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Robinhood, founded in 2013, is a venture-backed online brokerage that has raised $176 million to date and offers free stock trading for US residents. The startup broker is best known for its $0 commission trades and easy-to-use, no frills, mobile trading app.
Robinhood keeps its experience simple on purpose. To support $0 trades for its customers, co-founders Vlad Tenev & Baiju Bhatt streamline the product experience. Trades can be made only using the mobile app, and functionality is kept at a bare minimum to reduce costs (more on that below).
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.
Offering of Investments
Since day one, Robinhood has relied 100% on its investors to stay afloat. The costs of building out a regulated online brokerage from scratch are expensive. With its app’s launch in Spring 2015, Robinhood offered only the ability to buy and sell publicly listed securities (NASDAQ, NYSE), such as Apple (AAPL), Disney (DIS), and Amazon (AMZN) using market orders.
Since then, Robinhood’s offering has expanded to include limit orders, stop loss orders (both stop loss and stop limit) alongside after-hours trading and margin trading. Compared to its larger full-service broker competitors, Fidelity, TD Ameritrade, and Charles Schwab, Robinhood provides the core basics required to trade stocks; however, its total offering of advanced order types, such as conditional orders, is severely lacking.
Today, Robinhood still provides only basic stock trading (major listed securities only, no shorting or OTC / pink sheets) for its customers. Mutual funds, options, forex, and futures are not supported; neither does the company offer retirement accounts (IRAs), DRIPs, or traditional online banking services, such as checking accounts, savings accounts, credit cards, and mortgages, offered by the full-service brokerages. View a full breakdown of features supported.
Commissions & Fees
While Robinhood has remained true to its promise of offering $0 stock trades with no minimum deposit, it has slowly begun to explore revenue generation using traditional and non-traditional methods. Most significantly, in September 2016 it announced the launch of Robinhood Gold, its paid premium customer tier.
Robinhood Gold offers customers two primary benefits: the addition of margin trading, aka “Gold Buying Power,” and the ability to trade after hours (under the standard Robinhood plan, both margin trading and after-hours trades are disabled). Additionally, deposited funds are available for trades immediately (under normal ACH transfers, the processing time is three days).
The monthly cost of Robinhood Gold is tiered based on how much money subscribers have in their Robinhood account. For example, with a $5,000 account balance and access to $2,000 in margin, the monthly fee would be $10 ($120 per year). Here’s a breakdown of the first few tiers (view Robinhood’s full commissions & fees schedule):
For traditional online brokers, after-hours trades cost the same as a regular stock trade. Similarly, the standard charge for margin trading is based on an interest rate on the total amount invested. Note, however, that Robinhood Gold charges its monthly fee, regardless of whether you use it or not, which is an important distinction.
To put Robinhood Gold’s pricing tier into perspective, run the numbers using your own trading history. For example, let’s say you make two trades, on average, every month, and have a $10,000 portfolio with $3,000 of portfolio margin. The monthly cost of $15 per month doesn’t make sense. Why? Because, by using a discount broker such as Fidelity or Charles Schwab, you will pay only $4.95 per trade. Better yet, you don’t have to trade if you don’t want to as there are no monthly fees to worry about. See: Best Discount Brokers.
And for investors who have larger account balances, Robinhood is also a poor choice. For example, Merrill Edge, through its Preferred Rewards program, provides customers up to thirty $0 stock trades every month for accounts with at least $50,000 in assets. Similarly, nearly every full-service broker provides a new account offer for larger accounts, which includes cash alongside free stock trades for one, or sometimes two years.
Bottom line, there are a few cases where Robinhood Gold makes economic sense. In its current iteration, it is deeply flawed.
Platforms & Tools
Robinhood is a mobile-only brokerage. This means you can only place stock trades using the mobile app. You can’t even conduct basic account management through the website, because the company has to keep costs to a bare minimum to accommodate its $0 trades.
Mobile Trading
All Robinhood account functionality, including placing trades, transferring funds, pulling stock quotes, checking your watch list, adjusting account settings, etc. is done through the Robinhood mobile app, which is available for download from the Apple iTunes store and the Google Android Play store.
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.
This focus on simplicity, while attractive, also has noticeable drawbacks. First, watch list functionality is extremely basic and includes no optional columns beyond last price. 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 (iOS, Android) or CNBC (iOS, Android) mobile app, for example, provides a superior charting experience.
For investors looking to buy shares and conduct the bare bones basics for everything else, Robinhood gets the job done well. Beyond that, Robinhood will leave you wanting much more. See: Best Brokers for Mobile Trading.
Other Notes
Robinhood clears through Apex, putting it at a severe disadvantage when it comes to order execution quality; this is due primarily to a lack of control over its routing methods. Robinhood’s ability to provide executions better than the National-Best-Bid-Offer (NBBO) is further reduced due to its lack of direct market routing and acceptance of payment for order flow (PFOF) to generate revenue. See: Order Execution Quality Best Brokers Guide.
When you open and fund an account with Robinhood, the broker is unique in that it provides you access to funds immediately for trading while your ACH transfer deposit processes. For this review, I opened and funded with $5,000, and $1,000 was made available for me to trade immediately.
Final Thoughts
Robinhood provides a mobile app that is functionally flawless and offers the core basics to maintain an online stock trading portfolio. The bread and butter of the Robinhood experience is its offering of $0 trades, which is the broker’s main highlight.
For investors with only a few hundred or several thousand dollars to trade, Robinhood is a good fit for conducting the basics. Unfortunately, the novelty wears off quickly once you realize there is more to trading than just placing $0 trades and maintaining a watch list. Furthermore, in most cases, Robinhood Gold is more costly over time than just paying per trade and saving the monthly fee.
With $176 million in venture capital raised to date and a great press-friendly story line, Robinhood has ample time to figure things out. In the end, through some combination of charging miscellaneous fees, paid memberships, collecting interest on customer cash, accepting payment for order flow or (gasp) charging for trades, Robinhood will ultimately need to turn a profit to succeed as a business.
View all Robinhood Fees & Features
Reviewed by Blain Reinkensmeyer Blain heads research at StockBrokers.com and has been involved in the markets since placing his first stock trade back in 2001. He developed StockBrokers.com's annual review format seven years ago, a format broker executives consider the most thorough in the industry. Blain currently maintains funded accounts with more than a dozen different US-regulated online brokers and has executed thousands of trades throughout his career. He enjoys sharing his experiences through his personal blog, StockTrader.com.