Robinhood Review: Is Robinhood the Best Trading App?
- The SEC charged Robinhood in December 2020 with misleading customers. According to the charge, Robinhood touts commission-free trading but orders are executed at prices inferior to other brokers. The SEC claims Robinhood is making money off their customers through higher payments from order flows.
- The state of Massachusetts is seeking to revoke its broker-dealer license accusing Robinhood of "encouraging inexperienced investors to place risky trades without limits."
- Roughly 90 lawsuits were filed against the company in February after Robinhood made an unprecedented move to halt or restrict the trading of certain securities.
Ease of Use
Start the Robinhood review by weighing the platform’s strengths and weaknesses:
- Trade stocks, gold, ETFs, options, ADRs and crypto
- No commissions
- No minimum deposits
- Fractional trading allowed
- Cash management account earns 0.30% APY
- Mobile app is easy to use and provides beginner-friendly tutorials
- A current string of legal issues from users and governments for allegedly questionable practices
- Research and technical analysis tool options could be better. The few available require a paid subscription.
- No mutual funds or retirement accounts available
- Limited customer support options
- Robinhood Gold opens up margin trading and research tools for $5 per month, but many brokerages offer those for free.
What Is Robinhood?
Robinhood is a trading app designed to make investing and trading accessible to all through an easy-to-use platform. Robinhood’s no-commission approach was part of the reason it became the fastest-growing brokerage soon after its launch in 2014. However, other brokerages soon caught up, offering no commission trades as well.
Robinhood makes trading simple for even the newest investor. Here is a quick overview of the app’s features.
|Commissions and fees||-None
-Robinhood Gold subscription: $5 per month, free for the first 30 days
|Account types||Individual investment|
|Customer support||Email after logging in to your account|
Features and Accounts Overview
Robinhood’s interface is as simple as possible. While it’s ideal for beginners who may be overwhelmed by more advanced platforms, the app is still pretty functional for intermediate traders. Some of Robinhood’s features worth noting are:
The “meaty” tools hide behind a subscription wall. Only Robinhood Gold members can access Nasdaq Totalview Level-2 Market and Morningstar for $5 per month.
High-Yield Cash Account
Hold your funds between trades in a cash management account that earns a 0.30% APY. Based on today’s rates, Robinhood’s cash account could be considered high yield. You’ll also receive a debit card you can use to pay bills or withdraw cash for free at over 75,000 ATMs.
Robinhood allows for fractional shares, which allow you to buy into equity with less than the value of one full share. For example, you can buy $5 worth of Amazon or Bitcoin, even if one share is currently worth thousands of dollars. You’ll end up with a portion of one share, say, 0.02.
Automate your investment plan by setting up a dollar amount purchase of your choice. For example, you can plan to send $10 every month on the 15th from your checking account to buy shares of XXX. Robinhood will buy the shares for you based on the current value.
More advanced traders may be willing to pay $5 per month to upgrade to Robinhood Gold. The main selling point is the research tools (Morningstar and Level II Market Data) and trading on margin, which is basically trading on borrowed money. However, margin trading and more advanced research tools are typically offered for free at competing brokerages.
Robinhood doesn’t charge trading fees or commissions but there are other possible fees, which can be avoided if you are aware of them:
- Outgoing transfer fee: $75
- Paper statement fee: $5
- Margin over $1,000: 2.5%
Who Robinhood Is Best For?
Robinhood is best for the new investor who wants to learn more about trading without a big financial commitment. New accounts even get one stock for free when they first sign up. You may outgrow the platform as you become more comfortable with trading — or find workarounds to make it work for you, such as having separate research and technical analysis sources.
Low Initial Investment
You can get started with $1 if you desire. Robinhood doesn’t have opening balance requirements. Fractional shares are allowed, making a $1 investment entirely possible, even if you’re buying a stock selling for $500 per share.
The uncluttered, no-frills mobile app and online platform are designed to take the confusion out of trading. It’s easy to find what you need. Tap on “stock details” and you’ll find stats, charts, your position and what type of “collection” the stock falls into, such as Top Movers or Most Popular.
When it’s time to trade, you can place limit and stop limit orders, market orders and stop orders. Are you not sure what that means? You’ll have access to investing terms and basics and Robinhood Snacks, which deliver a “daily dose” of investing news to the app or your email inbox.
Where Robinhood Falls Short
There are some points which Robinhood could use some improvement on.
Considering how many Robinhood users are just getting started, the lack of access to a customer support representative for help is surprising. Support is only available through email after you log in, but what happens if you’re locked out of your account or you have a time-sensitive issue?
One such lawsuit against Robinhood is due to this issue. A user with an erroneous negative balance of $730,000 killed himself when he incorrectly thought he owed that much and was unable to get an explanation.
Transparency and Reliability
In light of the recent lawsuits and accusations from account holders, Robinhood has some work to do regarding its policies. It is still unclear whether halting trading of certain stocks, leaving investors stuck with shares or missing out on opportunities was a one-off situation or could happen again.
In addition, charges from the SEC that Robinhood potentially makes money by executing your trade orders at a less-than-favorable rate show that the young brokerage may need to be more upfront about its practices.
No Mutual Funds
Robinhood doesn’t offer mutual funds, the backbone of a diversified portfolio. You could trade ETFs, which are somewhat similar.
Although margin trading is available, you will need to pay a $5 subscription fee to access it, on top of the interest charges on the money you borrow. Many brokerages offer margin trading for no additional charge.
Robinhood vs. Competitors
Here’s how Robinhood measures up to other similar investment platforms.
Robinhood vs. Webull
Robinhood and Webull run similar no-commission platforms, although Webull’s supports more advanced traders with robust research tools and charting. Robinhood allows fractional trading, which offers a lower entry point for new investors. Webull does not allow fractional shares at this time.
Webull’s margin trading does not require a paid subscription as Robinhood’s requires. However, Robinhood offers an interest-earning uninvested cash account that earns 0.30% APY, something that Webull doesn’t provide.
Robinhood vs. Merrill Edge
Both platforms provide low minimum, commission-free trading but they have trade-offs. Merrill Edge allows traders to buy and sell mutual funds but doesn’t support crypto. Robinhood offers crypto but has no mutual funds. When it comes to reputation, Merrill Edge is backed by Merrill Lynch and Bank of America.
Robinhood vs. Charles Schwab
Like Robinhood, Charles Schwab also provides commission-free trading. However, Charles Schwab recently acquired TD Ameritrade and has over $6 trillion in managed assets. As with other brokerages, Charles Schwab did not freeze or halt their account holders from trading during the Gamestop run like Robinhood did. Schwab does allow mutual fund trades but does not support crypto, although it appears they are looking into adding it to their platform.
Robinhood’s rates are more favorable. Schwab’s margin interest rates are as high as 8.325% compared to Robinhood’s 2.5%. Cash in a Schwab holding account currently only earns 0.01% compared to Robinhood’s 0.30%.
Who Should Use Robinhood? And Who Shouldn’t?
Robinhood is a good start for newbies interested in seeing how trading stocks or the hot crypto market works. You can start with as little as you like and one free share for signing up. Robinhood’s cash account isn’t a bad deal. Earning 0.30% APY is better than many banks offer right now and it comes with a debit card for purchases and free ATM withdrawals.
However, you may decide over time that you need better research and charting tools, Or decide to open an investment account for retirement. You may need to look elsewhere unless Robinhood adds more functionality, which is entirely possible.
A Robinhood review isn’t complete without commentary on the Gamestop fiasco that left many Robinhood investors frozen from buying or selling several stocks. Many wondered whose side Robinhood was on that day — the billion-dollar hedge funds that took advantage of the unprecedented trading halt, or the ordinary investor that Robinhood wanted to democratize the financial markets for? It’s something to think about, especially if you plan on investing in viral stocks in the future
Robinhood FAQAlthough the basic idea behind a checking account can be simple to understand, there are still many common questions surrounding them, in part because there are so many different kinds. Here are the answers to some of the most frequently asked questions regarding checking accounts.
- Does Robinhood allow crypto trading?
- Robinhood supports commission-free crypto trading on its platform.
- Can you buy fractional shares on Robinhood?
- Robinhood supports fractional trading. You can buy into company stock, even if you only have $1 to buy.
John Csiszar contributed to the reporting for this article.
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- CNBC. 2021. "Robinhood Faces Lawsuits After Gamestop Trading Halt."
- Reuters. 2021. "Massachusetts Regulators Seek To Revoke Robinhood's License; Brokerage Sues."
- U.S. Securities and Exchange Commission. 2020. "SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing To Satisfy Duty of Best Execution."