Robinhood Reviewed: The Good and The Bad

Important

Investing in cryptocurrencies, Decentralized Finance ( DeFi ), and other Initial Coin Offerings ( ICOs ) is highly hazardous and bad, and the markets can be highly volatile. consult with a qualify professional before making any fiscal decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or opportuneness of the information be guaranteed. In its early stages, Robinhood stood out as a disruptor in the brokerage industry. Its biggest competitive advantage was not charging commissions for stocks, options, and cryptocurrency trade. That edge has been neutralized as most of the brokerage diligence joined in eliminating commissions. Despite the increased rival on cost, Robinhood has developed a hard brand and niche market with young, technical school grok investors thanks to a clean design and drug user have that focuses on the basics. The agent recently added cash management services and a fall back investment feature of speech in an effort to attract new customers and deepen the fiscal relationship with existing customers .

Although Robinhood ’ s user free-base has grown exponentially in holocene years, the success has brought more examination to the company. In the stopping point class, the platform has besides received criticism for ill-timed outages and intentional trade restrictions amid market excitability. This led many to suspect a conflict of matter to, spurring class carry through lawsuits and catching the attention of politicians. We ’ ll dig into some of this as we look at Robinhood and whether it is the correct equip for your portfolio.

Important

  • In June 2021, Robinhood agreed to pay $70 million to settle regulatory investigations related to misleading customers, approving ineligible traders for risky strategies, and repeated outages affecting users’ ability to access the platform.
  • On April 7, 2022, Robinhood announced that it rolled out Crypto Wallets to every eligible person on the WenWallets waitlist of more than two million people. According to the company, all eligible customers who signed up for the waitlist will be able to send and receive any of the cryptocurrencies currently available on Robinhood. 

Key Takeaways

  • New investors are attracted to Robinhood because of their low fees, zero balance requirement to open an account, as well as the easy-to-use interface. 
  • Robinhood has a limited range of offerings. Customers can trade stocks, ETFs, options, and cryptocurrency, but there is no fixed income, mutual funds, forex, or futures trading. 
  • Robinhood customers must pay $5 per month for Robinhood Gold in order to trade on margin, view market data, and access in-depth research reports provided by Morningstar.
  • Most brokers publish their trading statistics to aid investors with comparing payment for order flow. Robinhood does not disclose this information to the public. 

Who Robinhood Is For

With more than 13 million users with an average historic period of 31, it is clear that Robinhood has positioned itself to be ideal for younger investors who want to get skin in the game—even if that means in little quantities through fractional shares. Robinhood ’ s overall simplicity makes the app and web site aboveboard and easy to navigate. If you ’ re concern in trying cryptocurrency investing, Robinhood can help. You will be able to use their platform to trade Bitcoin, Ethereum, and more. Robinhood has besides expanded their options trade platform, making the broke a electric potential choice for options traders, although there are concerns about the quality of trade executions .

Pros

  • very easy and bare to use
  • low trade costs, entree to fractional shares and cryptocurrency offerings
  • estimable cash management and recurring investments features

Cons

  • Limited research and educational resources available
  • specify investment offerings
  • lack of transparency around payment for regulate menstruate

Pros Explained

  • Robinhood’s mobile app is extremely easy to use. Although the broker provides a web-based platform, it is a mobile-first company. This is a key area of differentiation between Robinhood and its competitors. The mobile app is not actually robust. In fact, its features are basic. But for investors who know what they want, the platform is more than enough to quickly move from screen to screen, and place trades. 
  • You can trade stocks, ETFs, options contracts, and cryptocurrency for free. Robinhood allows you to purchase fractional shares with as little as $1. If you enable the dividend reinvestment program (DRIP) in your account, Robinhood will automatically reinvest any earned dividends from stocks or ETFs—provided the positions support fractional share trading. 
  • Robinhood’s cash management features will allow you to earn .30% APY. You also don’t have to pay ATM fees at any of the 75,000+ ATMs in their network. The recurring investment tool enables you to automatically invest a fixed dollar amount periodically, such as once per month.

