Author: David Phineas
Robinhood is a free discounted broker established in 2013 in the United States. The company is regulated by the top financial regulators, including the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Robinhood features include cash management and brokerage offering to enable users to earn interest on unspent money.Â
Who is Robinhood For?
Robinhood may be the best option for young investors wishing to get started with investment. With its easy-to-use interface as an advantage, Robinhood can be helpful if you are a new investor seeking opportunities in the crypto niche.Â
You may trade Bitcoin, Ethereum, and other digital currencies on their site. While there are issues with the quality of transaction executions, Robinhood has extended their alternatives trading platform, giving a viable choice to users.Â
Pros and Cons of Robinhood
Pros
- Very user-friendly
- Reasonably priced trading, availability of fractional shares, and cryptocurrency offers.
- Effective money management and recurrent investment attributes
Cons
- Limited investment opportunities
- There are a few research and educational materials available.
- Payment for order flow is not transparent.
Range of Services
Robinhood offers trading stock, options, EFTs, and cryptocurrencies, severely restricting its product choice. You cannot trade commodities, foreign exchange, or futures. Moreover, it doesn’t offer fixed-income products or mutual funds. If you decide to use Robinhood as your broker, the following are investment options available for you:
- Long stocks
- Fractional share orders for stock shares that are greater than $1 and a market capitalization greater than $25,000,000.Â
- Both stocks and ETFs are available through the platform
- Option for single and multiple legs
- Cryptocurrency: Bitcoin Cash (BCH), Bitcoin (BTC), Dogecoin (DOGE), Bitcoin SV (BSV), Ethereum Classic (ETC), Ethereum (ETH), and Litecoin (LTC).
As previously specified, there is no fixed income, no mutual funds, no futures, no foreign exchange, and no futures options.
How to Create an Account
It is simple, quick, and entirely digital to open an account—about ten minutes from when you start your application to when your account is verified.
The following are the requirements for opening a Robinhood account in the United States:
- You must be at least 18 years old
- Have an active social security number
- Possess a legitimate US residential address
- Have a valid US visa, US citizenship, or US permanent residency.
How This Broker Earns from You and for You
Robinhood must make money to remain a viable business as there are no fees for trading stocks and options. Although the fees and commissions mentioned above are clear to clients, other payment options are less noticeable. The online broker has a separate webpage where you can learn about how it generates revenue.
- Interest accrued on money: Robinhood earns money from funds that aren’t pulled into the network of partner banks for cash management. Typically by placing these funds in interest-bearing accounts.
- Order flow compensation: Many brokers get paid by market participants for sending their clients’ stock and options to such trading venues. Payment for order flow is termed: PFOF. We talked about Robinhood’s lack of openness regarding PFOF above, which seems to be a significant source of income for the broker.
- Stock loan programs: Robinhood makes money by lending counterparties margin securities. The company keeps every profit it makes from lending its shares to others and doesn’t distribute them to you.
- Margin interest: The margin interest rates offered by Robinhood are substantially lower than typical, at 3.5 percent. It’s also important to note that using margin necessitates a Gold Program subscription, which costs $5 per month.
- Portfolio margining: Robinhood does not offer portfolio margining, which might decrease the quantity of margin you could need.
 Security
- Users of this application can sign in using a bespoke pin, facial or fingerprint identification. For enhanced security, Robinhood advises users to set up two-factor authentication.
- If two-factor verification is not set, new logins from unknown devices may require confirmation with a six-digit key sent by email or text.
- Robinhood has reported data breaches within the last four years. The most recent occurred in 2021 and affected more than 5 million client accounts, but no user suffered any financial damages.Â
Is Robinhood Perfect for you?
Robinhood is a good option if you value a simple trading interface, easy-to-navigate mobile experience, or the opportunity to trade cryptocurrencies. Inexperienced investors can also compare brokers to find the one that best meets their needs. This is because many online brokers have partnered with Robinhood in removing commissions.
Is Robinhood Free?
Theoretically, Robinhood is free and does not charge for stock, option, or cryptocurrency trading. Although Robinhood supports payment for order flow or PFOF, several features demand a $5/month contribution to Robinhood Gold.
Final Verdict
Robinhood does the trick for investors searching for straightforward, user-friendly stock trading software. However, Robinhood will keep you wanting for more after that, particularly with its $0 transaction feature.Â