Founded in 2013, Robinhood is an online broker that has raised $539 million in venture capital funding. The brokerage, which appeals primarily to young Millennial 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.
Robinhood makes trading simple for beginners by offering an easy-to-use mobile app and $0 stock, options, ETF, and cryptocurrency trades. However, Robinhood makes money by accepting payment for order flow. Furthermore, few trading tools are offered, and there is no phone support.
- App is well designed and excellent for ease of use.
- $0 trades provide great value for low balance accounts trading only 1 or 2 shares per trade as well as most casual investors.
- No phone support.
- Little to no trading or research tools provided for free.
- Access to Morningstar research and level II quotes requires subscribing to Robinhood Gold for $5 per month ($60 / year). For example, $60 is what it would cost for 12 paid trades at Fidelity or Charles Schwab, which both offer measurably more research, trading tools, better customer service, etc.
- Similarly, trading on margin (which includes shorting stocks) also requires a monthly subscription to Robinhood Gold, as well as 5% annual interest on any margin balance beyond $1,000.
How Robinhood makes money from $0 trades
Robinhood charges no commission for trading stocks, ETFs, options, or cryptocurrency. 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, just like Facebook. Instead of selling ads, though, it is selling your order flow (the right to fill your order) to wholesale market makers. Thus, Robinhood is not really free.
Robinhood Pricing Comparison - View full pricing breakdown
|Stock Trade Fee (per trade)||$0.00|
|ETF Trade Fee||$0.00|
|Options Base Fee||$0.00|
|Options Per Contract Fee||$0.00|
|Mutual Fund Trade Fee||N/A|
|Broker Assisted Trades Fee||$0.00|
Understanding Payment For Order Flow (PFOF)
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 makes $.26 for every $1,000 in orders placed
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.
Robinhood Monthly Cost Examples
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:
- Buying or selling is irrelevant; Robinhood generates PFOF regardless.
- 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.
- 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.
- All brokers monetize any excess cash sitting idle in your account, so this is not factored into the following cost scenarios.
- Robinhood charges for access to margin (Robinhood Gold), whereas its competitors do not. If you trade on margin, your monthly costs will be higher.
Robinhood Cost Example A
I have an average account balance of $2,000 and trade stocks 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.
Robinhood Cost Example B
I have an average account balance of $10,000 and trade stocks 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.
Robinhood Cost Example C
I have an average account balance of $100,000 and trade stocks 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. See: Best Day Trading Platforms
Robinhood Gold is mostly a bad deal
In April 2019, Robinhood updated its Robinhood Gold program. From the blog post, "Instead of choosing your Gold tier when signing up, all users will now pay $5 a month for the premium features and 5% annual interest based on how much margin they use."
Premium features include:
- Access to Morningstar reports
- Level II streaming quotes
- Access to margin if you want to use it.
The bottom line is simple, $60 ($5 x 12 months) is what it would cost for 12 paid trades at Fidelity or Charles Schwab, which both offer measurably better research, trading tools, customer service, etc. If you want to use Robinhood, just stick to the free trades.
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.
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 attracted to idea of free trades. If you are looking for all the bells and whistles, consider a broker like TD Ameritrade or TradeStation.
Access to level II quotes requires subscribing to Robinhood Gold for $5 per month ($60 / year).
Robinhood Trading Tools Comparison - View all features
|Desktop Platform (Windows)||No|
|Watch Lists - Total Fields||7|
|Charting - Drawing Tools||0|
|Charting - Indicators / Studies||0|
|Option Chains - Total Columns||5|
|Platforms & Tools|
Robinhood's mobile app is fast, simple, and my favorite for 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.
Because the app is so simple, Robinhood is able to provide an extremely clean, crisp design that is very easy to use.
Robinhood’s focus on simplicity also has several notable drawbacks
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.
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 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.
Bottom line, Robinhood is great for ease of use, but there are far better stock trading apps available with more bells and whistles.
Robinhood Mobile App Features Comparison - View all mobile features
|Apple Watch App||Yes|
|Watch List Syncing||Yes|
|Stock Alerts - Basic Fields||Yes|
|Charting - After Hours||Yes|
No matter how you slice it, Robinhood's research offering is severely lacking across the board
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 come straight from Robinhood’s pool of six million customers.
The “about” section highlights company details such as CEO, headquarters, and number of employees.
Access to Morningstar research and level II quotes requires subscribing to Robinhood Gold for $5 per month ($60 / year).
Robinhood Research Tools Comparison - View all features
|Research - Stocks||Yes|
|Stock Research - Reports||0|
|Research - ETFs||Yes|
|Research - Mutual Funds||No|
|Research - Pink Sheets / OTCBB||No|
|Research - Fixed Income||No|
|Research - Futures||No|
|Research - Forex||No|
Robinhood offers only what is required to trade stocks, ETFs, options, and cryptocurrency
For example, mutual funds and bonds are not supported, nor are basic advanced order types such as trailing stop orders. That said, most online brokerages do not offer cryptocurrency trading. Robinhood does.
Robinhood Offering Comparison - View all investments offered
|OTCBB / Pink Sheets||No|
|Complex Options Max Legs||4|
|Options Exercising (Web)||Yes|
|Options Exercising (Phone)||No|
|Bonds (US Treasury)||No|
|Mutual Funds (No Load)||0|
|Mutual Funds (Total)||0|
|Offering of Investments|
For investors looking to conduct the bare bones basics, Robinhood gets the job done well. Beyond that, Robinhood will leave you wanting more.
Is Robinhood completely free? The short answer is yes, technically Robinhood is free and charges $0 for stock, options, and cryptocurrency trades. However, certain features require a $5/mo subscription to Robinhood Gold and Robinhood does accept payment for order flow (PFOF). Here's Robinhood's Fees disclosure PDF and here's our full breakdown of how Robinhood makes money.
How do I get my money out of Robinhood without paying any fees? First, sell all your stocks and any other positions. Next, transfer all your cash via ACH to your bank account (ACH transfers are free). Finally, contact Robinhood to close your account. If you transfer stock holdings to another broker, Robinhood will charge you a $75 ACAT fee. Switching brokers? See our list of the best online stock brokers 2019.
Can I day trade stocks using Robinhood? You need at least $25,000 in your account to day trade with Robinhood (all brokers require at least $25,000 by law), otherwise your account is restricted to just three day trades every rolling five business days. That said, even if you had $25,000, I wouldn't recommend Robinhood. Read our best day trading platforms guide.
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.
Can you trade penny stocks with Robinhood? 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.
Can you trade 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).
Is Robinhood safe? 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.
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. Compare Robinhood vs Merrill Edge vs Firstrade.
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.
2019 Review Methodology
For the StockBrokers.com ninth annual best online brokers review published in February 2019, a total of 4,544 data points were collected over six months and used to score brokers. This makes StockBrokers.com home to the largest independent database on the web covering the online broker industry.
Participation is required to be included. Each broker completed an in-depth data profile and provided executive time (live in person or over the web) for an annual update meeting. Our rigorous data validation process yields an error rate of less than .001% each year, providing site visitors quality data they can trust. Learn more about how we test.
About the author: Blain Reinkensmeyer As Head of Research at StockBrokers.com, Blain Reinkensmeyer has 18 years of trading experience with over 1,000 trades placed during that time. Referenced as a leading expert on the US online brokerage industry, Blain has been quoted in The New York Times, Forbes, and the Chicago Tribune, among others.