Robinhood Review: Stock Trades for Zero Commission

A graphic of the Robinhood app on a black iPhone and a white iPhone

Robinhood is a commission-free trading app and website which offers access to stocks, ETFs, options and cryptocurrency. The six-year-old Menlo Park, California-based company targets Millennials that want to learn more about investing and keep costs ultra-low. The bare-bones platform waives the typical $1 to $10 per-transaction fee charged by traditional brokers. Instead, the app offers promotions like free stocks for referring a friend.

How Robinhood Works

On the app or website, investors can buy and sell stocks, over 2,000 ETFs, as well as cryptocurrencies like bitcoin after the user syncs their bank account. Investors make trades by filling in the number of shares they want to purchase and choosing between market, limit or stop orders. Customers have instant access to deposits and immediate access to funds after closing positions (that is, selling their stock). Your buying power increases immediately upon initiating a deposit into your account.

For more advanced services, Robinhood offers “next level investing” via Robinhood Gold, which offers professional research reports, the ability to trade on margin, and larger instant deposits.

“Robinhood Snacks,” launched in March 2019, is a “digestible financial news” e-newsletter available to anyone with an email address, whether they trade on the app or not.

Robinhood says a new “cash management” service is “coming soon.”

Why Robinhood is Worth Your Time

Opening an account with Robinhood can save investors big money on transaction fees. The interface of the app is more stripped down than the apps of more traditional brokers like Fidelity or Charles Schwab, but it still offers basic tools and features such as price movement notifications, charts some educational tools, and investment news.

Robinhood was conceived as a way for young people to buy stocks in a mobile-first experience. If you are interested in trading stocks on your own, Robinhood is an excellent option.

How to Get Started

Users can find the app on the Apple App Store and Google Play Store. There is no minimum account balance for basic accounts and a $2,000 minimum for Robinhood Gold. By using instant verification with major banks, Robinhood avoids the hassle of traditional verification and can move up to $1,000 of any deposit into your account immediately, with the rest coming a few days later.

How Does Robinhood Make Money?

The key draw of the core Robinhood platform is its zero-transaction-fee model. In the 20th century, brokers would charge a percentage of the transaction size as a fee. That meant you could pay thousands in commissions on a single large trade. Early in the 21st century, discount brokers introduced flat-fee trades for less than $20. In the last ten years, those fees have fallen to between $1 and $10. Robinhood proposed going one better and charging no fees for stock trades. 

But Robinhood still has to make money. One of the ways the company stays in business is the controversial practice called payment for order flow where a broker like Robinhood directs your trade order to a market maker, like a high-frequency trading firm, to execute your trade. Robinhood then gets a rebate from the market maker for your business. Robinhood executives have argued that this practice is widespread and that the rebates they earn are in line with industry standards.

The company also earns revenue on interest from uninvested cash. Like a bank, if you have $1,000 in cash saved they lend that money at interest and keep the interest.

In addition to these practices, Robinhood’s premium Gold service starts at $5 per month and is free for a 30-day trial. The $5 per month offers access to $1,00 in margin, plus additional research and data including Morningstar reports and soon, Nasdaq Level 2 market data.

There is a $75 ACAT transfer out fee if you want to transfer cash out of your brokerage account and into your bank account.

Is Robinhood Legit?

Robinhood is a member of the SIPC. That means customers are protected from losses up to $500,000 in stocks and cash if the company goes out of business. Robinhood became a clearing broker in October 2018.

Bankrate rates Robinhood at 3.5/5.0 stars. The app has a 4.8/5.0 rating on the Apple App Store based on about 1.5 million reviews. Rivals like E*TRADE and Charles Schwab both get Bankrate ratings of 4.0/5.0 stars. Their Apple App Store ratings are 4.7 and 4.8 stars respectively.

After closing a Series D financing round in 2018, Robinhood was valued at $5.6 billion. Sequoia, Kleiner Perkins and DST Global are among the investors. At that time the company said it had 4 million users and had passed $150 billion in transaction volume, per TechCrunch.

Final Thoughts

For investors that want to bypass broker fees and build their own portfolios, Robinhood is a great option. There are downsides of course. Its core service offers limited research and data, less customer support and no access to mutual funds, bonds, and no retirement, education, or joint accounts.

The app is a great option for younger, longer-term investors seeking more hands-on trading than an automatic robo-advisor. It’s also a good pick for those looking to keep costs low on an easy-to-use mobile-first platform.

For more on how to save, read our Micro-Investing: What It Is, Why It’s for You and How to Start.