Robinhood took the brokerage world by storm when it launched in 2013 offering commission-free stock trading through a mobile app tailor-made for Millennial investors. This Robinhood review covers what the platform does well along with areas that still need improvement.
While Robinhood made trading and investing more accessible to new generations of investors, it’s not without downsides like limited account options, lack of mutual funds, and past regulatory run-ins.
We’ll analyze Robinhood’s trading features, fees, investment offerings, security practices, user experience, company background, and more. You’ll understand exactly what Robinhood provides and whether it’s the right fit for your investing style by the end. Let’s dive in!
What is Robinhood?
Robinhood is a financial services platform founded in 2013 that offers commission-free trades on stocks, ETFs, options, and cryptocurrencies through web and mobile apps.
Key facts about Robinhood:
- Founded by Vlad Tenev and Baiju Bhatt who met at Stanford.
- Headquarters in Menlo Park, California.
- Introduced zero-fee trading of stocks, ETFs, and options, later expanding into fractional shares and crypto.
- Primarily used by younger investors with 65% of users under age 35.
- Top downloaded financial app with over 21 million users as of 2021.
- Went public and had market cap over $60 billion in mid-2021 before declining.
- Generating most revenue from order flow selling and Gold subscription service.
- Uses phone waiting system rather than direct calling for customer service.
While criticized by some as “gamifying” investing, Robinhood has made capital markets more inclusive to new generations of investors. Next, we’ll see how it actually works.
How Does Robinhood Work?
Robinhood functions like a traditional online broker in many ways but with a slick mobile experience tailored to novice investors:
- Users sign up with just an email on the Robinhood website or mobile app in minutes.
- Robinhood asks for basic personal details including SSN which gets submitted for immediate verification.
- Users can start trading stocks, ETFs, options, and crypto commission-free right away.
- Balances, watchlists, orders, and account data accessible on both mobile and web.
- Research limited to basic financials, analyst ratings, price targets, and news feeds.
- Order types include market, limit, stop loss, and stop limit orders. More advanced orders not supported.
- Users can upgrade to premium Gold plan for $5 per month to access margin trading, research data, and higher instant deposit amounts.
While easy to use for beginners, Robinhood lacks some in-depth research and advanced trading capabilities compared to full-service investment platforms. Next, let’s look at the account options.
Robinhood Account Types
Robinhood started with only taxable individual brokerage accounts but has expanded into retirement offerings:
The standard Robinhood taxable investing account for stocks, funds, options, and crypto. No minimum balance required.
Traditional, Roth, and SEP IRAs added in 2022. Allows retirement investing with tax advantages.
Robinhood does not currently offer joint brokerage or IRA accounts. Single owner accounts only.
No support for trusts. Robinhood accounts can only be owned by individuals or as custodian for minors.
529 College Savings
Robinhood does not currently offer specialized 529 college savings accounts.
So Robinhood still lags most full-service brokers in available account types. But IRAs are a nice recent addition for retirement savings.
How to Open a Robinhood Account
Opening a Robinhood account takes just a few minutes:
- Download the Robinhood app on your iOS or Android device or visit the Robinhood website.
- Enter your email and create a password. Agree to the terms.
- Provide your name, date of birth, and address to have your identity instantly verified.
- Confirm receipt of the account opening notice email.
- Deposit funds into your new account via bank link or wire transfer to begin trading.
Once your account is funded, you gain access to Robinhood’s entire suite of commission-free trading and investing products.
Funding Your Robinhood Account
You’ll need to move funds into your account to begin trading. Robinhood accepts the following funding options:
ACH Bank Transfer: Link a checking or savings account to transfer funds. Takes 4-5 days.
Wire Transfer: Initiate an electronic transfer from your bank. Settles same business day.
Check: Mail in a physical check made out to Robinhood. Takes about a week to clear.
Cryptocurrency: Instantly transfer-in crypto from external wallets fee-free.
Robinhood does not support funding with credit or debit cards. Bank transfers are the most common method. Ensure funds fully settle before trading to avoid good faith violations.
Robinhood Investments and Products
Once funded, users can invest in the following assets and products on Robinhood’s platforms:
- Commission-free trading on thousands of U.S. exchange-listed stocks.
- Fractional share investing available with as little as $1.
- Limited research and analysis beyond price data.
- Access to hundreds of leading exchange-traded funds across sectors and strategies.
- Fractional share investing in ETFs also available.
- Trade options commission-free on thousands of underlying stocks.
- Limited advanced options strategies – no spreads, naked calls, etc.
- Trade seven major cryptocurrencies including Bitcoin, Ethereum, and Dogecoin 24/7.
- Robinhood holds the private keys and coins instead of the investor.
- Spreads add hidden costs on top of the market price.
- Ability to buy partial shares commission-free with as little as $1 invested.
- Fractional shares also supported for ETFs.
