Few exchanges and trading platforms have been as popular as Robinhood among the several exchanges and trading platforms that have made retail investing popular in the past. While Robinhood began as a one-of-a-kind brokerage service that simplified investing and trading for ordinary investors, much of that edge has been eroded by later industry advances.
In this Robinhood review, we examine Robinhood as a broker and attempt to determine which kind of investors and traders it is best suited for.
What exactly is Robinhood?
Robinhood began as a trading and investment platform with the goal of disrupting the brokerage business.
The fact that Robinhood did not charge any commissions gave it a significant competitive edge in the sector. It provided access to a wide range of trading products such as stocks, options, cryptocurrency, and FX trading.
This action was greatly praised at the time, and it garnered a lot of attention to Robinhood, making it quite popular. However, as time passed, much of the brokerage sector realized that they were losing a significant portion of their market share to Robinhood, and they responded by eliminating commissions from their price structure as well.
Currently, relatively few brokers in the business charge fees on trades, instead depending on PFOF or spread-based strategies to generate revenue. However, Robinhood continues to have a significant audience since it has created a great level of client loyalty among the younger part of the trading industry.
Robinhood has been able to continue expanding, albeit at a slower rate than before, by attracting to younger, more tech-savvy investors in the market with a simple design and an emphasis on the base. In addition, they have just released a new suite of services, including a cash management account and a recurring investing option, both of which we will explore later in this review.
Pros and Cons of Robinhood
The Robinhood trading platform has various advantages, which include:
Robinhood App is Simple to Use
The mobile app, which is accessible for both Android and iOS devices, provides a simple and quick way for you to invest and trade in the market.
In contrast to other trading platforms and exchanges, which are often intended to maximize the amount of features available, Robinhood prioritizes simplicity. Their software has been intended to be user-friendly and intuitive, which increases the app’s customer appeal.
Furthermore, while the trading app has a fair number of features and options for advanced traders, the focus is on simplifying the process as much as possible, so the platform’s default setting is to provide the simplest settings and then allow users to customize the interface based on their preferences.
The app’s straightforward design guarantees that inexperienced investors or traders are not put off or frightened by the overwhelming quantity of functions or the sheer amount of options available to them, and they may progress toward becoming expert investors at their own time.
A Wide Range of Tradeable Assets
Robinhood customers may readily trade a wide range of assets using the smartphone app, which is one of the reasons the program has grown in popularity.
To begin, you may quickly purchase and sell most major cryptocurrencies using the mobile app, with little to no commissions involved.
However, Robinhood is more than simply a cryptocurrency trading platform; it is also a brokerage service with access to a wide range of other asset classes. For example, you may trade stocks, ETFs, and derivative contracts using the mobile app.
Due to this, Robinhood has become very popular, especially among younger investors who prefer not to use several apps to trade various asset classes. You can trade all asset classes with Robinhood on a single platform, which is much more convenient and gives Robinhood an edge over rivals in that area.
Whether they be equities or cryptocurrencies, the most well-liked assets are typically highly pricey. Consider the situation of cryptocurrencies, for instance. Most investors, particularly those who are just starting out on their learning curve, might not be able to pay $30,000 to buy one Bitcoin (BTC).
However, you can buy Bitcoins through the majority of the big cryptocurrency exchanges for as little as $1 and in smaller increments. The stock market, where individual equities can likewise cost thousands of dollars, is less well recognized than the cryptocurrency industry, despite the fact that this feature is fairly common there.
By enabling investors and traders to buy fractional shares, Robinhood solves this issue. As a result, individuals have the option to use the chosen amount to acquire a very little portion of any asset they desire to trade.
Account for Cash Management
Robinhood also provides a range of cash-management tools that let you profit from your unused funds by earning up to 0.30% APY. This is more than the current rate of interest that most US banks are offering customers for the balances in their checking accounts, which is often zero.
Another advantage of the Robinhood cash management tools is that you may simply withdraw money from any of the 75,000+ ATMs in Robinhood’s network.
Account Creation is Completely Digital
The procedure of creating an account with Robinhood is likewise fairly quick and simple, requiring little to no time commitment on the part of the trader or investor.
For example, if you want to establish an account with Robinhood, you can do so straight through the app, and the procedure is pretty simple. It simply takes a few minutes to open up for a Robinhood account, and after you’ve been authenticated, you can add cash to your account and start trading right away.
Every other day, new technologies emerge and render previous ones obsolete in the Bitcoin industry, which is fast-changing and dynamic. It might be difficult to keep track of all the advances in such a universe, which can be scary to users.
Furthermore, many Robinhood customers are just getting started in the area of blockchains and cryptocurrencies, and they may not understand how they work or what the fundamental components are.
The suite of instructional tools given by Robinhood is extremely beneficial to such individuals. Robinhood offers a series of video lessons and examinations designed to teach customers about cryptocurrency trading and the most recent advancements in the sector.
