Robinhood Brokerage Review – What is Robinhood?
Robinhood’s main purpose is to break down barriers to entry in the stock market. In other words, they believe the markets should be accessible to everyone. And the way they’re doing this is through the absence of minimum deposits and commission fees. This is a breath of fresh air not only for beginner stock traders and investors, but veterans on Wall Street seeking cost savings as well.
Imagine paying up to $10 per trade. Unfortunately, this is something most traders don’t have to imagine – it’s an accepted reality. And commission fees can be even more costly for someone implementing a highly active approach, such as day or swing trading. We’re talking 5-10+ trades per day for some serious day traders out there.
If we break this down by the numbers, things can get shocking to say the least. Let’s say the commission fee for your standard broker is $10 (this is average for “discount” brokers) and you’re an active day trader making 5 trades per day (very realistic). And don’t forget that commission fees are charged on both the buy and the sell. So that’s $100 per day = $26,000 per year = A Full Year’s Salary For Some People!
Paying Up to $10 Per Trade is Costly, But $100-200 is Insanity:
You wouldn’t believe what some brokerages are charging you for: some high-end ones like Merrill Lynch are considered “full service” because they provide personal advice, retirement strategy, and tax tips, among other things. But here’s the kicker – they’ll charge you $100-200 per trade for their services. And the compensation they receive is not at all based on the performance of your portfolio; your portfolio can go down 50% or up 50% – all that matters to their bottom line is how often you trade.
The more you trade, the more they make, which can result in them advising you to trade more often than you really need to. Now, I’m not necessarily saying this happens often, but the incentive undeniably exists.
Robinhood started with the idea that a technology-driven brokerage could operate with significantly less overhead. We cut out the fat that makes other brokerages costly — hundreds of storefront locations and manual account management. ~ Robinhood.com
For traders and investors just looking to make their own trades on an Apple or Android device, Robinhood is a huge cost-saver. You won’t receive any frills, such as personal investment advice or extravagant trading tools (that you probably wouldn’t use anyway). Just a cost-friendly way to buy and sell the stocks of your choice. With online trading systems offered by brokerage firms becoming the norm, broker-assisted trades over the phone or in-person (that rightfully required a charge years ago) are rapidly becoming a thing of the past.
How Does Robinhood Stay Afloat Without Charging Commission Fees?
Robinhood makes money off interest accrued from customers’ uninvested cash balances. This is standard practice for all brokerages. They also plan on collecting interest from customers who choose to upgrade to margin accounts, which is currently still in beta testing. As mentioned earlier, Robinhood has cut out the fat that has driven classic brokers to charge such exorbitant fees.
|Learn How Robinhood Makes Money and Passes Their Savings Along to You – The Customer|
Excessive touch-points: multiple storefront locations, manual account management, expensive advertisements, etc. have all been erased. The technology-driven business structure has resulted in increased efficiency that will ultimately protect their bottom-line. Subsequently, self-directed, mobile-based trades can be made for free by account holders at any time during market hours.
Comparing Robinhood Side-By-Side With Other Popular Online Brokerages:
It’s hard to compare because there’s really no comparison – what other broker offers $0 commissions? You may not receive the accompanying financial advice or investment tools that many of the other brokers provide – but you can find most of those “perks” for free elsewhere. At the very least, it couldn’t hurt to have a Robinhood account on the side in order to save on commissions, while also having another brokerage account that you use for the tools and analysis. Take advantage of your resources.
That example I explained above regarding a day trader who makes 5-10 trades per day was no joke. Commissions can and will add up to thousands of dollars if you’re not careful. You may have never realized just how expensive it was, but think about all of the things you could do with the savings. $26,000 (or even a fraction of that) is no small chunk of change. Robinhood is changing the entire landscape of how brokerages operate, and is willing to take you along on that ride.
Robinhood Instant – Am I Dreaming or is This Reality?
Not only has Robinhood already done away with commissions and minimum deposits (as if that wasn’t enough), but now they’re rejecting settlement periods and bank transfers. This is absolutely incredible for the average trader or investor.
|Robinhood Instant is Free: No Recurring Fees, Commissions, Interest Charges, or Account Minimums|
As you probably know, transferring funds from your bank account to your brokerage account can usually take days to complete. Robinhood is eliminating the waiting game. Bank transfers of up to $1,000 are now instantly available to invest. In addition to that, the three-day settlement period that takes effect after you sell a stock is being kicked to the curb. Waiting three days to reinvest, especially for an active trader with a small portfolio, can be a hinderance. And of course, this upgrade to Robinhood Instant is completely free.
The Wrap-Up: Robinhood is at the Forefront of Trading and Inspiring a New Generation of Investors
Robinhood’s goals are simple and focused: make the markets accessible to everyone, don’t overwhelm newcomers, and empower the new generation of traders and investors to take control of their financial future. They’re truly disrupting an industry that historically attempts to suppress the “little guy”, confuse them with hidden fees, and leave them at a severe disadvantage.
There are no minimum deposits – you can get started at your own pace. There are no coommissions – nothing to eat into your profits. And with the roll out of Robinhood Instant, settlement periods and bank transfer delays will fall by the wayside – receive instant access to your money to increase your buying power.
|Sign Up Now and Receive a Free Share of Stock Like Apple, Ford, or Sprint|
|Real Life Example of the Impact Robinhood Can Have on Your Trading Profits|
Are you currently paying $10+ per trade with your current broker? Please leave any questions or comments regarding Robinhood below.
