fallen victim to a series of newsworthy outages. Even worse, the outages took place during highly volatile trading days when losing access to the markets could be costly to customers.
In fact, the problem was so bad that the Securities and Exchange Commission fined Robinhood $70 million for misleading customers on the issue. The company also came under fire for announcing an SIPC-backed checking account without first telling the SIPC. The account never came to be, signaling poor planning and coordination with regulators.
Monthly Fee for Gold Accounts
Of course, you know when you’re signing up for a subscription with a fee, so it shouldn’t be a surprise if you see a $5 monthly charge once your trial is up. However, as noted above, some brokerages offer what Robinhood charges for without added fees.
Also, because Robinhood can earn further interest from margin-using customers (over $1,000), it’s like paying to access a product that then costs more money to use.
Trade Pricing & Account Fees
If you have not caught on by now, the biggest draw of Robinhood is commission-free trading. Most accounts are fee-free with no trading commissions. You’ll only pay if you opt-in for Robinhood Gold or take advantage of less-common services like paper statements or outgoing account transfers.
Using the margin feature in Robinhood Gold requires paying an interest rate — 2.5% as of this writing — when borrowing more than $1,000. Margin trading is risky and not suitable for most investors.
How to Contact Robinhood
Robinhood offers 24/7 email and phone support to customers, but you have to be a logged-in customer and go through a few steps in the app or on the website to reach the email form. There’s no live chat support.
They also don’t freely provide a phone number for you to call for help. Instead, you must log in and click on a button to request a call from customer support.
So, while around-the-clock phone and email support availability is a great feature, the added requirements to use them are a hassle.
Is Robinhood a Scam?
The short answer is no. Robinhood is upfront about its fees and how it makes money. When it says it doesn't charge commissions, it means it. Plus, your money is protected by the Securities Investor Protection Corporation (SIPC) up to $500,000 for securities and up to $250,000 for cash. Any investments in cryptocurrency are not protected by the SIPC.
Robinhood is also regulated, just like other stockbrokers, by the Securities and Exchange Commission (SEC). It's also a member of the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization. However, as noted above, the company has had a history of service outages. And it does rely on PFOF to make money, which some feel presents a potential conflict of interest.
Robinhood is an excellent choice for many investors, but it’s far from the only brokerage on the block. If you’re looking for a brokerage with more features, support for mutual funds, or high-end active trading tools, any of these could be worth a look:
|Options Trades||$0/trade + $0.65/contract ($0.50/contract for 30+ trades/quarter)||$0.50/contract||N/A|
Robinhood is a solid choice thanks to low costs and an easy-to-use active trading experience. However, it has some drawbacks that could have you looking for a brokerage with more features or different trade management practices.
If you want to cast a wider net, here’s a list of the top online stock brokers to consider for 2022 and beyond.Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and InvestorJunkie, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. InvestorJunkie is not a member of FINRA or SIPC.”