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While Robinhood isn’t truly free, the broker delivers a quality experience for young, new stock market investors.

By Blain Reinkensmeyer / December 13th, 2018 / Updated: December 14th, 2018

Dislikes
  • No phone support offered
  • Research offering is minimal
  • Very few trading tools

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Founded in 2013, Robinhood is an online broker that has raised $539 million in venture capital funding. The brokerage, which appeals primarily to young do-it-yourself investors, is best known for offering $0 stock, ETF, options, and cryptocurrency trades alongside an easy-to-use website and mobile trading app.

Free basic trading comes at a cost though. No phone support is offered, tools and research trail the depth and comprehensiveness of industry leaders such as Fidelity and TD Ameritrade, and hidden costs can drive up the underlying cost of being a customer (more on that later).

Nevertheless, these drawbacks haven’t slowed down Robinhood, which appeals particularly to young investors seeking a simple, user-friendly trading platform on which to start their investing journey. Robinhood currently has a customer base of over six million.

Robinhood offers access to trading stocks, etfs, options, and more.

Robinhood offers the ability to trade stocks, ETFs, options, and cryptocurrency. Margin trading and after-hours trading are also offered.

Robinhood trade ticket
Robinhood trade ticket.

Compared to its larger, full-service broker competitors, E*TRADE, TD Ameritrade, and Fidelity, Robinhood provides the core basics; however, its total offering of investments is poor. Mutual funds, bonds, forex, futures, and shorting stocks are not supported, nor are advanced order types, such as trailing stop orders and conditional orders.

Robinhood's nontraditional approach to banking is disruptive and controversial at the same time.

Beyond trading, Robinhood also does not offer retirement accounts (IRAs), dividend reinvestment plans (DRIPs), or traditional online banking services, such as checking accounts, savings accounts, credit cards, and mortgages, many of which are offered by Robinhood’s full-service brokerage competitors. See: Best Brokers for Banking / Best Brokers for IRA Accounts

However, in December 2018 Robinhood unveiled a banking service called Robinhood Checking & Savings. With Checking & Savings, Robinhood is offering customers 3% interest on cash, no account fees, and access to 75,000 free ATMs.

In the stock market, anytime there are higher returns promised, there is almost always more risk involved.

It is important to note that Robinhood Checking & Savings is offered through Robinhood Financial, which is not a traditional FDIC regulated bank, akin to what one might find at Bank of America or Chase. As a result, customer deposits are not secured by the U.S. government.

To achieve a higher yield for customers, Robinhood is investing customer cash in, what it considers to be, "safe" investments that overall yield more interest than a traditional high yield savings account would. In the stock market, anytime there are higher returns promised, there is almost always more risk involved.

robinhood checking savings debit card
Robinhood Checking & Savings debit card.

As of the launch, Robinhood isn't sharing the exact investments it is making with customer money to earn a higher than average yield. This is worrisome. Also, the day after it's launch, regulators expressed concern with how Robinhood was marketing its new product. If the service proceeds as planned, debit cards will begin rolling out in January 2019.

Ever heard of payment for order flow (PFOF)? It's the secret to why Robinhood can offer $0 trades.

Robinhood charges no commission for trading stocks, ETFs, options, or cryptocurrency. As a quick comparison, Fidelity and Charles Schwab both charge $4.95 per stock trade, while TD Ameritrade and E*TRADE both charge $6.95 per stock trade. However, as most Americans know, nothing is truly ever free.

For example, Facebook (FB) is technically a free service. To offset not charging a subscription fee, it generates revenue from collecting your user data and selling ads. The more users Facebook has, the more data and pageviews it has, which means selling more targeted ads in larger quantities, and thus generating revenue.

In Robinhood’s case, it too is a free service. Instead of selling ads, though, it is selling your order flow (the right to fill your order) to wholesale market makers.

Market makers generate tiny profits from each order they are routed, which the broker can elect to receive as a payment (revenue) or pass on to the customer as price improvement (a better execution price).

