Trading platforms let customers invest in the options they want and, in return, charge some fee for the service.
What is Robinhood?
Robinhood is an American-based financial service that offers a trading app to investors looking to trade stocks, crypto, ETFs, and other options. It was founded in 2013 and currently has over 5000+ domestic stocks and 250 global stocks.
Not so long ago, Robinhood was highly acclaimed and very popular as it offered free trades. However, it has gradually lost its streak as many of its competitors have dealt away with commission & fees. Even so, it is still a good choice for investors.
Is it safe?
Robinhood is regulated by the relevant authorities i.e. US Securities and Exchange Commission and the Financial Industry Regulatory Authority. Just recently, the company crashed on three occasions affecting its entire customer base.
How does Robinhood work?
You have to sign up with platform and deposit funds into your account to start trading. You can trade stocks, including those listed on NASDAQ and NYSE. UK customers are limited when it comes to some products such as crypto trading and ETFs.
Is it available in Australia?
Currently, Robinhood is not available in Australia. The platform can only be used by customers living in the US or the UK (only early access).
US residents can sign up by visiting the website and clicking ‘Open an Account’ under the Getting Started menu. If you live in the UK, the signing up process is slightly different. Visit the website sign up for early access using your email.
If granted access, you can download the Robinhood app and fund your account. It is only after your account is funded when you can start trading via Robinhood.
The eligibility criteria demands investors looking to join:
- Be US citizens or permanent US residents
- Be aged 18 years or more
- Have US social security number
- Submit valid residential addresses
Other information that may be required includes your personal details, email address, contact number, and financial & tax identification. The information helps verify your identity as stipulated by the SEC customer identification rule of the USA Patriot Act of 2001.
Robinhood provides you with a range of assets to plough your money into. These include
- Cryptocurrencies (including Bitcoin and Ethereum)
- Options trading
- Global stocks
- Majority of the US Exchange listed equities and ETFs
The platform also supports select American Depository Receipts (ADRs), and a number of stocks that trade on Canadian and Israeli exchange. The major assets that aren’t supported include OTC equities, tracking stocks, mutual fund, FOREX, bonds, and preferred stocks.
Robinhood throws in a mobile application that sports an intuitive interface. You can accomplish several tasks on the app. This includes making deposits and withdrawals, monitoring and managing your portfolio and trading stocks. Unfortunately, the app is only available to US customers.
The waitlist sort of works as a queue since Robinhood is yet to launch officially in the United Kingdom. The company announced it was going to launch in the UK in early 2020. Customers from the UK wishing to join Robinhood can reserve a spot by getting on the waitlist.
Robinhood has a special provision that can move you up the list. For every person you refer to the waitlist using your unique link, you move 1000 spots up on the waitlist. Visit the website and click on ‘Get Early Access.’
You will be required to enter your email. To refer friends to Robinhood, just share your referral link via message or even social platforms. The waitlist has no commitments at all.
The Gold account provides you with access to extra services such as Level II market data, margin trading, and professional research. However, the Gold account comes at a monthly fee.
Robinhood is a zero-commission platform and thus doesn’t charge any commission or foreign exchange fee. However, your funds are usually converted to the US dollar upon depositing.
Platform ease of use
Robinhood is a no-frills platform. It has a simple design for easier navigation and usability. Although the company launched with a mobile app, it launched its website late in 2017.
On the downside, they fall short in terms of customization options. Both the app and website went down during the crash the company suffered in early last month.
As a result of a simple and easy to use interface, the trading experience is seamless. Of course, this is expected seeing as there aren’t many customization options. Robinhood dwells on parts of equities instead of the entirety of the market.
To enter a limit order, you need to override the market order. Also, you can’t place a trade via the chart directly. Robinhood doesn’t give you an option to stage orders for later entry.
Placing orders is easy for the stocks, but the problem arises when it comes to options. For the latter, placing orders is complex.
By now, you already know Robinhood offers only a limited set of order types. While you have an option to limit orders or enter market for all assets, you can’t enter conditional orders.
Unlike other broker platforms, Robinhood doesn’t post the trading stats. This makes it hard to conduct comparisons of its payments for order flow stats to others. The policy of the industry here is to report payment for order flow on a per-share basis. Contrarily, Robinhood reports on a per-dollar basis.
Order routing practices help evaluate the probability of receiving the best price at the time of placing a trade. Typically the best price is either a sale above the bid price or buy below the offer price. Robinhood, also, doesn’t disclose its price movement statistic- a factor that leaves room for assumptions on the credibility of its order routing practices.
On Robinhood’s website, you will find a page that explains in-depth how the platform generates its income. Thumbs up to Robinhood in the way they address all the concerns, inquiries, and issues on their websites. Even a tenderfoot can get his way around the website without any difficulty.
In general, here are ways that Robinhood makes money for you and revenue from you:
- Interest Cash
- Payment for order flow
- Stock loan programs
- Margin Interest
- By not offering portfolio managing
What are the best alternatives?
The best alternative to Robinhood is Webull. TD Ameritrade and Firstrade are a close second, with the former being ideal for experienced and the latter for beginners.
Robinhood pros and cons
- Fee-free ETF and US stock trading
- Allows customers to place crypto trades in small quantities
- User-friendly and intuitive trading platforms both app & web
- Quick signing up process
- Allows for instant access to deposited funds & immediate access to funds after closing positions
- Very limited asset selection available
- Wide spreads on the cryptos probably to compensate for the lack of commission
- Only one option to reach customer support i.e. email
- Lacks a rich library of education materials
- Easy to outgrow as you advance into the investment journey
Robinhood is a good place as any for investors looking to test the waters in investment. Its simple nature, in particular, makes it perfect for newbies.
Think of Robinhood as stabilizers on your bicycle. Sure they are useful at first helping you not trip over, but sooner or later, you learn to cycle without them. At this point, you no longer need them as you have outgrown them. You get the idea.
A hands-off investor may also find the platform good. On the other hand, if you intend to start and expand your investment rapidly, we don’t recommend Robinhood.