When it comes to buying and trading stocks, there are many different approaches you can take. While some people like to do face-to-face transactions or talk to someone over the phone, other people don’t want to deal with those hassles. They would prefer to make their trades either on-the-go or at their convenience. That’s why they choose to do all of their trades on the computer or through an app.
The Robinhood app is one of several apps that aims to serve as your personal stockbroker. If you’ve been thinking about using it or perhaps don’t know too much about it, we’re going to sort out all of its features so you can decide if it’s right for you.
The Robinhood app is a trading app that allows you to trade stocks, options, and exchange-traded funds without paying any fees or commissions. Robinhood had bragging rights of being the only free app for trading when it comes to fees and commissions, but other apps have recently seen the benefits of no fees and commissions and have jumped on the bandwagon. The Robinhood app also allows you to buy and sell cryptocurrencies like Bitcoin and Likecoin.
To get started, you submit an application to be approved for a Robinhood account. Once approved, you transfer money into your Robinhood account. When the money is available, you can start to buy and sell stocks as well as cryptocurrencies.
Before you start buying or trading any stocks, look to see that your options trading is unlocked. This will put you on a different level depending on your level of expertise. A level 2 designation means you’re a novice trader. If you’re a level 3, you are more advanced and know more about how to carry out more complex options.
When deciding whether the Robinhood App is for you, it’s important to know what types of investments you can make. This may help you make your decision if you’re looking for a particular type of stock.
The Robinhood App allows you to invest in more than 5,000 stocks, including most U.S. equities and exchange-traded funds that are listed on U.S. exchanges. The Robinhood app also offers options trading, cryptocurrency trading, and more than 250 global stocks.
The Robinhood app does not support foreign-domiciled stocks, select OTC equities, preferred stocks, tracking stocks, mutual funds, bonds, and fixed-income trading, as well as foreign exchanges. If you’re interested in those types of stocks, the Robinhood app may not be for you.
The Robinhood app was started by two Stanford roommates nearly a decade ago. When they graduated, they both moved to New York and started their own finance companies. They were selling hedge software to hedge funds.
As they were working, they realized that many Americans were paying more than $10 for each trade while the big Wall St. companies were paying hardly anything. They wanted to make Wall St. trading accessible to everyone. That’s where the idea for the Robinhood app came about. They moved back to California and got to work on this new app and the rest is history.
Many people often question the safety and legitimacy of apps like the Robinhood app. If you are considering using the Robinhood app, you should know that the company is protected by the Securities Investor Protection Corporation for any amounts up to $500,000 in securities and up to $250,000 in cash claims.
The Financial Industry Regulatory Authority also regulates the Robinhood app. So, any money you invest through Robinhood is well-protected. Just as with any stock trading options, there are no guarantees that you will make money, but you can feel positive that your money is safe.
The Robinhood app also requires people to give their social security number as well as other tax information. This is another way you can know that they are legit in their business handlings.
It is deemed safe to use as long as you know what you’re doing. Some people may get onto the app, but with no trading experience. This can be dangerous within itself.
Since the Robinhood app touts itself on charging no fees or commission, many people may wonder how the company makes money. Robinhood is very straight-forward about how it makes money and lists all of its sources of revenue on its website.
Robinhood does make money through its premium accounts like Robinhood Gold which starts at $5/month. This type of account allows margin trading and other benefits. The company also earns interest from customer cash like banks collect money on cash deposits.
While transactions made through the app are free, there is a $10 charge for any transactions made through a phone call. Robinhood also receives payment for order flow. This is the compensation any brokerage firm receives for directing orders to different parties in trades. This is something that is standard practice in the stock trading industry.
As you’re looking through what Robinhood has to offer, you may come across something called Cash Management. This is offered as part of your brokerage account. It lets you use Robinhood Financial for things like investing, spending, and saving.
Any money that is not invested in stocks is put into Robinhood’s network of program banks to start earning a .30% annual percentage yield. But, this amount can change at any time at the banks’ discretion. This type of account can also come with a customized debit card. You also get access to Apple Pay, Google Pay, or Samsung Pay as well as an ACH account number and routing number.
Many people want the Cash Management option but it is currently very limited. That’s why there’s a waitlist for it. To get on the waitlist, you need to have an approved brokerage account before you can upgrade to the Cash Management option.