Market makers generate tiny profits from each order they are routed, which the broker can elect to receive as a payment (revenue) or pass on to the customer as price improvement (a better execution price). The practice of receiving payments for order flow is called payment for order flow (PFOF), and it is very common in the brokerage industry.

Looking at Robinhood’s closest competitors, only two do not accept PFOF: Fidelity and Merrill Edge. This means they pass along any savings back to the customer, resulting in better executions (a higher price for each share sold or a lower purchase price for each share bought).

To help everyday investors understand how order execution works, what PFOF is, how market makers make money, how to reduce your PFOF burden, etc. I have written a complete guide to order execution and we’ve ranked the brokers for overall order execution. Robinhood will be included in our 2019 assessment, which publishes in February.

Skipping the guide for now? That’s fine. I understand. Let’s continue with some cost analysis examples.

Here are three great examples of how much Robinhood might cost you each month.

In Robinhood’s most recent quarterly 606 report the broker generated average payments of “$0.00026 per dollar of executed trade value.” This means Robinhood made $.26 for every $1,000 in orders placed.

For example, let’s say you buy 10 shares of Apple and are filled at $178.50. This means $1,780.50 was traded in total, which yielded Robinhood approximately $.44 in PFOF. In other words, your trade wasn’t free, it actually cost you $.44.

In Robinhood’s 2017 recap blog post, the brokerage noted it had “transacted over $100 billion in trading volume to date.” Applying the most recent payment metrics, this translates to $26,000,000 in total revenue for Robinhood from PFOF.

The bottom line with Robinhood is that as your total trading volume increases, so does your net cost for being a customer.

Next, let’s break down some scenarios so you can determine if Robinhood is right for you. To keep the numbers simple, we will assume this is a cash (not a margin) account, and each trade is using half of your available portfolio value. Things to remember:

  1. Buying or selling is irrelevant; Robinhood generated PFOF regardless.
  2. The most important number to focus on when assessing cost is the total combined value of all your trades (buys and sells) placed each month.
  3. If Robinhood elected to receive no PFOF, the savings would be passed onto you in the form of a better fill for your order. Accepting PFOF is an industry standard practice.
  4. All brokers monetize any excess cash sitting idle in your account, so this is not factored into the following cost scenarios.
  5. Robinhood charges for access to margin (Robinhood Gold), whereas its competitors do not. If you trade on margin, your monthly costs will be higher.

Scenario A: I have an average account balance of $2,000, and trade once a month, on average.

  • Average account balance = $2,000
  • Monthly trades = One
  • Total transacted volume = $1,000 (1 trade x $1,000 in total stock value)
  • Total estimated monthly cost = $.26
  • Competitor comparison: Fidelity ($4.95), Merrill Edge ($6.95), TD Ameritrade ($6.95 + PFOF costs), E*TRADE ($6.95 + PFOF costs)
  • Summary: Robinhood represents great value.

Scenario B: I have an average account balance of $10,000 and trade three times a month, on average.

  • Average account balance = $10,000
  • Monthly trades = Three
  • Total transacted volume = $15,000 (3 trades x $5,000 in total stock value)
  • Total estimated monthly cost = $3.90
  • Competitor comparison: Fidelity ($14.85), Merrill Edge ($20.85), TD Ameritrade ($20.85 + PFOF costs), E*TRADE ($20.85 + PFOF costs)
  • Summary: Robinhood represents good value.

Scenario C: I have an average account balance of $100,000, and trade ten times a month, on average.

  • Average account balance = $100,000
  • Monthly trades = 10
  • Total transacted volume = $500,000 (10 trades x $50,000 in total stock value)
  • Total estimated monthly cost = $130
  • Competitor comparison: Fidelity ($44.95), Merrill Edge ($69.50), TD Ameritrade ($69.50 + PFOF costs), E*TRADE ($69.50 + PFOF costs)
  • Summary: Robinhood does not represent good value.