Cons Explained

  • Robinhood has little in the way of research or educational resources available for customers. If you want more than the basic stock quotes, you will likely need to subscribe to Robinhood Gold. Even then, Robinhood lacks resources when compared to its competitors’ offerings. 
  • Robinhood doesn’t offer any mutual funds or fixed income investment products and you will not be able to trade any commodities, forex, or futures. Moreover, Robinhood only supports taxable brokerage accounts. 
  • Payment for order flow statistics are usually published by brokers. It is the best way for investors to compare and ensure accurate and timely trade executions. Robinhood doesn’t disclose this important information to the public and loses points for this lack of transparency.

serviceability

Robinhood is extremely easy to set up and use. Thanks to a mobile app with a clean purpose that focuses on the basics, Robinhood is an easy option for investors who chiefly use devices to manage their accounts. You can besides use the web-based platform which has a similar search and feel to the app. Both platforms support the lapp club types and asset classes .

once you log into the app, you will see a line chart that shows your portfolio measure and buying power. You will find the independent menu on the penetrate of the screen, where you can easily use the search function to pull up a stock ’ sulfur chart over multiple time frames. You ’ ll see information pertaining to the sprout, including its highs and lows, market capitalization, and P/E ratio. Robinhood besides provides a newsworthiness feed, a composite of analysts ’ rankings, and a company profile. When you ’ re ready to make a buy or sell decision, the trade button scrolls along with the page, allowing you to submit an order at any consequence .

overall, Robinhood ’ s exploiter experience is pleasant and the app functions seamlessly. One caveat is that there is very little you can do to personalize or customize the app to your coveted trading feel. The mobile app besides lacks any graph or in-depth research tools .

The fluid apps and web site suffered good outages during commercialize surges of recently February and early March 2020. The founders said in a web log post that their systems could not handle the stress of the “ unprecedented lode ” and pledged to beef up their systems .

Trade experience

The trade experience on Robinhood ’ mho web and mobile platforms is fast, elementary, and streamlined. For fresh investors, Robinhood has the functionality necessary to trade, but more know investors will find conversant tools missing. Robinhood has basic watch lists, stock quotes with charts and analyst ratings, late news, streaming Bloomberg television, all alongside a dim-witted trade wind entry process. What you see is what you get with Robinhood, as there are no customizations on the web or mobile platform. You can ’ thymine set default order sizes, time periods on charts, or anything else .

mobile Trade know

Robinhood is a mobile-first brokerage house aimed at investors who want a simple trade app without the bells and whistles. The broker doesn ’ thyroxine offer the like in-depth tools that larger, traditional brokers do. You don ’ t have the ability to trade directly from the graph, the platform does not support conditional orders, and you can ’ thymine embark multiple orders simultaneously or stage orders for subsequently introduction. You can, however, use trailing stops and stop specify orders .

Robinhood ’ s quote information streams in very time, and you can stream real-time quotes on multiple devices simultaneously. Robinhood recently added a have called “ Recurring Investments ”. This sport allows you to schedule automatic rifle investments on a recur basis for thousands of stocks and ETFs, potentially helping you grow your investments for the future .

range of Offerings

Robinhood ’ randomness range of offerings is highly restrict in that it only offers stocks, ETFs, options, and cryptocurrency trade. Robinhood doesn ’ deoxythymidine monophosphate support reciprocal funds or fixed income products and you can ’ t barter commodities, forex, or futures. If you choose Robinhood as your agent, you can invest in :

  • Stocks, long only. No short selling. 
  • Stocks worth over $1.00 per share with a market capitalization over $25,000,000 are eligible for fractional share orders. The broker offers both stocks and ETFs. 
  • Single and multi-leg options
  • Cryptocurrency: Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Dogecoin (DOGE), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC)
  • As mentioned, no mutual funds, no fixed income, no futures, no forex, and no futures options.

order Types

Robinhood has a express place of ordering types. You can either enter market orders or limit orders for the available assets. You will not be able to enter conditional orders. Newer investors and even experienced investors with bare tastes may not feel constrained by this limited selection .

equally far as tax set survival is concerned, the default cost basis election is first-in, first-out ( FIFO ) for equities. You can change the default cost-basis method for your account or specify different tax lots for elimination by contacting Robinhood customer support .

trade engineering

Unlike many other brokers, Robinhood does not publish its trade statistics so it ‘s challenging to compare its payment for order flow data to its competitors. The way a broker routes your order determines whether you are likely to receive the best possible price at the meter your trade is placed. This best price is known as price improvement. Robinhood does not disclose its price improvement statistics either .

however, Robinhood has stated that their systems are built to automatically send your order to the market manufacturer most likely to give you the best price, based on historic performance. This lack of transparency, and holocene events involving trade restrictions, may leave investors wondering whether Robinhood is indeed seeking out the best price for customer trades .

