The best online brokerages offer extensive account services including portfolio management, planning, and investor education. Clients should expect tight account security, low fees, and responsive customer service departments. This 2021 Robinhood review details the pros, cons, costs, and services of Robinhood.
Robinhood: Best For
For whom does Robinhood work best? Robinhood is an investing app that offers free stock, options, ETF and cryptocurrency trades. It's an entry-level mobile trading option with no minimum balance and a fairly simple interface. Robinhood is appropriate for
- Mobile traders
- People who want to trade in cryptocurrency
- Investors looking for cheap margin accounts
Robinhood allows you to trade from your desk or your phone. It's simple to use but a little limited. Competitors offering free trades and a wider range of services include Charles Schwab and TD Ameritrade.
Robinhood at a Glance
|Minimum balance needed to access advisory services:||There is no minimum balance requirement to trade. You'll need at least $2,000 if you want a margin account. Robinhood is a platform; you don't get a financial advisor.|
|Cost per stock trade:$0||$0|
|Cost per options trade:||$0|
|Promotions:||Refer a friend who joins Robinhood and you both earn a free share of stock.|
|Tradeable securities:||Stocks, options, ETFs, American Depositary Receipts for over 250 global companies, and cryptocurrency.|
|The number of commission-free mutual funds or ETFs:||All trades are commission-free.|
Is Robinhood Personal Advisor Services Right for You?
The Robinhood investing app isn't exactly a financial advisor. It's a trading platform; you're largely on your own when it comes to picking investments. Research offerings and charts are limited.
Robinhood Gold, an extra service costing $5 a month, includes access to Morningstar Research Reports and NASDAQ Level II Market Data. If you're a self-directed investor and want an easy trading experience at a low cost, it's probably right for you.
|Commission-free trades||Customer support is by email and social media only.|
|No minimum account balance||History of crashing during heavy trading|
|Fractional shares available||No retirement accounts|
|High-yield savings account available||No mutual fund or bond investments|
To be fair, on November 9, 2020, under heavy volume, Fidelity, TD Ameritrade, Vanguard, Merrill Lynch, and Charles Schwab all experienced problems resulting in some people not being able to access their accounts, while Robinhood stayed up and running.
Probably the biggest concern for users is being locked out of trading if the app crashes. Robinhood crashed three times in a single week during March 2020. And according to Down Detector, the app has crashed at least once nearly every month in 2020, triggering a class-action lawsuit by investors.
If the app is down, you can't just call Robinhood and execute a trade with a broker the way you can with a traditional firm. And outages are more common when trading is heavy and markets are volatile. Being locked out in those circumstances could be costly.
Financial Planning Services at Robinhood Personal Advisor Services
Robinhood isn't a full-service brokerage offering financial advice or planning services. If you're a DIY investor who sees most financial advisors primarily as salespeople, this won't bother you. You can always engage a pure advisor (perhaps a Certified Financial Planner) who does not work on commission and pay him or her for expertise only.
How Robinhood Personal Advisor Services Invests Your Money
Robinhood allows you to invest your money as you see fit. There are no advisors to help you with your portfolio choices. However, Robinhood Gold, at $5 per month, does give you access to Morningstar reports. Other brokers like Charles Schwab offer Morningstar and other research reports entirely free for clients.
Robinhood allows you to trade on margin if you open a Robinhood Gold account, and that service includes $1,000 of margin interest-free. Anything above $1,000 costs 5% annual interest.
Robinhood allows you to buy fractional shares. That means you can invest a set dollar amount in one or more stocks - as little as $1 for a portion of a share, no matter what the price of a full share is. This feature makes it easier to diversify your portfolio even if you're just starting out and don't have a lot of money to invest.
Fractional shares are also helpful if you want to dollar-cost average. Dollar-cost averaging means investing the same amount every period in the same stock(s) no matter what their prices are. When prices are down, your investment buys more shares, and when prices are up, your existing portfolio increases in value. You can set up automatic deposits on a weekly, biweekly, monthly or quarterly schedule.
Robinhood also offers an FDIC-insured cash management account (paying .3% APY as of this writing). You can cash out positions with the app, transfer to the account and access funds quickly.
Getting Started with Robinhood Personal Advisor Services
Opening an account with Robinhood is fast and easy. First, you'll download the app or sign up on its website.
To apply for a Robinhood account, you'll need to meet the following requirements:
- Be 18 years or older
- Have a valid Social Security Number (not a Taxpayer Identification Number)
- Have a legal U.S. residential address within the 50 states or Puerto Rico (they may make exceptions for active U.S. military personnel stationed abroad)
- Be a U.S. citizen, U.S. permanent resident, or have a valid U.S. visa
You submit your application in your Robinhood mobile app or on the site and receive an email within one business day approving you or requesting additional information. You may be asked to upload a document to prove your identity. You'll get your free share of stock, which could be a low-priced stock or a share in Apple or Visa -- that's the luck of the draw.