The bottom line with Robinhood is that as your total trading volume increases, so does your net cost for being a customer.

One other final note on cost is that price isn’t everything. The user experience (ease of use, tools, research, etc.) is also important.

Robinhood offers a website and mobile platform. All in all, Robinhood's trading tools are, well, meh.

Robinhood offers its downloadable mobile app as well as a web platform (its website) for customers to use. Both platforms have similar feature sets.

Focusing on subtle differences, the first to note is that the web-version of the app shows a better version of the user’s portfolio allocation than the mobile app.

Robinhood website account summary holdings
Robinhood website account summary holdings.

One drawback to the web platform is that you cannot access specific account settings, such as notification settings. Another advantage of using the mobile app is the additional integrated education, particularly when looking at options chains.

In summary, although the web-based version of Robinhood is good, the app itself still provides a more immersive user experience. That said, the experiences are VERY similar.

Looking at the entire offering of tools, Robinhood provides a minimalistic experience because it focuses on young investors new to trading. If you are looking for all the bells and whistles, head over to our main broker guide and scroll down to “Best Trading Tools.”

Robinhood's mobile app is fast, simple, and among our favorites for ease of use.

Once my account was opened, and I logged into the Robinhood app, I was impressed by the app’s focus on simplicity and ease of use. For basic stock trading, Robinhood has the functionality required to be productive: basic watch lists, basic stock quotes with charts, key metrics, and recent news, alongside a simple trade order form.

Robinhood watch list
Robinhood watch list.

Robinhood offers analyst ratings, “people also bought,” and sections in its mobile app that enhance users’ experience. Analyst ratings come from Morningstar, while people also bought recommendations straight from Robinhood’s pool of six million customers. The “about” section highlights company details such as CEO, headquarters, and number of employees.

While the overall research experience significantly trails industry leaders Fidelity and Charles Schwab, it continues to improve over time.

Offering a lightning fast, easy to use mobile app targeted at new investors comes with three crucial downsides.

Robinhood’s focus on simplicity also has several notable drawbacks.

First, the watch list functionality is extremely basic and includes few optional columns beyond last price and percentage change. Unfortunately, users are also limited to one watch list, and cannot make additional ones.

Second, when pulling a stock quote, charts cannot be modified beyond six default date ranges, no technical analysis can be conducted, and even landscape mode is not supported for horizontal viewing. Pulling stock quotes using the free Yahoo Finance or CNBC mobile app, for example, provides a superior charting experience.

Robinhood stock quote screen
Robinhood stock quote screen.

Third, Robinhood currently only allows users to enable notifications for all of their positions or all of the stocks in their watch list. Basically, unless you hold shares in a stock, you cannot set price alerts for that symbol. This makes monitoring potential stocks to trade cumbersome and annoying.

For investors looking to conduct the bare bones basics, Robinhood gets the job done well. Beyond that, the brokerage will leave you wanting more. See: Best Brokers for Mobile Trading.

Overall, Robinhood delivers a great experience for it's target clientele, the young, new investor.

Robinhood provides a mobile app that is functionally flawless and offers the core basics to maintain an online portfolio of stocks, ETFs, options, and cryptocurrencies. The bread and butter of the Robinhood experience is its offering of $0 trades, which is the broker’s main highlight, despite its controversial acceptance of payment for order flow.

If you have only a few hundred or several thousand dollars to trade, Robinhood is a great broker for conducting the basics. Beyond this, you may find Robinhood’s lack of phone support, minimal trading tools, and basic research experience are not worth the commission savings.

Robinhood Q&A

Can I buy international stocks with Robinhood? Yes. Robinhood offers customers the opportunity to buy and sell over 250 popular American Depositary Receipts (ADRs), including shares in companies such as Adidas (ADDYY), Tencent (TCEHY), and Nintendo (NTDOY).

