May 14, 2018

Robinhood Review: Is it Safe?

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Robinhood is a commission-free stock trading app. It has no minimum balance requirement, so what's the catch? Read this review for the pros and cons.

Overall Score

4.0

Stock Trading

5.0

Options Trading

4.0

Mobile App

4.0

Commissions and Fees

5.0

Ease of Use

5.0

Research

1.0
5-point scale (the higher, the better)

Pros and Cons

  • Commission-free stock trading on a mobile platform
  • No minimum investment required
  • No retirement accounts
  • Limited research
  • No bond trading
  • No mutual fund trading

Bottom Line

Free option to trade stocks with limited bells and whistles for investors

Commission Free Trading

If the pull of the stock market has gotten a hold of you, but the brokerage options have you overwhelmed, you may want to consider Robinhood. A primarily smartphone-based app, this service offers truly commission-free stock and ETF trades for any investor.

It may seem out of the ordinary to see commission-free stock trades - we know. It comes at a price, though. If you compare the service to its competitors, such as E*TRADE, there is no comparison. You won't get the same robust research options or what you could even call a trading platform. For new investors or those looking for barebones investing, though, it could be all that they need.

Keep reading to see if Robinhood is a service that could benefit you.

In this review, you will learn:

What Is Robinhood?

Robinhood started as an exclusive to iOS and Android apps. Today it's also a web-based app offering commission-free stock and ETF trades. It's the trading platform for the new investor who doesn't need all of the bells and whistles that brokerages like Fidelity and Charles Schwab offer.

Robinhood markets themselves as the brokerage for those "other than the wealthy." They don't offer physical branches, banking, or manual account management options. This is how they claim they can "cut the fat."

You should know, though, that you are on your own as far as figuring out how to trade stocks. The app makes it simple and walks you through the process, but you won't have anyone holding your hand or even a tutorial to walk you through the process.

Who Benefits from Robinhood?

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Originally, Robinhood was invented to help millennials get started investing without giving up a majority of their earnings to commissions. The simple sign-up process and no minimum balance requirement makes it easy for beginning investors to get started.

Potentially, anyone looking for an individual taxable account could benefit from the service as long as you have an interest in trading stocks or ETFs. If you don't require a great deal of research and you are confident in your abilities to make investments on your own, Robinhood could be a great way to get started.

What Type of Investments Do They Offer?

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Unlike your standard brokerage, Robinhood only offers taxable accounts. In other words, you won't find retirement account or college savings options. You also won't find any banking options. It's strictly a platform for the following types of investments:

  • Stocks
  • ETFs
  • Options (new this year)
  • Cryptocurrencies (Bitcoin and Ethereum)

How Does Robinhood Make Money?

Right now, you are probably wondering how Robinhood even exists if they don't charge commissions. At first, it looks like they don't, but they do offer a subscription-based service called Robinhood Gold. This is the equivalent of trading on margin (or credit). You'll need a minimum account balance of $2,000 to have this account, though, as that's the law.

Robinhood charges between $6 and $200 per month depending on the "tier" you choose. The tier is based on the amount of money you deposit as well as the level of "Instant Deposit" you want to have available. The higher your balance and the higher the Instant Deposit power, the more you pay each month.

What is Instant Deposit? Typically, Robinhood makes you wait for 2 days before you can invest funds transferred from your bank accounts. With Instant Deposit, though, you can use up to $1,000 of this money immediately and at no charge. If you have a Robinhood Gold account, you may be able to use a higher amount of the funds based on your tier.

Robinhood also earns interest on your cash balances. In other words, any money you have sitting in your account, but not invested, earns Robinhood interest. They pool the cash balances of each investor together to earn higher levels of interest.

Reasons We Like Robinhood

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  • You don't have to pay any commission fees to trade stocks. This probably goes without saying. Free stock trades are a huge benefit. Just to compare, Fidelity charges $4.95 per stock trade - that's $5 off your earnings right off the bat. If you buy one share of a $25 stock, that's a 20% loss right away.

  • You don't need a minimum investment to get started. The fact that you can invest with just a few dollars is great. Robinhood doesn't set a $1,000 minimum or even a $5 minimum. Obviously, in order to invest, you'll need enough money to buy one share or one ETF, but that puts you in charge of how much you invest, giving you more options.

  • Advanced traders have the benefit of the Robinhood Gold account. If you are an active trader and want the benefit of trading on margin, the Gold account may be a good fit. Not only can you buy and sell stock on credit, but you get access to extended trading hours. You can trade 30 minutes before the market opens and 2 hours after it closes.

  • The app is user-friendly. Investing is confusing enough, so the last thing you need is a complicated smartphone or web app. You can sign up for an account in just a few minutes and have your account up and running in an hour. Making trades is easy, as the app offers a simple interface that even the novice can use.

  • You can try your hand at trading cryptocurrency. If you have an interest in trading cryptocurrency, you can do so commission-free. The service is slowly being rolled out to various states, though. You can sign up for advance notice on their website.

