Investing is a great way to build long-term wealth. Buying stocks, crypto, and other assets can help you build a diversified portfolio. However, you can choose from many investing apps to accumulate these assets and work toward your long-term financial goals. Robinhood has made a name for itself as an innovative investing app that led the charge for fee-free trades. The app attracts younger investors and has over 20 million users so far. This Robinhood review will cover how the app works and why it has become a popular way to invest money.
What is Robinhood?
Robinhood is an investing app that allows individuals to buy various assets. You can use a buy-and-hold approach or trade options and other assets through Robinhood. Robinhood gives people the resources to invest or trade with precision, depending on what suits you. The app has something for everyone.
Robinhood was founded in April 2013 by Vladmir Tenev and Baiju Bhatt. The founders created the app to make the financial system accessible to more people. While Robinhood was involved with controversy in 2021, the app has forced many brokerage firms to change their business models in order to compete. Robinhood has helped many investors save money while giving them access to top-tier investment opportunities.
How Does Robinhood Work?
Robinhood is a mobile app that lets you buy equities and other assets. The investing app offers brokerage accounts and retirement accounts that can help you achieve your financial goals sooner. The app also lets you invest in crypto, which is a perk that few brokerage firms provide.
Robinhood doesn’t offer everything. Investors looking for mutual funds and bonds should look for an alternative. However, exchange-traded funds that track bond prices are available on the platform. Robinhood also has a website so you can view your portfolio on your computer or smartphone.
Who Is Robinhood Best For?
Robinhood is best for investors who have a preference for stocks and crypto. The company makes it easy to purchase many assets and can help you achieve your long-term financial goals. Many investors have to use two platforms to get exposure to stocks and crypto. Most long-standing brokerage firms like Vanguard and Fidelity do not let their clients buy and sell crypto.
Robinhood also offers a great experience for traders who can access technical indicators on the platform. These indicators make it easy to conduct a detailed technical analysis to plan your moves accordingly. When you make trades, you get to enjoy zero fees. That includes options contract fees that most brokerage firms charge. Since Robinhood doesn’t charge common trading fees, you get to keep your profits instead of handing them over to the brokerage firm that you use.
What Products Does Robinhood Offer?
Robinhood offers several products that continue to attract new users. These are some of the resources the company provides.
Invest
Buy shares of your favorite companies and create a watchlist for stocks you want to monitor before purchasing. Robinhood Invest makes it easy to learn more about a stock before making a purchase. Investors get to enjoy commission-free trading. Robinhood also lets its users trade equities 24 hours per day during weekdays. Most brokerage firms stop letting their clients trade after 4 pm Eastern. Then, they have to wait until 9:30 am Eastern the following day to initiate trades again.
Robinhood investors can also enjoy lower margin rates than other brokers. You may encounter a 12% margin rate, but Robinhood Gold members can get an 8% margin rate for their trades. Lower margin rates allow you to keep more of your profits and allow investors to maintain their margin positions for longer periods of time.
Crypto
Robinhood offers many cryptocurrencies, such as Bitcoin, Ethereum, and Dogecoin. The firm says that it offers lower trading costs for crypto than any other crypto trading platform. While most crypto brokerage firms limit their investors to Bitcoin and Ethereum, Robinhood has dozens of cryptocurrencies on its platform. Robinhood does not lend your crypto or use leverage, and the company keeps your assets safe with industry-leading security. Clients can set up recurring investments so their crypto portfolios automatically grow each month.
If you don’t feel comfortable with another entity owning your crypto, you can set up a self-custody wallet through Robinhood Wallet. This way, you have full control over the asset instead of relying on another company’s security team to keep your crypto safe.
Retirement
Robinhood lets its customers create individual retirement accounts with a twist. The company’s IRAs are among the only ones in the market that have a matching program. You can get a 1% match on your deposits and have it compound over time. The contribution limit for 2024 is $7,000, which does not include the catch-up contribution. Robinhood will chip in with an extra $70 if you contribute equally to the limit. You can still get a 1% match if you do not make the maximum contribution.
Those extra $70 contributions add up in the long run, and it’s hard to find an IRA like this one. It’s possible to make thousands of extra dollars in the long run between Robinhood matches and asset appreciation, especially since the IRS frequently raises contribution limits.
Robinhood lets investors choose Roth or traditional retirement accounts. Roth accounts let you save money on taxes when you withdraw funds. Traditional retirement accounts shield your contributions from taxes, but then you have to pay ordinary taxes on withdrawals in the future. You must deposit funds from a linked bank account to receive the match. If you use funds from your Robinhood brokerage account or spending account, those contributions are not eligible for the match.
Options Trading
Robinhood lets its investors trade options to potentially realize higher returns. The investing app offers many advanced charts that help traders create more effective strategies. You can track technical indicators like the moving average (MA), the relative strength index (RSI), and others.
Having these resources can help traders pinpoint optimal entry and exit prices for their options. You can set up limit orders to ensure that buy and sell orders take place once contracts reach your designated price targets.
Robinhood does not charge any commission fees or per-contract fees. While it’s become normal for brokerage firms to remove commission fees, many of them still charge per-contract fees. At many brokerage firms like Fidelity, per-contract fees can reach $0.65. That means you will have to pay $1.30 if you want to buy and then sell an option. These fees can add up for an active trader and eliminate thousands of dollars in profit.
Robinhood does away with this common charge, which allows investors to keep more of their hard-earned money.
