Robinhood entered the game as a free investing app that wanted to make investing accessible and affordable for all. It even took its name from the Robin Hood film character who stole from the rich to give to the poor.
That mission is appealing to new inventors, and Robinhood also offers cryptocurrency trading, which you can’t find everywhere. But Robinhood is no longer the only free investing app out there.
My full review of Robinhood explains what Robinhood offers new investors, Robinhood fees, and controversies that have people questioning if free trading on Robinhood is worth it.
Robinhood review 2021 – Features, fees, pros & cons, and more
What is Robinhood?
Robinhood is a free investment app that’s known for commission-free trading of stocks, exchange-traded funds (ETF), options, and cryptocurrency. Users get a free stock just for signing up– most are valued at $10 or less, but there’s a 1 in 150 chance that it will be a higher value stock like Visa, Apple, or Johnson & Johnson.
Robinhood was founded in 2013 and was one of the first investing apps to offer $0 commissions. Many other brokerages followed Robinhood’s lead by eliminating commissions and fees.
Having no fees is the core of Robinhood’s business model, and they say their goal is to “democratize finance for all.” That means making investing affordable and accessible. I’m going to get into how that’s all working out further down, but the point is: Robinhood is known for its low-cost approach to investing
Being able to trade cryptocurrency is another one of Robinhood’s major selling points, and Robinhood is one of the only well-known investment apps to trade crypto.
Users can trade via the Robinhood investment app or desktop, and both are super streamlined to focus on trading. The app gamifies the investment process with confetti when you make a trade, and you’re rewarded with stock (usually just a very small one) if you get a friend to sign up.
Robinhood is best for:
- Trading cryptocurrency
- Margin lending
- Beginning investors
Robinhood isn’t a good fit if you want retirement options because it only offers individual brokerage accounts. Robinhood also has far fewer offerings than other brokerages– no mutual funds, bonds, forex, or REITs.
How much does Robinhood cost?
It’s free to sign up and create an account with Robinhood. There are no account minimums, and there are $0 commissions on trades.
Robinhood Gold is a premium account option that costs $5/month. It gives you professional-level research through Morningstar and Level II Market Data. Robinhood Gold also lets you have instant access to larger amounts of money, depending on your account balance, and it’s where you can get investing on margin.
Free Robinhood isn’t 100% free, because there are miscellaneous fees you may incur, plus regulatory fees from the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority). SEC and FINRA fees are standard for any brokerage.
Here’s a list of all Robinhood fees:
- Outgoing transfers from Robinhood to another brokerage $75
- Domestic overnight check delivery $20
- Paper statements $5
- Paper confirms $2
- Domestic overnight mail $20
- International overnight mail $50
- Regulatory trading fees $22.10 per $1,000,000 of principal
- Trading activity fees (TAF) $0.000119 per share (equity sells) and $0.002 per contract (options sells)
If you use Robinhood for margin trading and use more than $1,000 of margin, Robinhood charges 5% yearly interest on the amount you use over $1,000.
I’m going to walk you through what Robinhood offers investors. Some of the features like margin lending, cryptocurrency trading, and the Robinhood investing app are what sets it apart from other discount brokerages. However, some features leave users wanting more.
Robinhood’s sleek app
The Robinhood investment app is very clean and intuitive. If you can use a smartphone, you can use this investing app. The simplicity of the app is part of the point – it’s meant to be beginner-friendly.
When you log into the app you’ll see your portfolio value displayed as a line chart. You can tap on the line to see changes in your portfolio based on the time of the day. Order tickets pop up in the app if you’re looking at a particular stock or other security, and everything can be traded on the app and the desktop version of Robinhood.
You can do one-time deposits in the app or schedule them on a daily, weekly, or monthly basis.
The app buzzes and confetti explodes across the screen when you make a trade, which is really fun. But the idea of gamifying investing has some people concerned about its ethics. It also led Massachusetts security regulators to file a complaint against Robinhood in 2019.
It’s also worth noting that the Robinhood investment app suffered outages in February and March of 2020 due to market surges. The app’s founders said their systems couldn’t handle the stress of so many extra orders.
There’s a $0 Robinhood minimum balance. That means you can open an account and get started right away. Obviously, you’ll need some money to start investing, but Robinhood allows for fractional shares, so you don’t need the full price of a share to start trading (more on fractional shares next).
For margin lending, you’ll need a $2,000 account minimum and be enrolled in Robinhood Gold. The $2,000 minimum is a FINRA regulation and applies to every other brokerage.
Purchasing fractional shares, sometimes called micro-investing or spare change investing, is when you purchase a portion of a share instead of the whole thing. Fractional shares open the market to investors who don’t feel like they have enough to start investing.
Instead of paying $128.93 for a single share of Apple (where the price was when I was writing this Robinhood review), you can pay $1, and own 0.78% of an Apple stock. Robinhood lets you purchase fractional shares down to 1/1000000 of a share. Fractional shares are becoming a standard offering, and besides being an affordable way to start investing, it lets you stay diversified even on small account balances.