  • You can execute a variety of stock trading orders. Even though you are new to investing, you can try your hand at a variety of stock trading orders, including limit, stop limit, and stop orders.

  • They are a member of SIPC, the Securities Investor Protection Corporation. This means your account is protected up to $500,000. While SIPC protects against the loss of cash and securities (such as stocks and bonds) in the case that Robinhood fails, it does not protect against investment losses from the market.

  • You can easily discover new stocks using the "Collections" service. You can search through stocks by keyword or category. You can sort the collections and even view them side-by-side to compare your selections.

  • You can view the average price paid. Robinhood shows the average price per share that Robinhood Investors paid. This allows you to compare it to the current price and determine if it's a good investment. This is great for beginners who don't know what's a "good buy" and what is not.

  • You can get real-time updates on stocks in your watch list. While there isn't any level of robust research to be found, you can get real-time updates on any stocks you put in your personal watch list, which can help streamline your decision-making process.

Interested in Options Trading? Robinhood plans to release "free" options trading in 2018 as well. This could be a good way to start your hand at options trading. But you shouldn't attempt this type of trading until you truly understand stock trading and have a diversified portfolio.

Robinhood currently has a waitlist for the service, but is offering early access to it by signing up for the waitlist.

Reasons You May Want to Look Elsewhere

  • They lack research options. Beginning investors often stick to the basics and don't overwhelm themselves with too much research. As you gain experience, though, you may want access to more research, which you will not find with Robinhood. You'll have to rely on third-party research, which can take more time and effort than it would with another broker.

  • You only have one account option. You can only open an individual taxable account. Robinhood does not offer retirement accounts to help you minimize your tax liability and save for your golden years.

  • You are an advanced trader. Robinhood was created for the novice investor, namely the investor who has never owned a share of stock. If you are a day trader, active trader, or already know the ins and outs of trading, you'll likely find the platform too basic and lacking what you need to be successful.

How They Compare

Robinhood vs E*TRADE: Robinhood and E*TRADE have one similarity - you can trade stocks and ETFs on their platform. E*TRADE charges commissions and has two robust platforms along with plentiful research, whereas Robinhood doesn't have any of that. Combining the services of the two brokers, though, can give you the best of both worlds, allowing you to save for retirement and save on commissions on your stock trades.

 

Robinhood

E*TRADE

 

Benefits and Features

Stock Trading
$0
$6.95 per trade
$4.95 per trade if you make 30+ trades a quarter
Options Trading $6.95 + $0.75 per contract
$4.95 + $0.50 per contract if you make 30+ trades a quarter
Minimum Deposit
$0
$500 for brokerage accounts
No account minimum for retirement accounts
Mutual Fund Trading $0 for no-load, no-transaction-fee funds
$19.99 for transaction-fee funds
Commission Free ETFsall U.S. listed ETFs200+ including ETFs from WisdomTree, Global X Funds, and db-X Deutsche Bank
Penny Stocks 
Broker Assisted Trades
$10
$25 + Regular Commission
Customer Service
Monday-Friday 9am - 6pm ET
(650) 599-0125
Inactivity Fee
$0
$0
Maintenance Fee
$0
$0
Banking
No
Checking account offers no minimum balance requirements, free online bill pay, and unlimited debit card and check transactions.
Mobile App
Yes
Desktop App
Yes
E*TRADE Pro (requires you execute at least 30 trades during a calendar quarter or maintain brokerage account balance of at least $250,000)
Futures Trading 
Locations
No
30
Online Community
No
ETrade Community lets you exchange trading and investing ideas with other ETrade customers.
Seminars
No
Live events and educational seminars at local branches.
Virtual Trading
No
 
Stock Trading
Options Trading
Mobile App
Commissions and Fees
Ease of Use
Research
Banking
Online Community
Trading Platform

Blank fields may indicate the information is not available, not applicable, or not known to CreditDonkey. Please visit the product website for details.

Robinhood: Pricing information from published websites as of 4/24/2018

E*TRADE: Pricing information from published website as of 03/13/2017

Robinhood vs Acorns: You don't need a lot of money to start investing with Acorns. All you need is your spare change and Acorns will invest it for you. Once your cash balance is $5, Acorns creates a diversified portfolio for you to the tune of $1 per month. You don't choose the stocks like you would with Robinhood, but you can invest with just a few cents at a time.

Robinhood vs Stash: Stash offers thematic investing options by letting you choose stock and ETF categories that matter to you. Stash requires a $5 minimum opening balance and costs $1 per month for taxable accounts and $2 per month for retirement accounts. Stash allows you to purchase fractional shares, which lowers the amount you need to start investing.

Bottom Line

Is Robinhood the only app you should use, even as a beginning investor? We don't think so, but we do think it could be a great way to supplement your investments with other brokers. Without a commission fee, you do stand to save some money on your investments.

If nothing else, it's a great way to get your feet wet and learn how the stock market works without breaking the bank in fees. As always, you should invest with caution, conducting as much research as possible before choosing your investments.

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

More from CreditDonkey:

How to Invest Money

How to Invest Money


How to Invest in Stocks with Little Money


How to Start Investing

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