Once your account is open, you'll link your bank account to Robinhood. They'll either verify your account instantly (large banks) or send a couple of tiny deposits to test the connection. When you confirm them, you're good to go.
Fees at Robinhood Personal Advisor Services
Is Robinhood really free? For most activities, the answer is yes - Robinhood fees are almost non-existent. You get commission-free trades. There are no account fees, inactivity fees, or ACH (automated clearing house) transfer fees.
However, ACAT (automated customer account transfer) transfers to another brokerage cost $75. But you can avoid these if you cash out your positions at Robinhood, withdraw your money and repurchase the shares at another institution.
If you want to trade on margin, you'll need to upgrade to Robinhood Gold for $5 per month. That includes $1,000 in margin credit. Anything above that $1,000 costs just 5% per year, which is on the low side for margin accounts.
Robinhood's cash management account is also free: no account opening, maintenance, or inactivity fees, no ATM fees, and no foreign transaction fees.
Compare Other Advisors Online
Robo investment offers vary widely among online brokerages, and it's important to find the right combination of fees and services that fit your needs. The best online broker for you depends on what type of investor you are:
- Very active trader desiring low commissions
- Small investor looking for affordable fees and good advice
- Serious investor desiring abundant research resources
- Margin investor comfortable with risk
- Mobile investor wanting easy trades from multiple platforms
At MoneyRates, it's easy to find the best robo advisors and to compare and shop for brokers.
Robinhood was designed for beginning investors, creating a simple platform with no minimum balance and no trading fees. It was revolutionary when it was created in 2015. However, it's not the only no-fee brokerage anymore. And other brokerages allow you to trade mutual funds and bonds and open retirement accounts. If you want a full range of services, this isn't it.
However, if you're comfortable with mobile transactions, want to trade cryptocurrencies, and prefer a stripped-down and less-distracting experience, Robinhood is a good option.
Robinhood is not in the business of designing a portfolio. If you want a financial advisor, you'll need to open an account with commissioned brokers or pay a financial professional or accountant for financial planning advice. Robinhood is not a full-service brokerage.
You've probably heard the saying, "If the product is free - you are the product." But Robinhood has no advertiser disclosure in its disclosure library, and the company won't be selling your personal information.
The app makes money by earning rebates from market makers - firms that execute stock and options trades. They earn money from Robinhood Gold memberships and interest on margin accounts. And they earn money on your Robinhood funds in your cash account. They combine the smaller accounts of their depositors, which pay a lower rate of interest, into large accounts and deposit them with other banks that pay higher interest rates.
Robinhood is an app, but it's also a securities brokerage firm regulated by the SEC. And the app is a voluntary member of the Financial Industry Regulatory Authority (FINRA). Your money is protected by the Securities Investor Protection Corporation (SIPC), which protects up to $250,000 for cash claims and $500,000 for securities. In addition, money in the cash management account is protected up to $1.5 million by the FDIC.
However, the platform is designed to encourage trading, and new investors have gotten themselves into trouble. Playing individual Robinhood stocks is much riskier than ETFs (which are offered but not featured) or indexed mutual funds (which are not offered). The day trade is not a low-risk investment strategy.
Robinhood has been accused by many experts of encouraging frequent trading by "celebrating" trades with confetti graphics as well as push notifications about changes in stock prices. In addition, the app is pretty light on advice, which would be most useful for newbies. The net effect could be the establishment of unhealthy trading habits in beginner investors.
Robinhood's target market is the young beginner investor. It's easy to open an account to buy and sell. But is Robinhood a good way to invest?
Yes, if you want free trades, a simple interface, and no minimum balance. Trading Robinhood stock shares, ETFs, cryptocurrency and options is easy to do. That said, many of those activities are not necessarily appropriate for beginning investors. You can lose a lot of money quickly in cryptocurrency, options trading and individual stock trades.
If you're a beginning investor, it's best to stick with mainly low-risk products and only dabble lightly in riskier vehicles. The good thing about Robinhood for beginners is that it's easy to invest smaller amounts and also to deploy a dollar-cost averaging and diversification strategy, once you know what that is.
It's not hard to withdraw money from Robinhood. If you have a cash management account with them, you can use an ATM for free. You can also transfer money to other banks with a few taps in the app or on the website. Following a sale, you'll have to wait for two trading days after the day of the trade. On the third day, those funds can be withdrawn. You can withdraw up to $50,000 per business day from Robinhood.
If you want to transfer your stock to another brokerage, you'll have to pay a $75 fee unless you liquidate your positions first, withdraw the cash, set up the new account and purchase the stocks again.
Robinhood's services are pretty limited and their target consumer is very specific - mostly younger, mobile-based traders with smaller balances looking for simplicity. Their services include
- Trading stocks, options, ETFs, cryptocurrency and American Depositary Receipts
- Cash management accounts
- Margin accounts
- Robinhood Gold memberships providing market research and reports
Robinhood's offerings are pretty stripped-down, but they are very good at what they do. If you're a beginner looking for a simple way to start investing, Robinhood is a solid choice.