Robinhood Review

Is Robinhood legit or is it a scam? How does Robinhood compare to other brokers and how can it be free? Here is the ultimate Robinhood review to help you.

Bottom Line

Robinhood is a good trading platform offering Exchange Traded Funds (ETFs), option trades, commission-free stock, and free cryptocurrency trading.
Like many other brokerage platforms, it faces challenges like poor customer support and failing to offer mutual funds and bonds in investments.
Despite the few downsides, Robinhood is user-friendly whether you are an experienced trader or not.

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The Pros:

  • Excellent mobile and web trading platforms
  • Quick account opening
  • Customers have instant access to deposited cash

The Cons:

  • Shortage of educational materials
  • Poor customer support
  • Limited product range

Are you looking for an investment app that allows users to trade without paying commissions or fees?

In this article, we will take a detailed review of Robinhood, how it works, and how it can benefit you.

What Is Robinhood?

Robinhood is a free trading platform that allows investors to trade options, stocks, exchange-traded funds, and even cryptocurrency.

Since its launch in 2013, it stood out as the only platform allowing trading without charging any fee or commission.

However:

Other platforms then eliminated all their charges to keep up with the competition.

Robinhood now introduces new and friendly features to the platform to keep users at bay. For example, the latest addition is the ability to buy fractional shares of stocks.

Perks Of Using Robinhood

Robinhood may not be the best investment or trading software out there, but it is effective and shines in the following sectors:

Account Minimum

Robinhood does not have a mandatory minimum, and investors can get started as soon as they complete registration.

However, to invest, you will need enough money to purchase the investment you are eyeing.

Like most brokers, Robinhood requires traders to start a margin account with a $2,000  minimum portfolio balance.

This is a standard regulation according to the Financial Industry Regulatory Authority.

Recurring Investments And Fractional Shares

The recent feature, Fractional Shares, will be beneficial to most users who cannot meet the full price of shares going for hundreds of dollars.

Now, you can pay as little as $1 for a portion of shares which will help you build a diversified portfolio even with a shortage of investment.

Fractional trading goes well with another recent feature known as recurring investments.

To use recurring investments, all you need is to set a schedule that can be weekly, biweekly, or monthly and a dollar amount.

Robinhood will automatically invest the set amount when you want. This may not be a unique feature on other platforms, but it works exceptionally well with fractional shares.

High-Yield Savings

Robinhood also offers a service known as Cash Management, where users expect an Annual Percentage Yield (APY) of 0.30% on uninvested cash.

Unfortunately:

This is less when compared to what some other trading platforms offer from their high-yield savings account.

Cash management account holders also have unrestricted access to funds through Robinhood ATM debit cards used for purchases anywhere Mastercard is accepted.

You can also make withdrawals in over 75,000 ATMs in the U.S.

Access To Cryptocurrencies

Robinhood is among the first brokerages to offer cryptocurrency right in their trading platform.

Best of all?

It is entirely free. However, pure-play crypto brokerages charge higher fees than usual.

Easy To Use

If you are a frequent smartphone user, you will find the signup process and usage of the mobile app relatively easy.

In just a few minutes, you can fill in your personal information, contact details, and the means to fund your account and start purchasing.

Account approval is the only lengthy process that can take up to half a day after submitting the required details.

Robinhood uses instant verification with many banks to save users the struggle of reporting every micro-deposit to an account.

You can instantly transfer $1,000 for investing, while a more significant transaction may take four to five business days.

Improved Research Offerings

The company is taking considerable measures to try and increase the tools and research available for traders offering lists of top movers, analyst ratings, links to earning calls, and earning calendars.

While using the mobile app, you can access candlestick charts that resurface information from other Robinhood traders to create its own universe of data.

Where Robinhood Falls Short

Reliability And Trustworthiness

The main challenge facing Robinhood is the complaints and lawsuits that have been filed against the company over the years. Some examples include:

Towards the end of December 2020, Robinhood was charged with misleading customers by the Securities and Exchange Commission.

The Robinhood system was discovered to execute customers’ orders lower than other brokers’ prices, depriving customers of at least $34.1 million.

In December the same year, the Commonwealth of Massachusetts blamed Robinhood for attracting inexperienced traders to its platform using gamification techniques.

The complaint also stated that most inexperienced Robinhood users were given access to risky and advanced options trading products.

Later in January 2021, the app was under much heat after deciding to restrict trading during extreme market volatility surrounding several heavily shorted stocks such as Gamestop.

Other market brokerages advised traders to take more precautions while Robinhood expanded its restrictions.

In June 2021, Financial Industry Regulatory Authority (FINRA) ordered Robinhood to pay $12.6 million to thousands of customers who suffered from the outages, technical issues, and restrictions.

Limited Securities

A long-term and well-diversified portfolio should include various mutual funds and bonds that Robinhood doesn’t support.

Cryptocurrency Offers Are Limited

Despite Robinhood claiming that it offers crypto trading, you cannot send or receive any coins.

Turns out:

Your only option is to buy them in USD and sell them for USD.

How To Sign Up On Robinhood

Opening an account with Robinhood is pretty straightforward, and it only takes about ten minutes to apply and less than a day for account verification.

Requirements

Robinhood is only accessible to U.S. residents who:

  • Are 18 years or older
  • Have a legal U.S. residential address
  • Have a valid Social Security Number (SSN)
  • Are a U.S. citizen, U.S. permanent resident, or have a valid U.S. visa

Steps Of Completing Account Opening

Step 1

Fill in your personal details, including your address, SSN, and date of birth.

Step 2

Respond to short questions concerning your trading experience.

Step 3

Identity verification using your identity card, driver’s license, or passport.

How Safe Is Robinhood?

In case you might be asking yourself:

How safe are your funds and trades with Robinhood? The platform ensures data, information, and customer safety through the following:

  • It is a member of the Financial Industry Regulatory Authority (FINRA).
  • It is licensed by the Securities and Exchange Commission (SEC) to transact stocks.
  • It is a member of the Securities Investor Protection Corporation (SIPC) that protects stocks and accounts with up to %500,000.
  • Users who seek extra security have the option of two-factor authentication.
  • The company’s system uses the latest bank-level encryption technology.

Robinhood vs. Interactive Brokers

Robinhood (3) Interactive Brokers (3.7)
No fee per tradeNo fee per trade
$0 minimum for brokerage account$0 minimum
Customer support: email and social mediaCustomer support: 24-hour phone, email, and chat support six days a week

Conclusion

Robinhood is a good and user-friendly trading app that can help a beginner grow and become better.

If you are interested in buying fractional shares of stocks with no account minimum and zero commission, you should try out Robinhood.

However, the platform has some drawbacks, such as weak customer care and limiting products to the U.S. market only.

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Matt Castillo Bennet is a former banker and restaurant worker. After paying off $30K of student loan debt and saving up for a couple of years, he left his job to manage Cash Math full-time and help others achieve financial freedom.