In keeping with its simplify approach to endow, Robinhood doesn ’ t give up you to automate a trade scheme or do backtests.

Costs

exchangeable to most of its competitors, Robinhood does not charge trade fees. There are some other fees unrelated to trade that are listed below .

  • All equity trades (stocks and ETFs) are commission free.
  • No fees for options trades
  • Trading on margin requires a Robinhood Gold subscription at $5 per month, which includes $1,000 of margin. Margin usage above $1,000 is charged 2.5% interest, which is relatively low.
  • There is a $75 account transfer
  • There are no domestic or international wire fees.
  • There are no account opening, account maintenance or account inactivity fees.
  • Check fees: $20 to send a domestic check overnight.

How This Broker Makes Money From You and for You

With no fees for equity and options trades, Robinhood has to generate tax income to be a sustainable company. The fees and commissions listed above are visible to customers, but there are other methods that are not as apparent.The on-line broke has a dedicated vane page to inform you on the diverse ways it makes money .

  • Interest paid on cash: Robinhood generates income on uninvested cash that isn’t swept into the cash management network of program banks, primarily by depositing this cash in interest-bearing accounts. 
  • Payment for order flow: There are many brokers that generate income by accepting payment from market makers for directing their customer’s equity and options to those trading venues. This is called payment for order flow (PFOF). We discussed Robinhood’s lack of transparency around PFOF above, and it appears to be a major revenue stream for the broker.
  • Stock loan programs: Robinhood’s stock loan program generates revenue for the broker by lending margin securities to counterparties. Robinhood retains all income it generates from loaning your stock and does not share it with you. 
  • Margin interest: Robinhood’s margin interest rates are much lower than average. It’s also worth noting that using margin requires membership to their Gold program which is $5 per month. 
  • Portfolio margining: Portfolio margining, which can lower the amount of margin you may need, is not available at Robinhood.

Account and Research Amenities

Although the overall account and research amenities are meager in comparison to larger rivals, there are some useful features including cash sweeps and basic chart.

Stock Screener

Robinhood does not offer a stock screener .

ETF and Mutual Fund Screener

Robinhood does not offer an ETF or common fund screener .

Options Screener

Robinhood does not offer an options-specific screener .

Fixed Income Screeners

Robinhood does not offer a fixed-income screener .

Tools and Calculators

Robinhood does not offer any fiscal tools or calculators .

trade Idea Generators

Robinhood does not offer craft estimate generators. however, you can access trusted news sources for absolve through the newsfeed .

News

As a Robinhood customer, you can stay up-to-date with WSJ Markets coverage in-app, angstrom well as news from Reuters and Barron ’ second, and video from CNBC Business, Reuters, and Cheddar. additionally, Robinhood offers Snacks, a podcast, newsletter, and video recording series which delivers the day ’ randomness top fiscal news stories every weekday .

Third-Party research

Robinhood provides Morningstar analyst ratings to all customers in the stock detail page in the app. Morningstar provides Robinhood Gold members inexhaustible entree to their premium, in-depth store research reports. As a Robinhood Gold member, you will have access to Nasdaq Level II Market Data powered by NASDAQ Totalview. These reports are available on 1,700 stocks and are updated frequently to reflect important company events .

Charting

Both the web and mobile platforms have charting capabilities, which was built in-house. While line, candlestick, and volume charts are available on the mobile app, there are other charts that are only available on the web. As with all of Robinhood ’ randomness functionality, charts are not customizable .

Cash Sweeps

Robinhood does not support money market funds. however, its cash management brokerage feature offers 0.30 % on uninvested cash balances to customers enrolled in the deposit sweep program .

Dividend Reinvestment Plans

As a Robinhood drug user, you will be able to specify dividend reinvestment at the time you purchase a dividend paying stock .

SRI/ESG Research Amenities

Although there are no socially responsible investing ( SRI ) or environmental, social, and administration ( ESG ) screeners per say, Robinhood Lists will enable you to search and discover diverse sectors and themes within the market, including companies focusing on SRI and ESG.

portfolio analysis

Robinhood offers very fiddling portfolio analysis, particularly in comparison to its larger rivals. You can see real-time balances, allowance, and buying office, but that ’ s about it. The home screen shows a one-day graph of your portfolio respect and you can click or tap a different time period at the bottom of the graph to see specific dates and values .