Cash Card
The Robinhood Cash Card lets you invest a portion of every purchase into stocks or crypto (you get to choose). It’s similar to how credit cards offer rewards points. Instead of receiving points that you may not use for several months or years, put your cashback to good use right away with Robinhood.
Other companies offer a round-up feature that lets you round up to the nearest dollar. While round-up features are useful for many investing apps, the Robinhood Cash Card gives investors a better way to grow their portfolios. Instead of a few cents here and there, you can grow your portfolio by a few dollars with some purchases.
Robinhood cardholders get to enjoy fee-free access to 90,000 ATMs and FDIC insurance. The ATM coverage is more than that of traditional banks and most online banks. Many virtual banks stop at coverage for 60,000 ATMs. Robinhood’s vast amount of coverage makes it very likely that an in-network ATM is in your area. You can even send checks through your checking account.
Robinhood Gold
Robinhood Gold is an account upgrade that costs $5 per month. Investors can make a return on their investment by storing cash in a high-yield, risk-free account with 4.9% APY. Your money gets insured by the FDIC up to $2.25 million through Robinhood and its partner banks. There are no limits to how much interest you can receive from Robinhood Gold as long as you put more money into the account.
The account also bumps IRA matching from 1% to 3%. If you invest $7,000 into your IRA, you will receive $210 instead of $70 from Robinhood’s match program. That extra $140 is more than enough to cover the monthly payments. You even get $50,000 in instant deposits if you want to capitalize on an opportunity right away and an 8% margin rate. Unlike other plans, Robinhood Gold pays for itself.
Robinhood Learn
Robinhood is filled with educational articles that teach you the basics about investing. You can learn about constructing a portfolio that aligns with your risk tolerance, what to look for in an investment, how the stock market works, and other details. Reading articles in Robinhood Learn every day can turn you into a better trader and investor.
Robinhood Investment Platform Features
Robinhood has several perks that make it an attractive choice among investors. These are some of the top perks.
Charges, Commissions, and Fees
Robinhood keeps fees to a minimum and removes many of the expenses that remain on other brokerage platforms. Robinhood led the push for commission-free trading and even offered free options trading. You won’t have to pay any fees for buying or selling options. Other brokerage firms charge $0.65 per contract, which can get very expensive if you trade options frequently.
Interface and Dashboard
Robinhood has a seamless interface and dashboard that makes it easy to access relevant information. The app has a gamified type of feel, which can make investing seem more fun. However, you don’t want to have too much fun and take excessive risks. You won’t get lost in the Robinhood interface.
Trading Experience
Robinhood gives investors access to many technical indicators that can help them make better decisions. It’s a better experience than many investing apps that continue to improve over time.
Margin Rates
Regular Robinhood accounts get a 12% margin rate. However, Robinhood Gold members only end up with an 8% margin rate. That’s a lot lower than most other brokerage firms. The lower rate can help you save money and make Robinhood Gold pay for itself.
Research and Data
Robinhood makes many data points easy to access so you can conduct research on your favorite stocks. Dive deep into individual stocks or get a better understanding of what is currently driving the stock market.
Mobile App
The Robinhood mobile app allows you to access your portfolio and make trades while you are on the go. This level of accessibility can help you stay on top of the market and your picks.
Customer Reviews
Robinhood has a 4.2 rating in the Apple App Store based on over 4.2 million reviews. The company has a 4.1 rating in the Google Play Store among 477,000 reviews. Many reviewers have talked about the app’s free trading, which changed the investing landscape.
Security
Robinhood uses advanced security protocols to keep users’ information safe. The company is very rigorous with how it secures cryptocurrencies. Users can even create Robinhood Wallets, which let them take control of their crypto.
Pros of Robinhood
Robinhood presents several advantages for investors. These are some of the top perks:
- Commission-free trading: Save money on regular stock trades and options contracts. While most brokers adapted and offered fee-free stock trading, fewer brokerage firms removed fees on options trades.
- IRA match: Many brokerage firms offer individual retirement accounts. However, almost none of them match your contributions. You can get a 1% match on any plan and end up with a 3% match if you use Robinhood Gold.
- Crypto trading: Investors can trade dozens of cryptocurrencies on Robinhood. While most brokers don’t offer this feature or limit their customers to Bitcoin and Ethereum, Robinhood has many choices.
- High APY: If you get a Robinhood Gold account, you will earn 4.90% APY on your extra cash. You can even get up to $2.25 million in FDIC insurance.
- Educational resources: Stay on top of the stock market and learn how investing works with Robinhood Learn.
- Technical indicators: Robinhood allows traders to view many technical indicators, which can help them map out ideal entry and exit prices.
Cons of Robinhood
Although Robinhood offers many advantages, it is important to consider these disadvantages before creating an account:
- Limited customer support: Robinhood offers 24/7 customer support, but it can take a while to reach someone.
- No mutual funds or bonds: If you want to trade these assets directly, you are out of luck. You will have to use another brokerage firm to trade mutual funds and bonds. Investors can get exposure to these assets through ETFs.
- Previous trading restrictions: Many investors have a bad taste for Robinhood after the company restricted trading for Gamestop and AMC stock. Time can heal these wounds, and current customers don’t have much to worry about as long as Robinhood doesn’t do something like that in the future.
How to Sign Up for Robinhood
You can sign up for Robinhood by visiting the website or downloading the mobile app. You can complete this form, which requests some basic information like your name and email address. Once you sign up for Robinhood, connect your bank account and deposit funds, you can start investing in stocks and crypto.
