Robinhood is a commission-free trading platform that has done more to democratize investing than any company since Vanguard. When Robinhood debuted in 2013, it was alone among U.S. investment companies in offering commission-free stock and exchange-traded fund (ETF) trades. Today, commission-free trades are the norm at giant “establishment” brokerages like Schwab and TD Ameritrade, “discount” brokers like E*Trade, and upstarts like TradeStation alike.
Robinhood’s reputation isn’t entirely unblemished. In early 2021, Robinhood buckled under the weight of a massive short squeeze in GameStop (GME) and other “meme stocks,” in some cases temporarily refusing to fill orders in heavily traded names.
Subsequently known as the Big Short Squeeze — a play on contrarian investor Michael Burry’s “big short” bet against the U.S. mortgage-backed securities market some 15 years earlier — that event spurred thousands of traders to look for low-cost Robinhood alternatives. Thanks to Robinhood’s success in bending the retail brokerage industry to its will, such alternatives were by then plentiful.
Eventually, the dust cleared, and Robinhood remained. Indeed, Robinhood is still one of the most popular outlets for active traders to buy and sell stocks, funds, options, and cryptocurrency. Read on to learn why — and to see whether Robinhood might be a good home for your own trading activities.
Key Features of Robinhood
Robinhood is an exceptionally user-friendly investing app with a basic but sensible feature lineup to match. It does make some accommodations for more experienced traders, such as access to margin trading and Level II market data through the Robinhood Gold premium plan.
Robinhood Trading Account and Investment Options
Robinhood is built around a crisply designed trading platform that’s made to be used on a mobile device. The Robinhood trading app makes it easy to transfer funds via ACH, peruse market data and analysis, search for stocks and other market-traded instruments, and place trade orders with a few taps.
Robinhood Trading Account
Robinhood offers just one investment account option: a taxable brokerage account (general investing account) with no deposit minimums or ongoing balance requirements. Robinhood doesn’t support tax-advantaged accounts like traditional or Roth IRAs, employer-sponsored 401(k)s, or 529 college savings plans.
Funding a Robinhood Trading Account
Robinhood allows all users to instantly add up to $1,000 in deposited funds, with the remainder of larger deposits clearing in the subsequent business days. Users can trade instant-deposited funds right away, but the remainder must settle before it can be used to place trades.
Robinhood Investment Options
Robinhood offers access to four main types of market-traded instruments:
- Individual stocks
- Exchange-traded funds (ETFs)
- Cryptocurrency, including Bitcoin, Ethereum, Dogecoin, and other coins (subject to change at Robinhood’s discretion)
All of these instruments fall under Robinhood’s free trading umbrella. Robinhood allows fractional share trading (with order minimums as low as $1) in most stocks and cryptocurrencies as well. Fractional share trading may not be available for stocks priced under $1 per share with market capitalizations under $25 million.
Robinhood does not support mutual funds, including no-load and transaction-fee-free mutual funds. Also absent from Robinhood are alternative asset classes like forex (foreign currencies), precious metals, and commodities.
Robinhood Cash Management Account (Bank Account)
Robinhood offers a cash management account with virtually no fees and a competitive yield (interest rate or APY) on all balances. Offered through Robinhood Financial, this account has some useful features and benefits:
- Free-free transactions (no ATM fees) at about 75,000 ATMs nationwide
- A Mastercard debit card accepted at millions of merchants worldwide
- No fees for overdrafts, no account minimums, no account transfer fees, and no foreign transaction fees
- Up to $1.25 million in FDIC insurance through partner banks
- Built-in bill pay
The Robinhood cash management account is a logical place to store uninvested cash but can also pass as a day-to-day money management account as well.
Robinhood Gold is Robinhood’s strictly optional premium membership plan. For $5 per month, Robinhood Gold members enjoy features and benefits not available to regular Robinhood users:
Robinhood Gold users with at least $2,000 in their accounts (the minimum margin balance set by FINRA) can apply to trade on margin, meaning they can borrow from Robinhood to increase their market buying power. Robinhood allows margin borrowing at rates as low as 2.5%, although this is subject to change at Robinhood’s discretion.
Higher Instant Deposits
Robinhood Gold members enjoy higher instant deposit limits.
Instead of the flat $1,000 instant deposit limit available to regular Robinhood members regardless of account size, Robinhood Gold members’ instant deposit allowances are based on portfolio size:
- $5,000 instant deposits for portfolios with less than $10,000 in value
- $10,000 instant deposits for portfolios with $10,000 to $25,000 in value
- $25,000 instant deposits for portfolios with $25,000 to $50,000 in value
- $50,000 instant deposits for portfolios with more than $50,000 in value
Access to Level II Market Data
Robinhood Gold members get access to Level II market data, a Nasdaq information product that shows multiple bids and asks (with aggregated bid-ask quantities) for any given stock.
Although Level II market data does not show the sum total of all investor interest in a particular stock at any moment, it can help retail investors gauge market sentiment in near-real-time in a way that less granular market data can’t.