There is no asset allocation analysis, inner rate of hark back, or way to estimate the tax impact of a aforethought barter. There is besides no trade diary. To perform any kind of portfolio analysis, you ‘ll have to import your transactions into another program or web site.

education

Robinhood ’ second education offerings aren ’ deoxythymidine monophosphate angstrom robust as they should be considering they are a broker whose ideal customer is new to investing. Robinhood presently offers Snacks, a podcast, newsletter, and video recording series which delivers the day ’ s top fiscal newsworthiness stories to its customers every weekday. According to the broke, there were more than 20 million people subscribed to the weekly newsletter and 2 million monthly active podcast listeners as of August 2020. Robinhood has recently implemented video as a new format for their Snacks contentedness, with an draw a bead on to provide excite and helpful visuals to make fiscal newsworthiness less intimidate .

Robinhood has besides added a Learn resource, which offers fiscal information, definitions, and market explainers to educate you on fiscal terms and concepts. Robinhood says it has published more than 650 articles on Learn and saw more than a 250 % addition in average unique day by day visitors to their Learn pages since January 2020.

Customer Service

  • All customer service is done through the app or the website.
  • Robinhood has chatbot capability. 
  • There is no telephone number so you cannot call Robinhood for assistance. However, you can enter your own phone number for a callback. As a customer, you can also contact the support team on social media.

security

  • Mobile app users can log in with face or fingerprint recognition or with a custom pin.
  • Robinhood encourages users to enable two-factor authentication.
  • New logins from unrecognized devices also need to be verified with a six digit code that is sent via text message or email in case two-factor authentication is not enabled.
  • Robinhood is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Unlike other brokers, Robinhood carries no excess Securities Investor Protection Corporation (SIPC) insurance.
  • Robinhood has reported data breaches within the past 4 years. The most recent was in 2021 impacting an more than 5 million customer accounts, without financial losses to these accounts.

foil

Robinhood was once a disruptive fintech player in the brokerage diligence helping young investors get into the commercialize. nowadays the company ’ s motives are being questioned and the issues are centered around data, foil, and trust. In December of 2020, the SEC fined Robinhood $ 65 million for “ misleading customers about tax income sources and failing to satisfy duty of best execution ”. The SEC declared that Robinhood failed to tell customers between 2015 and 2018 that its largest tax income informant was derived from the market makers to which it routed customer orders. This is a exercise that ultimately resulted in trades that generated less money for customers than they would have gotten at other brokers. Considering this, it ‘s not a surprise that the broke does not release statistics on payment for order flow .

Robinhood besides falsely claimed on its web site that its murder quality matched or beat that of its competitors. The SEC concluded that Robinhood ’ s inferior trade prices ultimately deprived investors on its platform of $ 34.1 million .

Robinhood was brought into the foreground again in January 2021, after it decided to restrict access to certain securities such as GameStop, AMC Entertainment, Nokia, and others during the marketplace craze surrounding the Reddit short squeeze on the stocks. One of Robinhood ‘s primary market makers, Citadel Clearing, has ownership in the hedge fund Melvin Capital which was one of the largest short sellers of GameStop and others. The decisiveness to restrict customer buy orders for these stocks led many to suspect a conflict of sake, spurring class natural process lawsuits and the attention of some members of Congress .

Our verdict

If you ’ re modern to investing and have a minor balance to start with, Robinhood could be the target to get you accustomed to investing. The mobile-first agent sports a childlike app and web site, providing a seamless on-ramp to investing in stocks and ETFs. Although the exploiter experience can not be customized, the app and website have all the essentials a new investor would need. The recent controversies with Robinhood may have tarnished its reputation with some of the younger investors it craves, but the company silent has commission rid stocks, ETFs, options, and cryptocurrencies, and borderline addictive app to trade them on. New investors should consider the lack of transparency payment for order flow and other issues before making a decision .

If you ’ re an active investor or trader, however, there are much better options on the grocery store as Robinhood does not support robust charts, screeners, and so on. Although most brokers charge for options contracts, and some still have ticket charges for fairness trades, you will have access to research, data, trade tools, customer military service, and educational offerings in central. even if you are a newly investor only matter to in buying and holding stocks, there are other zero-fee brokers with more resources that are worth good consideration .

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Methodology

Investopedia is dedicated to providing investors with indifferent, comprehensive examination reviews and ratings of on-line brokers. Our reviews are the result of months of evaluating all aspects of an on-line broker ’ mho platform, including the user feel, the quality of deal executions, the products available on its platforms, costs and fees, security, the mobile feel and customer service. We established a rat scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system. Read our full methodology .

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