Written by Matt Thomas (@MattThomasTP)
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This is the first time I have heard about Robinhood. I have a TD Ameritrade account though I seldom trade. But I understand it is also zero commission so it seems to be similar to Robinhood. Would you happen to know what are the differences? I believe Robinhood is still better. Thanks for sharing this.
Hi Richard – I appreciate your input. Years ago, Robinhood was one of the only brokerages offering $0 commissions, but now pretty much all of the big-name brokerages like ETrade, TD Ameritrade and others are offering $0 commissions as well, or at least greatly reduced commission fees from what they were previously.
In my experience, Robinhood has a nice mobile app and user interface which is probably best suited for beginners, while TD Ameritrade probably offers a lot more in terms of guidance and tools. Those tools are more suited for active traders (ex. swing and day traders) who are looking for a more robust, customizable platform.
But I still like Robinhood for how it appeals to beginners. They offer 1 free stock to those who sign up, have a clean, organized mobile app, offer stocks, options & crypto, and even fractional shares. So if a newer investor/trader was looking to start building their portfolio and wanted a share of Alphabet, Inc. (GOOG), which is currently trading around $2,000 per share, they wouldn’t need that full amount of money to start investing – they could buy a fraction of a share. This isn’t something that other brokerages offer as far as I know.
For more information on the differences between the two, I suggest checking out Robinhood vs. TD Ameritrade from Investopedia.
This will really make trading so easy. I was not aware of this before. Thanks for making me informed, because my aim this year is to get involved in trading. I’ve been doing some research on what’s best for my goal. I found Robinhood and I think it’s worth giving it a try.
I’m completely new to trading, but I would like to say thank you for breaking down Robinhood. It seems like it saves people money by charging $0 a trade rather than $5-20 a trade like other brokerage firms do. Unbelievable! I couldn’t imagine paying the money for commissions like that. I understand you don’t receive the full resources of some other firms, but I don’t think most people have access or funds available to work with them, so this app is more relevant. Do you or someone you know use this yourself? What has been your or their experience? I’m curious.
Hi Francesco – great question. I personally use both E*Trade and Robinhood as my brokers of choice. E*Trade I use for faster-paced trading because of the real-time trading platform it provides (E*Trade Pro). I don’t mind paying the commission fees because of the access to the Pro platform, real-time market data, and fast trade executions. Robinhood I use more for frequent longer-term trades/investments and it’s nice to save on commissions there. I can deposit a certain amount of money per month into my account, choose certain stocks to buy, and not have to worry about paying commission fees each time. The platform can lag/glitch sometimes, so it’s not something I’d use for day trading. But I think it’s a great option for individuals starting off with smaller accounts, implementing longer-term strategies, and looking to avoid the hurdle of commission fees eating into profits.
I honestly never thought about just how costly stock trades can be. I see advertisements from E-trade and Charles Schwab about $8.95 trades but I suppose even that is expensive! That being said, does Robinhood have good customer experience if something goes wrong? I have very little experience using robo advisors. If you upgrade to a margin contract, are you limited to covered calls or can you do straddles, collars, butterfly’s etc?
Hi Elan – those $5-10 commissions per trade can certainly add up, and those charges are on each transaction (buys and sells). Then for options trades, there’s usually an additional fee per contract. So especially when it comes to small accounts, it can be difficult to overcome fees like this. Not having to worry about the psychological aspect of immediately being down 1-10% as soon as you enter a trade is one of the major reasons why I like Robinhood so much. But there are certainly other areas where brokers like ETrade stand out, mainly because of the additional tools they offer like ETrade Pro for example.
As far as customer experience goes, I’ve never had any issues with them personally. I can’t really speak too much on what would happen if something goes wrong having never had any major problems with the platform to reach out to them about. Any questions I’ve had about it have been answered within the Help Center. The answers to your options questions can be found there as well. Feel free to reach out to the Robinhood support team for details. That could be a good way to feel them out and judge firsthand how supportive/unsupportive they are. Take care!
I was reading your article and was thinking in parallel with the legend Robinhood. Finally something that help consumers and investors getting the better hand. I have never heard about Robinhood in trading but thanks to you I’m now more informed and will use to my benefit. We need more of you and more articles like this one. Thank you
I tried to get into investing a few months ago with Stash and it was great but i had to cancel my subscription since I really wasn’t going to make any money any time soon since I could only invest $10 at a time. Robinhood sounds great so maybe when I venture back into the investing world I’ll give them a go.
I’ve been toying with the idea of getting into trading for a while and the idea of dealing with high commission charges from brokers has always put me off since I’m just getting started. I will definitely be taking a look at Robinhood and downloading the app.
Found your review when looking around for some knowledge about investments for beginners….and this sounds very interesting I have to say.
But I see that you posted it about a year ago. Do you know if it’s still as good and about the same features today? Also, wonder what stocks are able to be traded? And do you know if it matters what country I’m living in?
Hi Marika – this post was published over a year ago, but it’s been updated since then. Robinhood only continues to advance its capabilities and I personally still use it for my trading. The biggest change since then has been the addition of Robinhood Gold, which offers extended hours trading, margin, and larger instant deposits. I haven’t run into many instances where a stock I wanted to trade hasn’t been available through the platform and I routinely focus on lower-priced small caps (I can’t imagine there would be any issues at all with higher-priced blue-chips). In order to open an account, you have to be a U.S. citizen, U.S. permanent resident, or have a valid U.S. visa.