Review of Robinhood Trading
Robinhood was the first brokerage firm in the United States to offer $0 equity commissions. But today, most broker-dealers have the same trading fee. So just how competitive is Robinhood now? Our research is going to provide the answer.
Most Notable Features
Many features help Robinhood stand out from the crowd. The broker continually builds on its strong base by adding new features and services.
One example is the move into being a self-clearing broker. Another is the addition of cryptocurrency wallets, allowing investors to take part in a more versatile crypto trading environment.
Here are some of the most notable features:
- Stock lending
- Fractional shares
- Instant deposits
- Zero-commissions
- Advanced options trading
- Web3 crypto wallets with no network fees
- Crypto gifting
- IRA with 1% Match
- IPO access
- 4.25% interest on uninvested cash
- Premium service package (Robinhood gold)
Robinhood Account Types
Robinhood offers a limited selection of account types, but there are some attractive options.
Investors can open an individual or joint margin account (Robinhood Instant) or a cash account. There is also
a Spending account and an attractive IRA offering.
Robinhood Instant Account
Robinhood Instant is the default brokerage account that everyone receives when opening an account with the broker. The ‘Instant’ in the name refers to the ability to trade with new deposits immediately. Instant deposits are made possible with margin, but customers do not need to pay margin interest on the ‘loan.’
With Robinhood’s margin account, you can take advantage of most of Robinhood’s features, like advanced options trading (if approved for it), borrowing for personal spending, borrowing to increase your buying power, and using unsettled funds.
Robinhood Cash Account
For some, a cash account is more suitable. To use Robinhood’s cash account, traders need to downgrade their account. New deposits and trading transactions take more time to settle, and there is no Level 3 options trading. That said, the PDT rule does not affect cash accounts.
Spending Account
In addition to Robinhood’s brokerage accounts, there is a Spending Account (Sutton Bank) that gives investors a debit card and all the benefits of a checking account. With the Spending account, you can use digital payment systems and a physical card to spend your money as you see fit.
The Spending Account comes with a
cashback program, free ATM access, recurring investments, and direct deposits.
IRA
The newest account type at Robinhood is the IRA Match account. Robinhood’s IRA Match allows investors
to put money away in a tax-advantaged account for the long term, just like any other IRA. However,
Robinhood matches each qualified contribution by 1% without needing an employer 401(k) arrangement.
The contribution limits for IRA Match are $6,000 or $7,000 per year, depending on the investor’s age (under or over 50).
Available Securities
Robinhood offers a good selection of securities, but some might find the list of available securities
restrictive.
You can trade U.S. exchange-listed stocks, Indices, ETFs, and cryptocurrencies at Robinhood. Advanced options strategies are also supported. You won’t find mutual funds, Forex, futures, and commodities.
Stocks, ETFs, and Options
Trading stocks and ETFs at Robinhood is straightforward. The ease of investing is one of the things
that make Robinhood as popular as it is. Stocks and ETFs can be purchased for as little as $1, and
transaction fees are limited to fractions of a penny exchange regulatory fees.
Robinhood’s options trading experience is also quite simple. Investors can combine options contracts to create various multi-leg options positions. 0-DTE options trading can also be enabled.
Cryptocurrencies
Cryptocurrency trading at Robinhood is surprisingly good. With zero-commission transactions and a dedicated crypto wallet, traders can take advantage of the crypto space without the restrictions many other brokers have.
You can trade Bitcoin (BTC), Ethereum (ETH), USD Coin (USDC), Cardano (ADA), and many others from the web or mobile apps. And, with Robinhood now providing a crypto wallet, you can transfer digital assets in and out of your Robinhood account without waiting for funds to transfer and settle.
Bonuses and Promotional Content
The main bonus type from Robinhood is free stocks. There are two ways to access Robinhood’s free stock program. One is to open an account with the broker, and the other is to refer new investors to the firm.
No matter how you get them, the free stocks come as fractional shares valued between $5 and $200. When you or your referral sign up for a new account, you and your referral get the chance to select a stock from one of the most prominent companies in the U.S.
For the referral bonus, you can invite as many people as you want, but the overall value of any bonuses paid will be at least $1,500 in a single year.
Robinhood Promotion
1% IRA match and up to $200 FREE stock at Robinhood.
Visit Robinhood Website
Subscription-based Upgrades
Robinhood offers plenty of quality services at its base level, but an upgrade brings even more features. To access them, you’ll need to sign up for Robinhood’s premium account, Robinhood Gold.
A monthly $5 subscription to Robinhood Gold unlocks advanced charting, (much) more significant instant deposits, a better cash sweep program, and more. If you are still determining if Robinhood Gold features are right for you, you can try them out for free using the 30-day trial.
Robinhood Gold Features
Cash sweep in Robinhood Gold accounts earns a
4.25% APY (23 times the national average, according to the broker). Customers who are not members of the premium subscription earn 1.5% APY on uninvested cash.
The size of the Instant Deposit increases significantly for Gold members. There are several factors (including account size) that Robinhood considers when determining the size of the ‘larger’ instant deposits. The maximum is $50,000.
Other improvements include better trading tools. For example, investors get access to research data from Morningstar via analyst reports and Nasdaq Level II data. Advanced charting also becomes available.
While some may want to avoid paying a monthly subscription to their broker, Robinhood Gold is a big step up from the standard accounts.
Costs and Fees
As a zero-commission broker, it is not uncommon to hear people say that Robinhood is free. Mostly, they are correct, but a quick look at Robinhood’s fee schedule shows that there are some costs associated with investing at Robinhood.
The most common fees you will encounter include money movement, regulatory, margin, and service fees.
For money movement, you’ll pay $25 for returned checks, $100 for outgoing ACATS transfers, $20 for domestic overnight mail, and a 1.5% charge on debit card funding and withdrawals.
The margin rate is 5.75% for debit balances under $50K. As a reminder, Robinhood Gold costs $5 per month.
Robinhood Pros
Robinhood has many positive qualities but could do better in some areas. Here are the most significant pros and cons:
- Zero-commission pricing structure makes investing cheap
- Mobile-friendly broker makes investing easy
- Simplified (some say game-like) approach to investing
- Cryptocurrency access with a crypto wallet
- Cash management features are good
- Robinhood is now a self-clearing broker
- Robinhood’s premium account provides many advanced tools
Robinhood Cons
- Lacks a dedicated trading platform
- Some may be uncomfortable with the Payment for Order Flow business plan
- Some popular investment vehicles are not available
Awards
Robinhood Recommendations
We recommend Robinhood to investors looking for a simple approach to investing that doesn’t cut corners where securities and services are concerned. Despite the simplicity of Robinhood’s technology, there are many good features to take advantage of.
Robinhood allows you to spend cash directly from your investment account, and instant deposits make it easy to take advantage of opportunities quickly. Additionally, features like advanced options trading help you create positions that take advantage of any market condition.
We do not recommend Robinhood for those who disagree with Payment for Order Flow practices. Traders looking for professional trading software would also be advised to look at alternatives. Additionally, anyone looking for custodial accounts, futures and Forex, and foreign market access would do better at a different broker.
Robinhood Promotion
1% IRA match and up to $200 FREE stock at Robinhood.
Visit Robinhood Website
Updated on 12/22/2024.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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