Robinhood Review 2020: Best Investing App For Beginners?

By Marko Zlatic
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Last Updated: September 15, 2020
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If you’re comfortable investing and trading on-the-fly through your smartphone, Robinhood is an investment you definitely need to consider. The app is designed specifically to be both simple and easy to operate. It targets primarily tech-savvy Millennials, who are comfortable with mobile technology, need little assistance, and prefer to trade frequently.

One of the pioneers in commission-free trading, Robinhood still maintains its fee-free investing environment, and extends that benefit to a wider variety of investments than most of the competition.

About Robinhood

Based in Menlo Park, California, Robinhood was launched in 2012. The company was founded on the basis of leveraging technology to encourage everyone to participate in the financial system. Their motto: “We’re on a mission to democratize finance for all”.

The app started out charging no fees for stock trading. They eventually expanded into exchange traded funds, options, and even cryptocurrencies – all available for trading commission-free. In fact, Robinhood is one of the few investment brokerages where investors can trade cryptocurrencies at all.

The app has grown in popularity in recent years and has become especially popular with Millennials, due to its combination of commission-free trading, emphasis on technology, and ease of use.

Robinhood has a rating of 4.3 out of five stars from more than 158,000 Android users on Google Play, and 4.8 stars out of five from 2 million iOS users on The App Store.

How Robinhood Works

Robinhood is available by both the mobile app and its web version. The app is designed primarily for self-directed investors who have little need for broker support. It has both limited functionality (compared to larger investment brokers), as well as only minimal direct customer support.

However, the app offers real-time, commission-free trades on stocks, ETFs, options and cryptocurrencies. It allows you to place market, limit, stock, stock limit, and trailing stop orders and also provides notification of upcoming events, including earnings reports, stock splits, and dividends.

Fractional shares: One of the major benefits offered by Robinhood is the ability to trade fractional shares. If you want to invest in five stocks, each with an average market price of $200, but you only have $300 to invest, you can use fractional shares to purchase $60 worth of stock in each company. This is a major advantage for small investors looking to diversify across several high-priced stocks. Be aware that a stock must have a minimum value of $1 per share and market capitalization of greater than $25 million to the eligible for fractional share orders.

Minimum investment required: $0

Available account types: Taxable brokerage accounts only; no retirement accounts offered at the present time.

Investments offered: Individual stocks, exchange traded funds (ETFs), options contracts for US-listed stocks, American Depositary Receipts (ADRs) for investing in foreign stocks, and cryptocurrencies, including Bitcoin, Dogecoin and Ethereum.

However, the app excludes most foreign stocks, US over-the-counter stocks, preferred stocks, mutual funds, and bonds and other fixed income securities.

Pre-IPO Trading: You can use the Robinhood app to place orders for certain stocks before their initial public offering. Pre-IPO orders are available for a small selection of stocks, and not necessarily all that are available on the market at any given time. There’s also no guarantee your IPO order will be filled, as they are subject to limit orders only.

Dividend Reinvestment Plans (DRIPs): You can automatically reinvest cash dividends to purchase more shares in the same company or ETF through a DRIP program. The program can be set up through the Robinhood app.

Availability: All 50 states.

Trading hours: 9:00 AM through 6:00 PM, Eastern time, on regular business days.

Mobile app: Available at The App Store for iOS devices 11.0 and higher, as well as watchOS 4.0 or later. It’s compatible with iPhone, iPad, and iPod touch. Also available on Google Play for Android devices, but requirements vary by device.

Customer support: Available by email only. The app does not provide live phone support.

Account safety: Robinhood accounts are SIPC insured for up to $500,000 in cash and securities per investor, including up to $250,000 in cash. However, this coverage is to protect investors only from broker failure. It does not extend to losses due to trading and market factors.

GET STARTED WITH ROBINHOOD

Robinhood Day Trading

Robinhood welcomes day trading to the platform. You will be required to have at least $25,000 on deposit in your account before you will be eligible for day trading.

Robinhood is well-suited to day trading, since it offers real-time trading using the mobile app, and offers commission-free trades on virtually all securities offered on the platform.

Robinhood Gold

Robinhood Gold is a program designed for more advanced traders. You will be required to have a minimum balance of at least $2,000 or 100% of the security’s purchase price, whichever is less, deposited into your account, to use margin trading in the account. However, you must have at least $25,000 on deposit for day trading purposes.

Robinhood Gold offers the following services:

Bigger Instant Deposits: You’ll have instant access to between $5,000 and $50,000 when you make in a deposit.

Level II Market Data: This enables you to see multiple bids and asks for any given stock to help you better determine the availability or desirability of a stock at a given price.

Professional research: Robinhood works with Morningstar to provide unlimited access to in-depth stock research on 1,700 stocks.

Margin investing: Robinhood lets you set the amount of margin you want to use in your account, based on the equity in your account and the volatility of your holdings.

The cost of margin trading is $5 every 30 days for up to $1,000 in your margin balance. Above $1,000, you’ll be charged interest at a rate of 5% per year.

Warning: Margin from your Robinhood Gold account cannot be used to purchase pre-IPO stocks. Margin will be available for the stocks at least 30 days after stock issuance.

Robinhood Cash Management

Robinhood will soon be rolling out its Robinhood Cash Management account where you can earn higher interest rates on your own invested cash. Currently, they advertise a variable 0.30% APY on your cash balance, which is six times higher than the average yield on savings accounts at banks nationwide.

No launch date has been provided, and you currently need to sign up for a waitlist to eventually participate in the program.

There are no minimum account balance requirements, no transfer fees, and no foreign transaction fees. Meanwhile, you’ll be able to access cash through a network of more than 75,000 fee-free ATMs nationwide.

The account also comes with a MasterCard debit card issued by Sutton Bank, one of several banks that partner with Robinhood. Your account balance will be protected for up to $1.25 million by FDIC insurance, since each of the five partner and banks offers up to $250,000 in protection per depositor.

Robinhood Fees and Pricing

There is no monthly or annual account management fee. Robinhood also charges no commissions for trading of US-based stocks, ETFs, options, ADRs and cryptocurrencies.

There is a monthly subscription fee to participate in Robinhood Gold. The fee is $5 per month, and provides full access to all the services offered by the program.

Current promotion: Robinhood is offering free stock when you refer-a-friend to the app. When you do, both you and the friend will earn stock after the friend’s application has been approved. The friend doesn’t even need to fund the account. Robinhood has various levels of stocks you can receive, but you can earn as much as $500 in free stocks per year through the refer-a-friend program. The stocks may be worth between $2.50 and $200 per share, and are chosen from the most popular companies trading on the Robinhood app.

And through December 31, 2020, Robinhood is offering a fourth bonus stock when you invite three friends who are approved for an account.

Free stock can be sold as early as three trading days after you receive it. You can then use the proceeds from that sale for the purchase of other securities in your account. If you sell your free stock within 30 days of receipt, you’ll be required to retain the cash in your account until the 31st day. At that time, the cash will be unrestricted.

Robinhood Pros & Cons

Pros:

  • No trading fees on stocks, options, ETFs or cryptocurrencies.
  • No minimum account balance required.
  • One of the few investment brokers available that offers trading in cryptocurrencies.
  • Robinhood welcomes day traders, which is not always the case with all brokers.
  • You can trade using fractional shares.

Cons:

  • No retirement accounts offered.
  • Limited investment product menu – bonds and mutual funds are not available.
  • There is very limited customer support.
  • Robinhood Cash Management has been in the planning stage for nearly a year and is still only permitting users to sign up for the waitlist. There’s no indication when the plan will go live.

Who is Robinhood Best For?

As noted at the outset, Robinhood was designed as a commission-free trading platform for tech savvy Millennials. It’s best suited to those who are self-directed investors, frequent traders, and need very little broker support in their investment activities.

More specifically, Robinhood is well suited to day traders, given its ease of use and complete absence of commissions. But it’s also an excellent choice for any investor who wants to include cryptocurrencies in their portfolio, since Robinhood is one of the few investment brokers offering trading in cryptos. And once again, trading in cryptocurrencies – like trading in other securities on the Robinhood platform – is commission-free.

If you prefer a platform with a wide variety of investment tools and research capabilities, as well as frequent broker support, Robinhood is not the investment app for you. Also, since many investors are looking for a trading platform specifically to accommodate a retirement plan, like an IRA, Robinhood won’t work since they don’t offer any type of retirement accounts at this time.

Summary

Robinhood is clearly a niche investment app, meaning it’s not suitable for all investors. But if you’re part of the investment community targeted by the app, Robinhood is an excellent choice. You may even want to consider using it for the frequently traded portion of your portfolio while maintaining an account with a different broker for long-term, buy-and-hold investments, or retirement funds.

GET STARTED WITH ROBINHOOD

Robinhood Review
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