- Helps new investors participate in high-priced stocks and funds.
This covers most of the key securities Robinhood offers to investors. But several products are still missing.
What Robinhood Is Missing
For all its innovative features, there are some glaring omissions in Robinhood’s investment offerings:
No Mutual Funds
Only stocks, ETFs, options, and crypto offered. No access to actively managed or index mutual funds.
No Bond Investing
Lack of individual bonds or bond funds limits options for fixed income investors.
No Retirement Accounts Besides IRAs
Other major account types for retirement like 401(k)s unavailable. Also lacks support for HSAs, ESAs, pension plans.
Limited Educational Resources
Minimal investing education content or courses compared to traditional brokers.
Restricted Advanced Trading
No support for trading on margin, short selling, trading on foreign exchanges, over-the-counter stocks, and other advanced asset classes.
Robinhood focuses on bread-and-butter stocks, ETFs, options, and crypto trading for novice investors rather than a full suite of investment products.
Robinhood Trading Platform
For traders, the quality of a broker’s trading platform is extremely important. Here is an overview of Robinhood’s web and mobile apps:
- Streamlined browser-based platform optimized for convenience.
- Monitor watchlists, place trades, and view charts and account data.
- Limited customization and relatively light on features compared to rivals.
- Primary platform for Robinhood’s target millennial investors.
- Gesture-based navigation and colorful confetti animation on trades.
- Minimalist uncluttered interface ideal for passive investors.
- Advanced traders may want more customizable charting and screening capabilities.
- Intuitive order entry ticket with market, limit, stop loss, and stop limit orders.
- Price, volume, and market depth data along with basic charts.
- No advanced orders like trailing stops, brackets, conditional, or algo-based orders.
For casual traders and passive investors, Robinhood offers a refreshingly simple and convenient platform. But advanced traders may find the tools too basic.
Robinhood Gold Premium Service
Robinhood offers an optional premium membership called Gold that provides access to professional research, margin trading, and more for a monthly fee:
Cost: $5 monthly access fee that can be paid using account balance.
Morningstar Research: Institutional grade equity research reports and analysis.
Level II Market Data: View bid/ask spreads, order book depth, and volatility live during market hours.
Margin Trading: Trade on margin with up to 2X leverage using Gold buying power.
Higher Instant Deposits: Increased instant deposit limit from $1,000 to up to $50,000 with Gold.
Professional Charting: 75+ technical indicators and line drawing tools.
For passive investors, the Gold premium features may be overkill. But active traders may find research and margin capabilities useful.
Robinhood Customer Service
Robinhood has historically lagged in customer service but recently expanded support channels:
Help Center: Searchable database of frequently asked questions and trading guides.
Email Support: Submit customer service tickets via email. Slow average response time.
Phone Support: Call back request system rather than direct dial phone support.
Chat Support: Live chat with agents available for real-time inquiries.
Social Media: Large Reddit community support board. Official responses rare.
Location: No physical branch locations. Digital-only customer service.
Robinhood is gradually improving support but still lags full-service brokers that offer live phone support and in-person branches.
Robinhood Fees and Commissions
Robinhood has a simple fee structure compared to other brokers:
$0: No commission fees to trade stocks, ETFs, options, or cryptocurrencies. Zero account minimums or inactivity fees.
$5: Monthly charge for Robinhood Gold premium access (optional).
$10: Monthly Gold fee if paid using margin buying power.
$25: Outgoing ACATS transfer fee to move assets externally.
0.0001 to 0.0020: Cryptocurrency trading spreads add hidden markup costs.
5%: Foreign transaction fee imposed for trading stocks listed on international exchanges.
The lack of trading commissions and no minimum account size makes Robinhood accessible for new investors. But there are still some fees to watch out for.
As a financial services provider handling sensitive user information and funds, security is extremely important. Robinhood uses the following measures to help protect user accounts and data:
- Bank-level SSL encryption and two-factor authentication available.
- Customer support required for any account changes.
- Passcode login and biometric fingerprint/face ID on mobile apps.
- Cash balances held at FDIC-insured partner banks up to $250,000.
- Majority of cryptocurrencies stored in cold wallets to mitigate hacking risk.
- Written information security policies and employee cybersecurity training.
- Options education to help mitigate risky uncovered options trading practices by novices.
Robinhood has bolstered safeguards to prevent past issues like users manipulating infinite leverage loopholes or accessing margin too easily. Enabling two-factor authentication is highly recommended.
Is Robinhood Safe To Use?
Robinhood has received scrutiny both for blocking trades during volatile market conditions as well as its gamified experience that may encourage addictive behavior:
- Jan 2021 – Annoyed users during GameStop (GME) short squeeze by restricting buys.
- March 2020 – Faced criticism for multiple app outages during massive market volatility on key trading days.
- Dec 2018 – FINRA fined Robinhood $1.25M for lack of best execution practices and transparency around order routing payments.