Access to Professional Research From Morningstar
Robinhood Gold members get access to Morningstar research reports on more than 1,700 stocks. The Robinhood mobile app has a phone-friendly reader that adapts these often dense reports to smaller screens.
Robinhood has a basic customer support apparatus built around a detailed onsite knowledge base. Unfortunately, Robinhood makes it difficult for the average user to get in touch with actual humans who work at the company, and there’s no 24/7 phone, chat, or email hotline to get fast answers to pressing questions.
Robinhood is a beginner-friendly investing platform that makes it easy to trade stocks, funds, and other investments on the go. It’s a good fit for lower-asset investors allergic to account minimums and trading fees as well.
1. No Account Minimums
Aside from the federally mandated $2,000 minimum for margin trading with Robinhood Gold, Robinhood doesn’t impose any minimum deposit or ongoing balance requirements. This is welcome news for new investors without thousands upon thousands of dollars to invest right away.
2. No Trading Commissions
Robinhood is a truly free trading platform with no commissions for stock, ETF, options, and cryptocurrency trading. This is no longer a singular differentiator, thanks in large part to the success of Robinhood itself, but it’s still a selling point in comparison to trading platforms that still charge commissions and other trading fees.
3. Access to Options and Cryptocurrencies
Robinhood allows users to trade options and cryptocurrencies in their Robinhood accounts without upgrading to Robinhood Gold. Some competing low-cost brokerages don’t offer access to alternative investments like crypto and options, so this is a welcome feature.
4. Allows Fractional Share Investing
Robinhood allows fractional share investing in most stocks starting at just $1 per trade. Robinhood users can also purchase fractional cryptocurrencies, making it easy to construct customized, diversified portfolios with relatively small amounts of seed capital.
5. Robinhood Gold Offers Excellent Value for Active, Sophisticated Traders
Robinhood Gold is tailor-made for active traders whose sophistication isn’t necessarily matched by their personal wealth. Its key advantages include Level II market data that affords real-time insights into market sentiment (useful for day trading), professional research reports on nearly 2,000 stocks courtesy of Morningstar, margin trading at low interest rates, and bigger instant deposit allowances. All that for a $5 monthly fee.
6. Clean, Mobile-Friendly Interface
Robinhood is incredibly easy to use on a mobile phone. Indeed, it’s designed for anytime, anywhere stock trading.
With a distinct lack of account options other than its standard taxable account, persistent trust and reliability issues, and limited customer support, Robinhood falls short in some important ways.
1. No Tax-Advantaged Account Options
Robinhood offers just one type of investment account: a taxable brokerage account that’s suitable for general investing but not for long-term retirement or education planning. Robinhood doesn’t support any IRAs, including rollover IRAs, nor more specialized tax-advantaged account types like 529 education savings plans.
2. Persistent Trust Issues
Even before the Big Short Squeeze of early 2021, Robinhood had a public trust deficit. The roots of this deficit go back to 2015, when — according to the Securities and Exchange Commission (SEC) — Robinhood first made misleading statements about how it made money.
At issue was what the SEC called Robinhood’s “unusually high payment for order flow rates.” Basically, high-frequency traders paid (and still pay) Robinhood for orders placed by its users, giving them a pricing advantage — and putting Robinhood’s users at a pricing disadvantage.
Robinhood settled the SEC complaint, but the company hasn’t fundamentally changed its business model.
3. Reliability Issues
During periods of exceptionally high volume, such as the market panic that accompanied the first wave of the COVID-19 pandemic and the Big Short Squeeze of early 2021, Robinhood occasionally experiences outages during regular market hours. These outages may impact users’ ability to schedule and execute trade orders, potentially causing or magnifying trading losses as a result.
Any market-hours outage, no matter how brief, is unacceptable for a major online broker.
4. Limited Customer Support
Robinhood does not have a robust customer support infrastructure. Its first and most comprehensive layer of support is a detailed knowledge base that contains answers to most common customer questions but can’t address customer-specific issues, including potentially costly ones like problems placing trades or accessing accounts.
This is a significant drawback for would-be customers who want to be able to chat with a human customer service agent during the trading day (or after hours, for that matter).
5. No Mutual Funds Available
Robinhood doesn’t support mutual fund trading. Although many mutual funds now have more liquid ETF analogues, some higher-asset investors still prefer mutual funds, and it’s curious that Robinhood doesn’t feel the need to offer them.
It’s not much of an exaggeration to cleave the history of online trading into “before Robinhood” and “after Robinhood” epochs. Robinhood really has been that influential.
No one can take away Robinhood’s original innovation: commission-free trading for all. Nor can one argue convincingly that Robinhood is no longer a force to be reckoned with. The Big Short Squeeze, which bled tens of billions of dollars from master-of-the-universe short sellers, is proof positive of that.
But Robinhood does have real flaws, the most serious of which revolve around persistent trust and reliability issues that have bedeviled Robinhood users since the platform’s founding. You may or may not find these issues problematic enough to steer clear of Robinhood altogether. Or, you might conclude that Robinhood’s usability and low cost make up for its unseemly side.
In either case, it pays to be an informed consumer — to understand how Robinhood operates and how to get the most out of it if you choose to use it.