If you already have an approved brokerage account, you just have to click on “join the waitlist”. Once there is a spot available for you, you will be notified.
Here’s another term you may have heard thrown around a bit. Robinhood offers fractional shares. This means you can pay as little as $1 for a portion of a share, no matter the share’s full price. So, even if a full share is $500, you may only pay $1 because you are only buying a fraction of it. This is a service that many different brokers offer to help people build a more diversified portfolio.
So, even if you don’t have a lot of money to invest, you still have the chance to buy into more companies. Fractional shares are traded in real dollar amounts or share amounts. Stocks worth over $1.00 per share with a market capitalization over $25,000,000 are eligible for fractional shares.
As of this writing, there is no evidence to show that the Robinhood app offers stack loans. Instead, it offers something called “margin investing”. Margin investing allows you to borrow money from Robinhood to buy stocks. This lets you invest more money because you not only have your own money, but you also have the money you borrowed from Robinhood. While you could make more money, there’s also a chance you could lose more money. That’s an important fact to keep in mind.
Some people like the margin investing option because it allows them to invest right away if they see an opportunity rather than having to make a deposit from their bank. Users who also sign up for a Robinhood Gold account receive extra buying power. This amount is the money you’re allowed to borrow from Robinhood to invest. One of the good things about the margin investing option is that Robinhood has borrowing limits to cap how much margin you use. By setting a limit, you can restrict the amount of money you’re allowed to borrow. With the gold account, you can adjust or remove this limit at any time. Some people like this option because it can prevent things from getting out of control.
But, with margin investing, you need to be aware that any stocks you bought on margin will affect your account value. If you lose money, the amount is deducted from your account, not the money you borrowed. In that instance, you not only lose money that you invested but you also still owe the money you borrowed.
When looking at the Robinhood app and Robinhood app reviews, it’s important to look at the pros and cons.
| Pros | Cons |
|---|---|
| $0 account minimum | Does not support mutual funds and bonds |
| $0 stock trading costs and $0 options trades | No automatic dividend reinvestment, all money is credited as cash |
| All available ETF trades are commission-free | Supports only individual taxable accounts |
| Includes customizable alerts, news feed, candlestick charts | Limited customer support |
| Allows fractional shares | |
| Easy to use for beginner investors | |
| Listen to live to earnings calls |
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The Robinhood app is not the only player in the stock trading game. There are other alternatives to look at that have different options. Here’s a brief explanation of a few out there:
Betterment is another investment company that offers an app to help you invest your money. It offers two options, Betterment Digital which has no minimum and charges .25% of assets under management annually. There is also Betterment Premium which provides unlimited phone access to certified financial planners. There is a .40% fee and a $100,000 account minimum.
Acorn is an app that lets people invest their spare change by rounding up the purchases they make with a credit card or debit card. This may be a good option for people who don’t have a lot of extra money around to invest but still want to get in the game.
Stash has a $0 account minimum but charges $1-$9 a month, depending on the type of account you choose. The goal of Stash is to make investing appealing to beginners. Stash offers fractional investing, allowing you to buy stock for just pennies which can be very appealing to beginner investors.
Wealthfront is another investment option. It charges a .25% management fee and free management of balances under $5,000 with certain promotions. They offer helpful planning tools for beginner investors as well as advanced tax optimization strategies.
Only you can decide if the Robinhood app is right for you. Many people who are mobile users and who have individual taxable accounts may benefit from it the most. The Robinhood app may also be good for people who want a streamlined trading platform or who want to trade cryptocurrency.
When doing a Robinhood app review to decide if it’s right for you, think about whether you like the idea of trading on your smartphone. For some people, this works well. For others, not so much. Also, take into consideration whether you need a lot of guidance when it comes to trading. Some people do, so the Robinhood app may not be the best choice.
In the end, you need to feel comfortable where you’re putting your money and how you’re moving it around. Remember that even when you borrow money through the Robinhood app, you still need to repay that money even if your account is debited because your stocks do poorly. Keeping all of these things in mind can help you decide if the Robinhood app is for you.
Here are a few investment resources that may help you grow your portfolio.
Rocket Dollar: Provides self-directed retirement accounts for individuals
MaxiFi: Calculates a spending, saving and insurance plan to protect your living standard
Silver Gold Bull: Provides easiest ways to buy and accumulate pure gold and silver bullion
Remember to invest responsibly.
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