Robinhood Review: Is Robinhood the Best Trading App?

Reviewing Robinhood’s strengths and weaknesses is a good way to get a feel for the platform.

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 as they, too, offered no-commission trades.

Robinhood was designed to provide “investing for everyone” through a simple online platform and mobile app providing commission-free trades of stocks, options, ETFs, gold and crypto. However, the brokerage has been in the news frequently due to some allegedly controversial practices:

• 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 2021 after Robinhood made an unprecedented move to halt or restrict the trading of certain securities that came to be known as “meme stocks.”

Investing comes with risk. In this day and age of trading becoming accessible to everyone, it’s important to do your own research about the equities — and the platform you choose to invest in. Although the federal court dismissed the meme stock lawsuit against Robinhood, it is too soon to know what the outcomes are of all the charges and lawsuits. In the meantime, this Robinhood review dives into how the platform works.

Robinhood Features

Robinhood makes trading simple for even the newest investor. Here is a quick overview of the app’s features.

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:

Research Tools

The “meaty” tools hide behind a subscription wall. Only Robinhood Gold members who pay the $5 monthly subscription fee can access Nasdaq Level II Market and Morningstar.

Robinhood Spending Account

Robinhood used to offer a Cash Management account, which came with a debit card. However, its website states that it’s no longer accepting new users for Cash Management at this time.

However, if you are an existing Cash Management user, you can sign up for the waitlist to apply for a migration to the upcoming Robinhood Spending Account. The Robinhood Spending account is a debit card offering weekly rewards for investing. You can earn a 10%-100% bonus each week, up to $10.

Fractional Shares

Robinhood allows for fractional share purchases, 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.

Recurring Investments

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 a particular stock. Robinhood will buy the shares for you based on the current value.

Robinhood Gold

More advanced traders may be willing to pay $5 per month to upgrade to Robinhood Gold. The main selling points are the research tools, which include Morningstar and Nasdaq Level II market data, and the ability to trade on margin, which is basically trading on borrowed money. However, more advanced research tools are typically offered for free at competing brokerages.

Fees

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: 3.5% yearly interest

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.

Trading Types

You can trade stocks, ETFs, options, gold, crypto and ADRs, all from a single platform. Robinhood’s mission to make trading accessible to all does well on that promise.

Simple Interface

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 a stock name 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 educational resources and Robinhood Snacks, which deliver a “daily dose” of investing news to the app or your email inbox.

Security

Robinhood is a member of the Securities Investor Protection Corporation, so your securities, including $250,000 in cash, are insured in the event Robinhood goes under. Password encryption and two-step authentication protect your identity and your data.

Where Robinhood Falls Short

There are some points on which Robinhood could use some improvement.

Transparency and Reliability

In light of the lawsuits and accusations from account holders over the last couple of years, 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. The company paid $65 million to settle without admitting or denying fault, Forbes reported, and noted that it had “significantly improved” its execution practices.

No Mutual Funds

Robinhood doesn’t offer mutual funds, the backbone of a diversified portfolio. You could trade ETFs, which are somewhat similar.

Margin Trading

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.

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 with a $1 minimum investment. Webull’s minimum for fractional share purchases is $5. However, Webull’s margin trading does not require a paid subscription as Robinhood’s requires.

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 $7.5 trillion in managed assets. Schwab does allow mutual fund trades but does not support crypto spot trades, although it appears the brokerage is looking into adding it to its platform.

Robinhood’s rates are more favorable. Schwab’s effective margin interest rates are as high as 9.075% compared to Robinhood’s 3.5%.

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 get one free share for signing up.

However, you may decide over time that you need better research and charting tools, or that you want to have your portfolio managed for you. You’ll have to look elsewhere unless Robinhood adds more functionality and expands its products, which is entirely possible.

Daria Uhlig, John Csiszar and Cynthia Measom contributed to the reporting for this article.

Editorial Note: This content is not provided by Robinhood. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by Robinhood.

Share This Article: