In the ever-evolving landscape of the financial services industry, the rise of mobile-first, commission-free trading platforms has significantly transformed the way Americans approach investing. Robinhood, a fintech disruptor founded in 2013, has been at the forefront of this revolution, offering a user-friendly, smartphone-based investment experience that has captured the attention of a new generation of investors.
As we enter 2024, Robinhood continues to make strides in expanding its offerings and addressing some of the concerns that have surrounded the platform in recent years. With a focus on accessibility, innovation, and an ever-evolving suite of features, Robinhood is positioning itself as a formidable player in the brokerage industry. In this comprehensive Robinhood review, we’ll discuss exhaustively the platform’s strengths, areas for improvement, and how it compares to other leading financial institutions in the United States.
What is Robinhood?
Robinhood is a financial services platform founded in 2013 that offers commission-free trades on stocks, ETFs, options, and cryptocurrencies through web and mobile apps.
Key facts about Robinhood:
- Founded by Vlad Tenev and Baiju Bhatt who met at Stanford.
- Headquarters in Menlo Park, California.
- Introduced zero-fee trading of stocks, ETFs, and options, later expanding into fractional shares and crypto.
- Primarily used by younger investors with 65% of users under age 35.
- Top downloaded financial app with over 21 million users as of 2021.
- Went public and had market cap over $60 billion in mid-2021 before declining.
- Generating most revenue from order flow selling and Gold subscription service.
- Uses phone waiting system rather than direct calling for customer service.
While criticized by some as “gamifying” investing, Robinhood has made capital markets more inclusive to new generations of investors. Next, we’ll see how it actually works.
How Does Robinhood Work?
Robinhood functions like a traditional online broker in many ways but with a slick mobile experience tailored to novice investors:
- Users sign up with just an email on the Robinhood website or mobile app in minutes.
- Robinhood asks for basic personal details including SSN which gets submitted for immediate verification.
- Users can start trading stocks, ETFs, options, and crypto commission-free right away.
- Balances, watchlists, orders, and account data accessible on both mobile and web.
- Research limited to basic financials, analyst ratings, price targets, and news feeds.
- Order types include market, limit, stop loss, and stop limit orders. More advanced orders not supported.
- Users can upgrade to premium Gold plan for $5 per month to access margin trading, research data, and higher instant deposit amounts.
While easy to use for beginners, Robinhood lacks some in-depth research and advanced trading capabilities compared to full-service investment platforms. Next, let’s look at the account options.
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Robinhood Account Types
Robinhood started with only taxable individual brokerage accounts but has expanded into retirement offerings:
Individual Brokerage
The standard Robinhood taxable investing account for stocks, funds, options, and crypto. No minimum balance required.
Robinhood IRA
Traditional, Roth, and SEP IRAs added in 2022. Allows retirement investing with tax advantages.
Joint Accounts
Robinhood does not currently offer joint brokerage or IRA accounts. Single owner accounts only.
Trusts
No support for trusts. Robinhood accounts can only be owned by individuals or as custodian for minors.
529 College Savings
Robinhood does not currently offer specialized 529 college savings accounts.
So Robinhood still lags most full-service brokers in available account types. But IRAs are a nice recent addition for retirement savings.
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How to Open a Robinhood Account
Opening a Robinhood account takes just a few minutes:
- Download the Robinhood app on your iOS or Android device or visit the Robinhood website.
- Enter your email and create a password. Agree to the terms.
- Provide your name, date of birth, and address to have your identity instantly verified.
- Confirm receipt of the account opening notice email.
- Deposit funds into your new account via bank link or wire transfer to begin trading.
Once your account is funded, you gain access to Robinhood’s entire suite of commission-free trading and investing products.
Funding Your Robinhood Account
You’ll need to move funds into your account to begin trading. Robinhood accepts the following funding options:
ACH Bank Transfer: Link a checking or savings account to transfer funds. Takes 4-5 days.
Wire Transfer: Initiate an electronic transfer from your bank. Settles same business day.
Check: Mail in a physical check made out to Robinhood. Takes about a week to clear.
Cryptocurrency: Instantly transfer-in crypto from external wallets fee-free.
Robinhood does not support funding with credit or debit cards. Bank transfers are the most common method. Ensure funds fully settle before trading to avoid good faith violations.
Robinhood Investments and Products
Once funded, users can invest in the following assets and products on Robinhood’s platforms:
Stocks
- Commission-free trading on thousands of U.S. exchange-listed stocks.
- Fractional share investing available with as little as $1.
- Limited research and analysis beyond price data.
ETFs
- Access to hundreds of leading exchange-traded funds across sectors and strategies.
- Fractional share investing in ETFs also available.
Options
- Trade options commission-free on thousands of underlying stocks.
- Limited advanced options strategies – no spreads, naked calls, etc.
Cryptocurrencies
- Trade seven major cryptocurrencies including Bitcoin, Ethereum, and Dogecoin 24/7.
- Robinhood holds the private keys and coins instead of the investor.
- Spreads add hidden costs on top of the market price.
Fractional Shares
- Ability to buy partial shares commission-free with as little as $1 invested.
- Fractional shares also supported for ETFs.
- Helps new investors participate in high-priced stocks and funds.
This covers most of the key securities Robinhood offers to investors. But several products are still missing.
What Robinhood Is Missing
For all its innovative features, there are some glaring omissions in Robinhood’s investment offerings:
No Mutual Funds
Only stocks, ETFs, options, and crypto offered. No access to actively managed or index mutual funds.
No Bond Investing
Lack of individual bonds or bond funds limits options for fixed income investors.
No Retirement Accounts Besides IRAs
Other major account types for retirement like 401(k)s unavailable. Also lacks support for HSAs, ESAs, pension plans.
Limited Educational Resources
Minimal investing education content or courses compared to traditional brokers.
Restricted Advanced Trading
No support for trading on margin, short selling, trading on foreign exchanges, over-the-counter stocks, and other advanced asset classes.
Robinhood focuses on bread-and-butter stocks, ETFs, options, and crypto trading for novice investors rather than a full suite of investment products.
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Robinhood Trading Platform
For traders, the quality of a broker’s trading platform is extremely important. Here is an overview of Robinhood’s web and mobile apps:
Desktop Platform
- Streamlined browser-based platform optimized for convenience.
- Monitor watchlists, place trades, and view charts and account data.
- Limited customization and relatively light on features compared to rivals.
Mobile App
- Primary platform for Robinhood’s target millennial investors.
- Gesture-based navigation and colorful confetti animation on trades.
- Minimalist uncluttered interface ideal for passive investors.
- Advanced traders may want more customizable charting and screening capabilities.
Trading Capabilities
- Intuitive order entry ticket with market, limit, stop loss, and stop limit orders.
- Price, volume, and market depth data along with basic charts.
- No advanced orders like trailing stops, brackets, conditional, or algo-based orders.
For casual traders and passive investors, Robinhood offers a refreshingly simple and convenient platform. But advanced traders may find the tools too basic.
Robinhood Gold Premium Service
Robinhood offers an optional premium membership called Gold that provides access to professional research, margin trading, and more for a monthly fee:
Cost: $5 monthly access fee that can be paid using account balance.
Morningstar Research: Institutional grade equity research reports and analysis.
Level II Market Data: View bid/ask spreads, order book depth, and volatility live during market hours.
Margin Trading: Trade on margin with up to 2X leverage using Gold buying power.
Higher Instant Deposits: Increased instant deposit limit from $1,000 to up to $50,000 with Gold.
Professional Charting: 75+ technical indicators and line drawing tools.
For passive investors, the Gold premium features may be overkill. But active traders may find research and margin capabilities useful.
Robinhood Customer Service
Robinhood has historically lagged in customer service but recently expanded support channels:
Help Center: Searchable database of frequently asked questions and trading guides.
Email Support: Submit customer service tickets via email. Slow average response time.
Phone Support: Call back request system rather than direct dial phone support.
Chat Support: Live chat with agents available for real-time inquiries.
Social Media: Large Reddit community support board. Official responses rare.
Location: No physical branch locations. Digital-only customer service.
Robinhood is gradually improving support but still lags full-service brokers that offer live phone support and in-person branches.
Robinhood Fees and Commissions
Robinhood has a simple fee structure compared to other brokers:
$0: No commission fees to trade stocks, ETFs, options, or cryptocurrencies. Zero account minimums or inactivity fees.
$5: Monthly charge for Robinhood Gold premium access (optional).
$10: Monthly Gold fee if paid using margin buying power.
$25: Outgoing ACATS transfer fee to move assets externally.
0.0001 to 0.0020: Cryptocurrency trading spreads add hidden markup costs.
5%: Foreign transaction fee imposed for trading stocks listed on international exchanges.
The lack of trading commissions and no minimum account size makes Robinhood accessible for new investors. But there are still some fees to watch out for.
Robinhood Security
As a financial services provider handling sensitive user information and funds, security is extremely important. Robinhood uses the following measures to help protect user accounts and data:
- Bank-level SSL encryption and two-factor authentication available.
- Customer support required for any account changes.
- Passcode login and biometric fingerprint/face ID on mobile apps.
- Cash balances held at FDIC-insured partner banks up to $250,000.
- Majority of cryptocurrencies stored in cold wallets to mitigate hacking risk.
- Written information security policies and employee cybersecurity training.
- Options education to help mitigate risky uncovered options trading practices by novices.
Robinhood has bolstered safeguards to prevent past issues like users manipulating infinite leverage loopholes or accessing margin too easily. Enabling two-factor authentication is highly recommended.
Is Robinhood Safe To Use?
Robinhood has received scrutiny both for blocking trades during volatile market conditions as well as its gamified experience that may encourage addictive behavior:
- Jan 2021 – Annoyed users during GameStop (GME) short squeeze by restricting buys.
- March 2020 – Faced criticism for multiple app outages during massive market volatility on key trading days.
- Dec 2018 – FINRA fined Robinhood $1.25M for lack of best execution practices and transparency around order routing payments.
- 2022 – Fined $70 million by FINRA for misleading communication practices, supervisory failures, and harming millions of users.
- The visually stimulating confetti animation when a trade executes has been called out by critics for promoting excessive trading.
Robinhood maintains their platform restrictions were deployed appropriately during unprecedented market conditions and they continue improving their services. But users should be aware of the controversies.
How Does Robinhood Make Money?
Unlike most brokers, Robinhood does not generate revenue through trading commissions or account fees. Their business model relies on:
Order Flow Payments: Earns money by routing customer orders through market makers like Citadel Securities and Virtu Financial who pay to fill that order flow. This practice is standard across the zero-fee brokerage industry.
Gold Subscription: Charges $5 per month for premium features aimed at high volume traders who need research, margin, and data.
Margin Lending: Loans out margin trading funds to users and generates interest income from borrowers. Rates vary based on market demand.
Cash Management: Earns interest revenue from reinvesting idle customer cash swept into network partner bank accounts.
Interchange Fees: Charges transaction costs to merchant businesses that accept payments through Robinhood’s cash debit card.
Order flow selling makes up the majority of Robinhood’s revenues. They also benefit from interest earned on customer margin trades and idle cash deposits.
Robinhood Referral Program
Robinhood offers a referral program that rewards existing users for referring friends and family. The current signup bonus offers:
Earns You A Free Stock: Receive one free randomly selected stock worth $2.5 to $200 for each successful referral.
Earns Your Friend A Free Stock: Referrals also get one free stock valued at $2.5 to $200 after opening an account.
Users are limited to 10 total referral bonuses per year. Both the referrer and recipient must link a valid bank account and be approved to receive the stocks.
How Does Robinhood Compare?
Robinhood vs. Webull
Robinhood and Webull both offer free stock, ETF, and options trades. But Webull has superior charting while Robinhood allows cryptocurrency.
Robinhood vs. Coinbase
Robinhood supports a handful of major cryptos commission-free but has higher crypto spreads. Coinbase offers more coins but charges trading fees.
Robinhood vs. Fidelity
Fidelity delivers significantly more investment products, research resources, account types, and customer service. But they charge commissions and require minimum balances that Robinhood does not.
Robinhood vs. Vanguard
Vanguard is better for buy-and-hold index mutual fund investors with industry leading low expense ratios. But they don’t support trading stocks, options, or cryptocurrencies like Robinhood.
Robinhood vs. TD Ameritrade
TD Ameritrade charges $0 commissions like Robinhood but offers far more investment products, advanced trading platforms, education, research, and top-tier customer service.
Robinhood competes well on cost and convenience but lacks the product selection found at full featured brokers like Fidelity, Schwab, and Vanguard.
Robinhood’s Pros: Key Standout Features
Commission-Free Trading
One of Robinhood’s flagship features that has made it a household name is its commitment to commission-free trading. Investors in the US can execute trades on stocks, ETFs, options, and cryptocurrencies without incurring any fees, a stark contrast to the industry’s traditional model of charging per-trade commissions.
This “free trading” model has been a game-changer, particularly for younger and more cost-conscious investors who may have been deterred by the fees charged by traditional brokerages. According to a 2023 survey by Bankrate, over 60% of Robinhood’s user base is under the age of 35, underscoring the platform’s appeal to a new generation of investors.
Intuitive Mobile Experience
Robinhood’s sleek and user-friendly mobile app has been a key driver of its success, catering to the preferences of the smartphone-savvy demographic. The app’s stripped-down design and intuitive navigation make it easy for beginner investors to quickly access vital stock information, place trades, and manage their portfolios.
A Bankrate staffer who uses the Robinhood app noted, “Robinhood is excellent for getting a trade done quickly with little effort, and I can get my money into the account fast so I can invest. I know it doesn’t have all the research that other brokers have, but I know what I want to buy and do my research elsewhere. The app is easy to use, and it’s convenient to earn interest on the cash account.”
The mobile-first approach has been a key differentiator for Robinhood, catering to the preferences of a generation that often relies on smartphones for their financial management tasks.
Fractional Share Trading
Robinhood’s fractional share trading feature is another standout offering that caters to investors of all financial backgrounds. By allowing users to purchase partial shares of stocks and ETFs with as little as $1, Robinhood enables even those with limited capital to participate in the stock market and diversify their portfolios.
This feature is particularly valuable for investors who want to own a piece of high-priced stocks or funds but may not have the means to purchase a full share. Robinhood’s fractional share program covers a wide range of securities, making it easier for Americans to build wealth through incremental investments.
Robust Options Trading Platform
Robinhood has established itself as a go-to platform for options traders in the US. By offering commission-free options trades, the platform has eliminated a significant barrier to entry for investors looking to explore this more sophisticated investment strategy.
The app’s streamlined options trading functionality, which includes the ability to place market, limit, and stop orders, has made it accessible for both experienced and novice options traders. This has proven particularly appealing for active traders who can now execute their strategies without incurring hefty per-contract fees.
Instant Account Funding and IRA Matching
Robinhood’s seamless account funding process, which allows users to instantly access up to $1,000 of their deposits, is another feature that sets it apart in the US market. By leveraging instant bank verification, the platform can bypass the typical delays associated with traditional brokerage account funding, enabling investors to start trading more quickly.
Furthermore, Robinhood’s introduction of IRA accounts in 2023, complete with a unique 1% matching program on all contributions and transfers, has made the platform an attractive option for Americans looking to save for retirement. The IRA matching feature, which can go up to 3% for Robinhood Gold subscribers, provides a compelling incentive for investors to consolidate their retirement assets on the platform.
Robinhood’s Cons: Areas for Improvement
Lack of Mutual Fund Offerings
One notable shortcoming of Robinhood’s investment lineup is the absence of mutual funds. While the platform offers a wide range of stocks, ETFs, options, and cryptocurrencies, the lack of access to actively managed or index mutual funds may be a deterrent for some investors, particularly those seeking diversification and professional fund management.
This limitation stands in contrast to the extensive mutual fund offerings available at traditional full-service brokerages in the US, such as Fidelity, Schwab, and Vanguard. For Americans seeking a more comprehensive investment experience, Robinhood’s limited product suite may fall short of their needs.
Restricted Account Types
Robinhood’s account offerings are also relatively limited compared to its industry peers. While the platform has recently expanded to include IRA accounts, it still lacks other common account types, such as joint accounts, trusts, 529 college savings plans, and health savings accounts (HSAs).
This restricted account selection may be a significant drawback for investors who require more flexibility in managing their finances and achieving their long-term goals. The inability to consolidate all of one’s investment accounts under a single platform can be a barrier for Americans looking to streamline their financial management.
Ongoing Regulatory Concerns
Robinhood’s history of regulatory infractions and legal challenges has been a persistent concern for the platform. In 2020, the US Securities and Exchange Commission (SEC) fined Robinhood $65 million for misleading customers about its revenue sources, specifically the practice of routing orders to high-frequency trading firms in exchange for payments.
More recently, in 2021, Robinhood was hit with a $70 million penalty by the Financial Industry Regulatory Authority (FINRA) for a series of issues, including misleading communications, system outages, and approving risky options trades for inexperienced investors.
While Robinhood claims to have addressed these issues and improved its compliance practices, the platform’s history of legal infractions may continue to raise red flags for some American investors, particularly those seeking a more established and reputable brokerage.
Unclear Cryptocurrency Pricing and Markups
Robinhood’s approach to cryptocurrency trading has also been a point of contention. While the platform advertises commission-free crypto trades, it does not disclose the actual markups it applies to the prices it displays to users.
Unlike traditional cryptocurrency exchanges, which typically show the actual bid and ask prices, Robinhood effectively builds in a wider spread, resulting in less favorable pricing for its customers. This lack of transparency around the true cost of crypto trades has been a source of criticism, with some arguing that Robinhood’s “free” model may end up costing investors more in the long run.
For Americans seeking greater clarity and competitiveness in their cryptocurrency trading, Robinhood’s opaque pricing structure may be a deterrent.
Customer Service Challenges
Robinhood’s customer service has been a longstanding pain point for the platform, with users historically facing difficulties in reaching out for support and resolving issues. While the company has taken steps to improve its support offerings, including the introduction of 24/7 chat and callback capabilities, its customer service reputation still lags behind industry leaders.
In an age where investors increasingly demand responsive and personalized support, Robinhood’s customer service limitations may be a drawback, especially for those who require more hands-on assistance with their accounts and investments.
How Robinhood Compares to Other Brokerages in the USA
Robinhood vs. Webull
Robinhood and Webull, another popular mobile-first brokerage, share several key similarities, such as commission-free trading and a focus on user-friendly interfaces. However, Webull offers more advanced charting and technical analysis tools, which may appeal to active traders and investors seeking a more robust platform.
Additionally, Webull provides access to a wider range of asset classes, including futures and commodities, as well as more in-depth research and educational resources – features that may be more valuable for Americans looking to expand their investment knowledge and strategies.
Robinhood vs. Fidelity
As a full-service brokerage, Fidelity offers a significantly broader range of investment products and account types compared to Robinhood. This includes access to thousands of no-transaction-fee mutual funds, a diverse selection of retirement accounts, and a suite of sophisticated trading tools and research capabilities.
While Fidelity does not charge commissions for online stock and ETF trades, it may be a better fit for investors seeking a more comprehensive financial management experience, including access to financial advisors and a wider array of investment options. Fidelity’s reputation for excellent customer service and stability may also be important considerations for some American investors.
Robinhood vs. Vanguard
Vanguard, known for its industry-leading low-cost index funds and ETFs, caters primarily to long-term, buy-and-hold investors. Unlike Robinhood, Vanguard does not offer options trading or cryptocurrency investing, but it excels in providing access to a vast selection of mutual funds with some of the lowest expense ratios in the industry.
For Americans focused on building diversified, low-cost portfolios for retirement or other long-term goals, Vanguard may be a more suitable choice than Robinhood, which is better suited for active traders and investors seeking a more comprehensive suite of investment products and trading capabilities.
Robinhood vs. TD Ameritrade
TD Ameritrade, a full-service brokerage, offers a robust trading platform, extensive research and education resources, and a wide range of investment products, including mutual funds and fixed-income securities. While TD Ameritrade does charge commissions for certain trades, it provides a more comprehensive investment experience compared to Robinhood.
For Americans who value in-depth research, advanced trading tools, and personalized customer support, TD Ameritrade may be a more compelling option than Robinhood, which prioritizes simplicity and accessibility over a more feature-rich platform.
Who is Robinhood NOT Good For?
Robinhood’s limitations may make it less ideal for:
Advanced Traders
The lack of sophisticated trading tools, charting functionality, trading automation, and advanced order types limit Robinhood’s utility for active traders.
Mutual Fund Investors
With $0 trades but no mutual funds offered, index fund investors need to look to discount brokers like Fidelity, Vanguard, or Charles
Conclusion
Robinhood’s impact on the financial services industry in the USA has been undeniable. The platform’s commission-free trading, user-friendly mobile experience, and innovative features like fractional share investing have democratized investing, making it more accessible to a new generation of American investors.
However, Robinhood’s journey has not been without its challenges. The platform’s limited investment product offerings, restricted account types, ongoing regulatory concerns, and customer service shortcomings have left room for improvement. As Robinhood continues to evolve and adapt to the changing needs of American investors, it will be crucial for the company to address these pain points while maintaining the core features that have made it a disruptive force in the industry.
For Americans seeking a straightforward, mobile-centric investment experience, Robinhood may still be a compelling choice. But for those in search of a more comprehensive financial management platform, with access to a wider range of investment options and a stronger customer support network, alternative brokerages like Fidelity, Schwab, and Vanguard may be more suitable. Ultimately, the choice will depend on the individual investor’s needs, investment goals, and preferences within the ever-evolving landscape of the US brokerage market.
Frequently Asked Questions (FAQs)
What are the key benefits of using Robinhood in the USA?
The primary benefits of using Robinhood in the USA include commission-free trading on stocks, ETFs, options, and cryptocurrencies, a user-friendly mobile-first platform, fractional share investing, and the ability to quickly fund accounts. Robinhood’s recent introduction of IRA accounts with a unique matching program has also made it an attractive option for American investors seeking to save for retirement.
What are the drawbacks of using Robinhood in the USA?
The main drawbacks of using Robinhood in the USA include the lack of mutual fund offerings, limited account types, ongoing regulatory concerns, unclear cryptocurrency pricing and markups, and customer service challenges. Robinhood’s restricted investment product lineup and support services may be a deterrent for some American investors seeking a more comprehensive financial management platform.
How does Robinhood compare to other popular brokerages in the USA?
Compared to other leading brokerages in the USA, Robinhood stands out for its commission-free trading and mobile-centric approach, but it falls short in areas like research, education, and breadth of investment offerings. Webull offers more advanced trading tools, while Fidelity and Vanguard provide access to a wider range of investment products and account types. TD Ameritrade, on the other hand, offers a more feature-rich platform and personalized customer support.
Is Robinhood a good choice for beginner investors in the USA?
Robinhood can be a good choice for beginner investors in the USA, particularly those drawn to the platform’s simplicity, commission-free trading, and fractional share capabilities. The mobile-first experience and ease of use make Robinhood accessible for younger and less experienced investors. However, the lack of in-depth research, education, and customer support may be a drawback for some American beginners who require more guidance in their investment journey.
How has Robinhood’s legal history affected its reputation in the USA?
Robinhood’s past regulatory infractions and legal challenges, such as the $65 million SEC fine in 2020 and the $70 million FINRA penalty in 2021, have had a notable impact on the platform’s reputation in the USA. While Robinhood claims to have addressed these issues, the company’s history of compliance problems continues to raise concerns for some American investors, particularly those seeking a more established and reputable brokerage.