- 2022 – Fined $70 million by FINRA for misleading communication practices, supervisory failures, and harming millions of users.
- The visually stimulating confetti animation when a trade executes has been called out by critics for promoting excessive trading.
Robinhood maintains their platform restrictions were deployed appropriately during unprecedented market conditions and they continue improving their services. But users should be aware of the controversies.
How Does Robinhood Make Money?
Unlike most brokers, Robinhood does not generate revenue through trading commissions or account fees. Their business model relies on:
Order Flow Payments: Earns money by routing customer orders through market makers like Citadel Securities and Virtu Financial who pay to fill that order flow. This practice is standard across the zero-fee brokerage industry.
Gold Subscription: Charges $5 per month for premium features aimed at high volume traders who need research, margin, and data.
Margin Lending: Loans out margin trading funds to users and generates interest income from borrowers. Rates vary based on market demand.
Cash Management: Earns interest revenue from reinvesting idle customer cash swept into network partner bank accounts.
Interchange Fees: Charges transaction costs to merchant businesses that accept payments through Robinhood’s cash debit card.
Order flow selling makes up the majority of Robinhood’s revenues. They also benefit from interest earned on customer margin trades and idle cash deposits.
Robinhood Referral Program
Robinhood offers a referral program that rewards existing users for referring friends and family. The current signup bonus offers:
Earns You A Free Stock: Receive one free randomly selected stock worth $2.5 to $200 for each successful referral.
Earns Your Friend A Free Stock: Referrals also get one free stock valued at $2.5 to $200 after opening an account.
Users are limited to 10 total referral bonuses per year. Both the referrer and recipient must link a valid bank account and be approved to receive the stocks.
Pros and Cons of Robinhood
Here’s a full rundown of the key advantages and potential drawbacks of using Robinhood:
- Extremely user-friendly and intuitive mobile app experience.
- Commission-free trades on stocks, ETFs, options, and cryptocurrencies.
- Easy access to fractional share trading in stocks and ETFs.
- Generally straightforward and transparent flat fee structure.
- Strong brand geared towards younger investors and beginners.
- Attractive referral program with free stock incentives.
- Adding phone and chat customer service alongside email support.
- Restricted to only basic investment vehicles – lacks mutual funds, bonds, and other key asset classes.
- Minimal trading platform customization and limited advanced order types.
- Ongoing regulatory and compliance problems around transparency and reliability.
- Limited retirement account options besides basic IRAs. No joint or trust accounts.
- Hidden costs from cryptocurrency bid-ask spread markups despite free trades advertising.
- Prior PR crises around trading restrictions, outages, and gamified experience criticisms.
- Long history of subpar customer service improved only recently.
The mobile convenience and zero-fee trades make Robinhood enticing for new investors. But the lack of investment product diversification, accountability concerns, and service limitations require noting.
How Does Robinhood Compare?
Robinhood vs. Webull
Robinhood and Webull both offer free stock, ETF, and options trades. But Webull has superior charting while Robinhood allows cryptocurrency.
Robinhood vs. Coinbase
Robinhood supports a handful of major cryptos commission-free but has higher crypto spreads. Coinbase offers more coins but charges trading fees.
Robinhood vs. Fidelity
Fidelity delivers significantly more investment products, research resources, account types, and customer service. But they charge commissions and require minimum balances that Robinhood does not.
Robinhood vs. Vanguard
Vanguard is better for buy-and-hold index mutual fund investors with industry leading low expense ratios. But they don’t support trading stocks, options, or cryptocurrencies like Robinhood.
Robinhood vs. TD Ameritrade
TD Ameritrade charges $0 commissions like Robinhood but offers far more investment products, advanced trading platforms, education, research, and top-tier customer service.
Robinhood competes well on cost and convenience but lacks the product selection found at full featured brokers like Fidelity, Schwab, and Vanguard.
Who is Robinhood Best For?
Robinhood is optimized for a particular type of investor:
The straightforward mobile interface and commission-free trades make Robinhood excellent for passive buy-and-hold investors.
First-time investors appreciate the simple and educational Robinhood experience. Seasoned investors may quickly outgrow the platform.
Robinhood allows trading options commission-free which reduces costs substantially for high volume options traders.
Casual crypto traders benefit from commission-free buying and selling of seven major coins on Robinhood. But spreads add hidden costs.
First investing apps like Acorns got young people comfortable with investing. Now Robinhood has captured the Millennial and Gen Z demographics.
Who is Robinhood NOT Good For?
Robinhood’s limitations may make it less ideal for:
The lack of sophisticated trading tools, charting functionality, trading automation, and advanced order types limit Robinhood’s utility for active traders.
Mutual Fund Investors
With $0 trades but no mutual funds offered, index fund investors need to look to discount brokers like Fidelity, Vanguard, or Charles