I would like to start off by noting that I have been using Robinhood for almost two years now. That being said, I feel I am qualified to review this platform as I have had plenty of time to really assess the platform firsthand and determine the downfalls and benefits. Now, let’s get started!
The New Guys Of Stock Trading
Robinhood is a new player in the stock trading industry marketed specifically towards millennials. The brokerage was founded in 2013 in Palo Alto, California by two recent Stanford graduates, who are millennials themselves.
Robinhood’s big selling point is completely free trades with no minimum balance. As you can imagine, this appeals to the low budget investor who is just getting started with stock trading.
Which Devices Are Supported?
Offering free trades isn’t easy, so in order to keep their operating costs down Robinhood is currently only available on iPhone, Apple Watch, and Android as an app. If you want to be one of those traders with five monitors running at once you are out of luck.
Related: Introduction To Stock Investing
Robinhood takes pride in being the only brokerage that offers completely free trades with no minimum balance. You can literally deposit $1 into your account if you want. This is really what sold me on the app. When people first hear that Robinhood offers free trades they often suspect there is some kind of catch. I promise you there is not, trades are completely free!
For the low budget investor, having free trades is huge in my opinion. This allows you to buy 1 share of stock at a time to slowly accumulate a position in a company. Buying 1 share at a time wouldn’t make much sense if you had to pay a $4-$10 fee every time you trade, as you may have to get a 5-10% return just to cover the trading fee!
Limited Investment Options
Unlike most online brokerages, Robinhood only allows you to trade stocks and ETF’s. The ability to trade options and mutual funds is not yet available to investors.
Related: Invest Now For Big Returns Later
Poor Customer Service
One of the biggest downfalls to Robinhood is customer service. They lack both live chat and physical locations, but do offer a phone number to call during business hours as well as an email address you can contact for support.
Robinhood generally receives poor reviews for their customer service. If customer service is important to you in an online brokerage, Robinhood may not be the best option. That being said, in the 2 years I have been using Robinhood I have not had a single reason to contact customer service.
Limited Analytical Tools And Research Data
Another way Robinhood keeps their operating costs down is by minimizing the availability of analytical tools, research data, and reports. They do have a news feed that pulls up articles related to each stock, but these alone are not enough information to thoroughly research an investment.
In addition to news articles, Robinhood lists some data under each stock. This includes highs, lows, volume, market cap, P/E ratio, dividend yield, and earnings data among a few other things. From my experience, all of this data can be a bit off in terms of accuracy. I personally would advise against using any of this data in your investing decisions.
Do Stock Analysis And Research Elsewhere
When you do research and analysis on an investment you will definitely have to leave the platform and do the research online. Although this may seem inconvenient, it hasn’t really bothered me in the 2 years I have been using Robinhood. I would much rather have free trades and have to leave the app to do my research and analysis than pay a $7/trade fee just to have all of the tools and data available on the platform.
In the end, it’s all about the return on your investment. So why let a trading fee lower that return?
In 2016, Robinhood added a new type of account you can register for called Robinhood Gold. This account offers pre and post market trading and is also a margin account.
For those unfamiliar, a margin account allows you to borrow money from your broker to trade with. One risk associated with borrowing money to trade with is that you can lose money you don’t have and eventually you are going to have to pay that money back. For this reason, I strongly advise against the use of a margin account for beginning investors.
To be eligible for Robinhood Gold a minimum account balance of $2,000 is required. Unlike the traditional Robinhood account, Robinhood Gold charges a monthly fee based on the size of your account. As with all Robinhood accounts, all trades are completely free with Robinhood Gold.
How Does Robinhood Make Money?
Seeing that Robinhood is a for-profit business, at this point you’re probably wondering how Robinhood makes money if they offer free trades. There are two main ways they make money.
- They get paid interest from uninvested cash in your account.
- They charge a monthly subscription fee for Robinhood Gold accounts.
Only time will tell if Robinhood is a successful business. I personally think in the long run they will have to find other ways to monetize the app. Perhaps by offering $1.00 trades or incorporating advertising into the app.
The Take Home Message
For the new and low budget investor I think Robinhood is an excellent brokerage assuming you have an iPhone, Apple Watch, or Android. The main reasons for this are because there is no minimum balance and the trading fee is $0.
The main disadvantage with Robinhood is their poor customer service, but as I previously mentioned, I have been using Robinhood for about 2 years and haven’t once had to contact customer service. Robinhood also lacks sufficient research data, reports, and analytical tools. That said, all of these tools, data, and reports can be found online for free. Sure, it may be more convenient to have all of the tools on your trading platform, but ultimately you are paying for these tools via trading fees. I say it’s best to avoid the trading fees and spend a little more time doing research and analysis online.