Can I buy and sell Bitcoin with Robinhood? Yes. Robinhood currently offers seven tradeable cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Dogecoin (DOGE), Ethereum Classic (ETC), and Bitcoin SV (BSV). Ten additional cryptocurrencies can be added to any watch list.

Does Robinhood offer penny stocks trading? No. You cannot trade penny stocks on Robinhood. Over-the-counter (OTC) securities are not supported. However, Robinhood customers can trade company shares listed on the NASDAQ and NYSE whose stock price is currently below $1.00.

Is Robinhood’s website secure? Like its competitors, Robinhood is regulated by the SEC and is a registered member of the SIPC and FINRA (CRD #165998) in the United States. The company has its headquarters in Palo Alto, California, and has had no reported security breaches since its launch in 2013.

Does Robinhood offer bank accounts? Through Robinhood Checking & Savings, customers can earn 3% on any free cash in their accounts, access over 75,000 ATMs, and use a debit card for purchases with no fees. However, it is important to note that Robinhood Checking & Savings is not FDIC insured like a traditional bank and customer assets are not secured by the U.S. government.

Is Robinhood's banking service a good deal? Robinhood's approach to banking is different because it is not an FDIC bank, which means customers do not have the same protections as they would with Bank of America, Chase, Wells Fargo, or similar banks. Through Robinhood Checking & Savings, there are no account fees and customers can earn 3% on their savings.

Is Robinhood's banking service safe? Robinhood Checking & Savings is not insured by the Federal Deposit Insurance Corp. (FDIC) or the Securities Investor Protection Corp. (SIPC). This means that, unlike traditional savings accounts, customers have no protection guarantee on their deposits.

How does Robinhood make money? Robinhood makes money primarily by routing customer orders to wholesale market makers that pay Robinhood for the right to fill its customers’ orders. This is a practice called payment for order flow (PFOF), and it is very common in the brokerage industry. Robinhood earns $.26 for every $1,000 traded on its platform.

Do any of Robinhood’s competitors offer $0 trading? Yes. Both Merrill Edge and Firstrade also offer free trading. To qualify for free trades with Merrill Edge, your combined brokerage and bank account balance must be at least $50,000.

Does Robinhood charge for margin trading? Yes. Robinhood Gold is Robinhood’s version of a margin account, but instead of paying a variable rate, customers pay a flat monthly fee depending on the account balance. For example, with a $5,000 account balance and access to $2,000 in margin, the monthly fee would be $10 ($120 per year). See Robinhood’s full commissions & fees schedule for a breakdown.

Robinhood gold tiers
Robinhood Gold tiers.

Does Robinhood offer drawing on charts? No. Robinhood does not currently offer any advanced studies (technical indicators) for performing technical analysis.

Does Robinhood offer an active trading platform? No. Robinhood does not offer a desktop downloadable trading platform for active trading.

Can I trade immediately after opening my Robinhood account? When you open and fund an account with Robinhood, the broker is unique in that it provides you access to up to $1,000 in funds, available immediately for trading while your ACH transfer deposit processes. Under normal ACH transfers, the average processing time is two to three days.

View all Robinhood Fees & Features
Blain Reinkensmeyer

Reviewed by Blain Reinkensmeyer Blain heads research at StockBrokers.com and developed the site's annual review format, which broker executives consider the most thorough in the industry. He has placed over 1,000 stock, options, forex, and crypto trades since 2001.

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Ratings Overall

*Robinhood was not included in the latest annual review, as a result this data may not be up to date.

Summary

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All pricing data was obtained from a published web site as of 09/01/18 and is believed to be accurate, but is not guaranteed. The StockBrokers.com staff is constantly working with its online broker representatives to obtain the latest pricing data. If you believe any data listed above is inaccurate, please contact us using the link at the bottom of this page. For stock trade rates, advertised pricing is for a standard order size of 500 shares of stock priced at $30 per share. For options orders, an options regulatory fee per contract may apply.

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