Robinhood Review: Best Free Trades App?

Want to give stock trading a go, find out more about investing and save up a little nest egg while you’re at it? The Robinhood app may well be the best way to get started. Offering a fee-free trading experience with generous interest rates, you can start small and enjoy the thrill of investing with none of the risks. This Robinhood review will walk you through the basics.

What Is Robinhood App?

Created in 2015, Robinhood is a free trading app/discount stock broker, offering a relatively risk-free way for newcomers to the investing world to get started. Robinhood offers stock and options trading with no commission and no minimum amount needed in your investing account, less the amount you want to invest on a specific stock.

It’s easy to get started, all you need to do is to sign up for an account with your basic personal and banking details, and then add money to your account so that you can start trading. You can buy individual stocks or ETFs (grouped investments bundled into one), or the more sophisticated options investments which allow you to work strategically with less capital.

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Robinhood is also creating a buzz thanks to its up-to-the-minute cryptocurrency monitoring and trading service. Users can keep an eye on, buy and sell six of the main cryptocurrencies, including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Dogecoin and Litecoin.

Checking and savings accounts are currently in development and are intended to work much like the rest of that app, offering a fee-free experience and a higher than average interest rate of 3%. Despite taking no fees, Robinhood is already one of the most profitable and popular trading apps available, having grown to more than 5 million users in less than 5 years and recently valued at $5.6 billion.

Is Robinhood App Risky?

Despite offering a free or close to free service, there are always risks with investing, and customers should be aware of this. Robinhood still requires users to make their investments in lump sums, meaning that you are putting chunks of your own cash into what, without very good knowledge of the trading market yourself, is pretty much a gamble.

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Robinhood investing accounts are SIPC insured, so that customers are protected against the loss of cash and securities in case of an app failure, up to a maximum of $500,000, with a maximum cash protection of $250,000. However, there is no real-time customer service available with this app, so if there is a problem with the app it can take a while to get in touch and get the situation dealt with, and you are not protecting against your securities losing value during this time.

How Does Robinhood Make Money?

At this point, Robinhood may seem too good to be true, offering completely commission-free trading, but obviously it is making money from its customers in order to be profitable.

The Robinhood Gold subscriptions are billed at $40 a month for up to two times buying power (which means that if you have $2,000 to invest, for example, Robinhood will match it and let you borrow you another $2,000). Robinhood Gold also gives users early and late access to market trades, and instant access to the deposits they make into their accounts, whilst basic members need to wait for up to two days.

Much like with any other broker, Robinhood also makes interest on any money sitting in users’ investment accounts in the same way as a bank collecting interest. If you have $500 in your account and the interest rate is 2%, Robinhood will collect $10 a year in interest. This doesn’t seem like a lot and won’t affect your money, but added together over the millions of active accounts Robinhood currently looks after, this goes some way towards explaining how the company is earning into the billions.

The very base of Robinhood’s income, and what makes it able to offer a commission-free service in the first place, is that the site directs all of its orders through market makers, who then pay a small commission of around $0.00026 per dollar traded. Again, a very small amount, but one which adds up if you consider the scale of Robinhood’s user base.

Pros and Cons of Robinhood

Pros:

  1. Free trades on all U.S stocks, options and cryptotrading. You can track and trade stocks and cryptocurrency 24 hours a day, 7 days a week.
  2. User friendly. It’s super easy to get started, with a simple online form allowing you to enter your details and get your account set up in no time at all. The smartphone app is known for being clean and easy to navigate, with an easily understandable default workspace. The app is secure yet simple to access, with fingerprint recognition available for smartphones which support it.
  3. No account minimum. Making it less risky for those who want to dabble in investing but don’t have a high budget or a large chunk of cash saved with which to begin, makes Robinhood a great option for any user. It is also free to make a deposit via bank transfer.
  4. Investment research and analysis. Traders are able to view an up-to-date list of top movers, popular stocks and other analyst ratings to help them to choose from the selection available. With an easy-to-read Amazon-style layout, even newcomers to the site should be able to understand given research information.

Cons:

  1. No IRA option. Many investment apps now are offering an IRA option, helping users to use their investments to set up a retirement fund and plan for their future. Robinhood is one of the rare apps that has not brought this service in yet, and this could be a negative point for some people.
  2. Lack of other investment types. Besides IRAs, Robinhood also doesn’t have joint accounts, trust accounts or custodial accounts, and there aren’t tax-efficient savings options either.
  3. Poor customer service. A complaint in many a Robinhood review, Robinhood has no live customer service phone number or live chat option. The only way to get in touch in case of emergency is to send an email, and it can take time for emails to be responded to. In situations where users are watching the price of their stocks drop whilst being unable to do anything about it, this can be incredibly frustrating.
  4. Delayed quote data. It can take up to 20 minutes for stocks to update, meaning that users could end up buying stocks when their value has already decreased from what is currently showing.
  5. It can take time to work out how the app works. Although the app is simple and easy to use once you’ve got the hang of it, many users have reported not being able to work out how to begin trading in the beginning. It is useful to look online for more information about how to make your first trade.
  6. No fractional shares. Fractional shares are often a way for investors with a small budget to get a foot in the door and make less risky choices when starting out. Many investment apps provide this option but, unfortunately, Robinhood isn’t one of them.

Is Robinhood Right For You?

Whilst lots of investment apps appear to show a cheap or even free trading solution, Robinhood is actually free, with no hidden fees. Once you have got your account set up, the amount that you choose to spend on a stock, option or cryptocurrency is the amount that you will actually spend, without being hit with a larger bill than expected. There are negatives, such as the lack of live customer service and no IRAs, but for a new investor looking to start out somewhere then there’s no better place to start.

Robinhood is, however, a pretty basic investment app. It is more suited to small scale investors looking to make a little bit of extra cash and find out more about investing as they go. For existing investors looking for a powerful investment platform with which to flex their knowledge and challenge themselves, this may not be the right option for them.

Robinhood Alternatives

Ally Invest

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A very popular option with more experienced traders, boasting a low flat-rate trading fee and a user-friendly application, Ally Invest offers good value for money and a professional investment service. It might not be the best for newer investors though, as there aren’t great training and research tools.

TD Ameritrade

TD-Ameritrade
With a difficult past including a data breach in 2007, TD Ameritrade has risen back up the ranks again recently to become one of the most popular trading apps available. Although the fees are more expensive than some others, this is countered by the extensive resources, features and tools offered by the app.

Great for new investors and old hands alike, TD Ameritrade is an excellent choice for people who want to do more with their investing and learn further skills to use down the line. Although the savings might not initially be particularly high, additions such as tax loss harvesting make it worthwhile and it has a fantastic reputation amongst existing customers.

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