Fractional shares allow your recurring deposits to be invested immediately, so money isn’t sitting idle in your account. And it allows Robinhood to offer a dividend reinvestment program (or DRIP).
Trading on margin
Margin trading isn’t for brand new investors because it’s the risky practice of borrowing money to purchase stocks or other securities. Using Robinhood (or any other brokerage for that matter) for margin trading is very risky because you can lose more than you borrow.
To start margin trading, you’re required to have at least $2,000 and a Robinhood Gold account. Robinhood gives you the first $1,000 of margin without any fees, and there’s a 2.5% yearly interest fee on any margin over $1,000.
Cash management account
Robinhood’s cash account is newer, and it’s an FDIC-insured high-yield savings account that currently earns 0.30% APY, which is higher than the national average. Opening a cash management account is free and comes with a debit card. There are no ATM fees from over 75,000 ATMs nationwide wide. Plus, there are no overdraft fees, transfer fees, or foreign transaction fees on this account.
Robinhood Gold is an upgraded account option that’s meant to give investors more research material, instant transfers, and margin trading. It’s $5 a month for Gold.
Without Gold, Robinhood has really limited research material for investors. With Gold, you get Nasdaq Level II quotes and research on over 1,700 different companies from Morningstar. There are other apps, Webull for example, that offer the same kind of in-depth data and analysis for free.
Gold also gives you instant access to transfers going up to the value of your portfolio. You’ll need a balance of at least $5,000 for transfers, and there’s a maximum instant transfer limit of $50,000.
Like I said earlier in this review, Robinhood lacks a number of the investment offerings you can easily find with other brokerages. There aren’t mutual funds or bonds, which you’ll typically want in a well-diversified long-term investment strategy.
On the flip side, Robinhood trades cryptocurrency, and it’s one of the only well-known discount brokerages that does. It currently offers Bitcoin, Ethereum, Dogecoin, and Litecoin.
Individual brokerage account
Robinhood only offers individual brokerage accounts, so no retirement accounts, like solo 401ks, IRAs, no joint accounts, no 529 college savings plans, etc. I imagine they may try to expand their offering at some point, but for now, you’re left with an individual taxable account.
You can always open an account at another brokerage for other types of accounts, but many people find it easier to have everything you need in one place.
Robinhood’s customer support is limited to online support only. You can search through a list of articles in their support center, get help via chatbot, or email the company, which is hard to do – the company pushes you through a series of FAQs before you can even access their email.
There’s no phone support, which is a major bummer considering that most of the big brokerages will let you call and speak to someone anytime you have a question.
A few things have happened over the past few years that have inventors questioning the reliability and trustworthiness of Robinhood. And as I’m writing this review, Robinhood CEOs are being questioned in a congressional hearing because of how the app handled trading for Gamestop and other stocks in January 2021.
Potential users shouldn’t ignore several serious issues that Robinhood has faced over the years.
In late January 2021, Robinhood restricted trading on certain stocks. This decision came as the market was experiencing extreme volatility due to heavily shorted stocks like Gamestop and AMC. Other brokerages took precautions during that period, but Robinhood’s were the strictest.
There’s a lack of transparency around how Robinhood makes money. Robinhood makes money in a few different ways, and the most controversial is something called payment for order flow (PFOF). It’s when your trades are sold to a high-frequency trader, or market maker, to get better prices on your trades. It’s how Robinhood offers free trading.
PFOF isn’t uncommon (many brokerages use it), but the SEC requires brokerages to disclose this information, including how much they make from it. In December of 2020, Robinhood was fined $65 million by the SEC for a failure to disclose this information. The SEC investigation found that customers’ orders were not executed at the best prices because of PFOF.
Robinhood was accused of putting inexperienced investors at risk. In December of 2020, Massachusetts regulators accused Robinhood of using gamification techniques to manipulate customers and introduce them to risky investing practices.
In early 2020, the app had several outages. There was a surge of investors in early 2020, and Robinhood’s systems weren’t able to handle it. Investors were rightly frustrated since they couldn’t access their money, and this has led to class action lawsuits.
Robinhood pros and cons
Final Word: Is Robinhood legit?
With all of the media surrounding how Robinhood makes money and restricted trading on stocks, it’s completely normal to have questions about Robinhood’s legitimacy.
Robinhood won’t be for everyone, but it’s still a legit app. Brokerages like Charles Schwab, E*Trade, and TD Ameritrade all use payment for order flow, and several brokerages restricted trades in late January 2021.
The real danger Robinhood presents is that new investors can get over their heads if they’re not careful. The app gives inexperienced users the chance to trade like day traders, which is dangerous – even experienced traders make mistakes.
Whoever you invest with, the bottom line is that you need to be careful. Investing works best as a long-term strategy to gain wealth. For that, you need diverse options, patience, and time to research what you’re getting into.