There is no account minimum
The cryptocurrency markets are notorious for their instability. As a result, numerous younger investors or traders may be hesitant to risk a large portion of their wealth in such ventures.
For such customers, Robinhood is the best platform to utilize because there is no account minimum amount required to begin trading on the site. Users, for example, may deposit as little as $1 and begin trading equities, options, and cryptocurrencies on the site.
Because there is no account minimum deposit, it is an excellent platform for newbie investors.
Because Robinhood is a publicly traded exchange on the equity markets, it is also one of the most rigorously regulated exchanges, particularly in the cryptocurrency arena.
Because of its public listing, the trading app must maintain a certain level of openness and is frequently examined by regulators such as the Securities and Exchange Commission to verify that the platform is in general financial health.
In a world where most cryptocurrency exchanges are completely unregulated, the Robinhood trading platform provides a valuable alternative by offering investors and traders with a safe environment in which to deposit their bitcoin assets.
Cons of Robinhood
Every coin has two sides, and the Robinhood trading platform is no exception. The platform has various drawbacks, which include:
There are no mutual funds or fixed-income products.
One of the most significant downsides of trading through Robinhood is that the platform does not accept mutual funds, making it difficult for users to invest their money passively unless they use ETFs.
At the same time, many fixed income assets, like as commodities and bonds, cannot be traded through Robinhood. Furthermore, when it comes to derivatives, only options may be traded, with no futures trading available on Robinhood.
For a website that credits a significant part of its success to allowing users to trade any asset class they choose, these flaws make it rather unappealing as a platform for more knowledgeable investors.
Robinhood also does not support IRA or 401(k) plans
There is no PFOF data.
Because Robinhood does not charge fees on transactions executed through its platform, it has another source of revenue known as the PFOR, or Payment For Order Flow mechanism.
This implies that anytime you place an order on Robinhood, it is routed to a market maker, who then executes the order for you. This gives liquidity to the market maker, which they employ to decrease their own risk. However, there are some flaws with the PFOF technique that have made it contentious in recent years.
However, it is vital to remember that for PFOF brokers, one of the most critical elements determining how quickly a broker can execute trades is the quality of the market maker utilized. Most such brokers frequently post PFOF information, which investors and traders may then compare to other brokers and utilize to make the best judgments.
Robinhood, on the other hand, does not provide such information, making it difficult to compare performance and execution times with other brokers. As a result, there is no way of determining if Robinhood’s order execution methods are more accurate or faster than those of its competitors.
Poor Customer Service
Another difficulty with utilizing the mobile app is that its customer support is notorious for being slow and sluggish, particularly when it comes to dealing with big security concerns or serious consumer inquiries.
The fact that Robinhood has a weak customer support staff does not bode well for a platform that is built primarily for rookie traders and investors who may have concerns and issues, and might limit the platform’s appeal for certain investors.
Restriction on Trade
One of the most significant downsides of the previously described PFOF model is that it leaves Robinhood at the mercy of the market makers via whom it chooses to send its orders, who frequently also have investment divisions that may be adversely affected by the PFOF approach.
The retail trade volume has an impact. This might result in outages and other related issues.
Notably, Robinhood has had issues in the past, such as when it suspended trading in GameStop shares last year. The company had many disruptions, and the app simply would not allow consumers to place orders at times. Furthermore, numerous investors stated that the site forced them to sell their investments against their will.
While this is not a big issue for long-term investors, it is nonetheless concerning and bears information on the platform’s quality as well as the extent of trading limits enforced by Robinhood’s PFOF model.
History of Robin Hood
As previously stated, Robinhood was founded in 2015 as a method for people to invest in the stock market without having to pay the high commissions that were common in the retail investing area.
However, in reaction to Robinhood’s rising popularity, numerous other brokers began to decrease their costs and, finally, eliminated commissions entirely. This diminished Robinhood’s competitive edge, and it began to diversify its product offerings to include options, cryptocurrencies, and ETFs.
However, in the aftermath of the GameStop event in 2021, the firm received a lot of backlash, with some customers complaining about downtime and entire times when they couldn’t trade at all. Robinhood was also called to appear before Congress as part of the probe of the event.
At the conclusion of the event, Robinhood agreed to pay a $70 million fine to satisfy regulatory probes into its actions. Furthermore, Robinhood received a lot of criticism for its deceptive advertising and messaging, such as deceiving clients, authorizing rookie traders for dangerous tactics, and technical challenges that made it impossible for users to use the site when they wanted to.
In order to continue to appeal to the platform’s younger audience, the platform has began to build a new set of features, such as dividend reinvestment programs, financial management tools, and a recurring investment plan. This review has gone through each of these features.
More notably, it stated in April 2022 that it would be handing out Crypto Wallets to a global queue of over 2 million users. Customers who sign up for this wallet will be able to simply send and receive any of the cryptocurrencies available on the Robinhood service.
The business also stated that it would be developing a completely new non-custodial web3 wallet and will begin taking waitlist applications soon. Robinhood anticipates that the Beta version of this wallet will be ready by Q3 2022, and that the final product will be available to all users on the queue by the end of 2022.
Available Robinhood Cryptocurrencies
Robinhood’s cryptocurrency offering is relatively restricted, with only seven major currencies available. However, they include the majority of the main cryptocurrency tokens being traded on the market.
The full list of cryptocurrencies available for trading with Robinhood’s cryptocurrency services is as follows:
- Bitcoin (BTC)
Bitcoin Cash (BCH) (BCH)
Bitcoin SV (Secondary Currency) (BSV)
Classic Ethereum (ETC)
Fees for Robinhood
Any crypto trading platform will typically charge consumers two sorts of fees: trading fees and non-trading fees. Below is a quick description of each of these sorts of fees, as well as the Robinhood pricing structure.
Trading fees are any fees paid as a result of using the platform’s principal services, which in this case is the purchase and sale of cryptocurrencies and digital assets. The majority of bitcoin exchanges impose transaction fees in one of two ways: spreads or commissions.
The spread is the difference between the bid and ask prices. This technique is generally used by market-maker trading platforms that act as the counterparty in the transaction.
As a result, you are trading against the platform.
When this occurs, there is frequently a gap between the price at which the asset may be purchased and the price at which it can be sold at any given time. The purchasing price, also known as the bid price, is nearly always higher, and the gap between the two is referred to as the spread.
This basically indicates that if you bought and sold an item at the same moment, you would incur a loss.
Another type of trading fee that an exchange may impose is a flat commission on each trade that you make. This is often a relatively modest fraction of total trade volume.
This is often a very tiny proportion of the trading volume and is applied in a diminishing way, i.e. the larger your trading volume, the lower the fees you will have to pay in this respect.
Structure of Robinhood Fees
Robinhood does not charge consumers spreads or fees of any kind, and instead derives the majority of its revenue through the previously described PFOF scheme.
Fee for Non-Trading
In addition to the trading fee, cryptocurrency platforms frequently charge a number of extra incidental fees and levies that are unrelated to the platform’s trading activity. These are covered in further depth below.
Most cryptocurrency exchanges impose fees to allow customers to deposit funds into their exchanges.
To allow customers to deposit funds into their accounts, most cryptocurrency exchanges impose fees. The platform does not impose any deposit fees on Robinhood.
Fees for Withdrawals
Similarly to deposit fees, most cryptocurrency exchanges impose costs to withdraw funds from the site. There are no withdrawal fees if you want to withdraw money from your account.
Features of the Robinhood Platform
Robinhood is connected with a number of services and features. As previously said, while Robinhood began as a mechanism for customers to invest and trade without paying fees, it has expanded into much more than that. The primary components of the Robinhood Ecosystem are explored in depth below.
Program for Dividend Reinvestment
One of the most important advantages of Robinhood is the opportunity to reinvest dividends back into the original investment. This is especially beneficial for stock investors.
Whenever you get a dividend on a stock, Robinhood allows you to auto-invest it into the same stock again, allowing you to compound your earnings over time.
Payments That Recur
Another new tool that Robinhood has added to its range of products is the ability for consumers to make regular payments to a specific security.
Assume you want to invest a set percentage of your monthly salary in Bitcoin. You may do so automatically using Robinhood’s new recurring investment option by picking a predetermined investment amount and setting the frequency to monthly.
After you’ve done this, Robinhood will automatically deposit a predetermined amount into your Robinhood account and invest it in Bitcoin every month. This is a helpful tool for long-term investors who want to Dollar-Cost Average their assets over time.
Robinhood Gold is the company’s premium service package, aimed particularly at experienced traders. This tool enables traders to buy securities on margin and gives them access to premium research.
Joining Robinhood Gold costs only $5 per month and provides research information on over 1,500 equities through the usage of Morningstar. Furthermore, Robinhood Gold members get access to Level 2 Quotes and margin loans, allowing experienced traders to place bigger orders after performing more in-depth research into the firm.
When you sign up for Robinhood Gold, the $5 initial subscription price covers a range of perks, including interest payments on your first $1,000 borrowed. This implies that you may make a deal for up to $1,000 more than your capital without risking any more of your own money, allowing traders to double their earnings on each trade.
However, trading on margin implies that customers’ losses are multiplied, which limits the margin of error that you have on any particular deal.
Whatever supplemental margin borrowed for usage on the platform will need annual interest payments of 2.5%, which is fairly cheap. These interest payments are invoiced to your account on a yearly basis. It is important to remember that any account that intends to subscribe to Robinhood Gold and trade on margin must have a minimum balance of $2,000 in order to satisfy the margin requirements.
Because Robinhood has a large daily trading volume, it is vulnerable to cyber-attacks and hackers, thus it must have a very efficient and comprehensive security system to counteract this. It does this through the use of a number of characteristics, including:
Users can log into the Robinhood App using biometric authentication, such as a fingerprint ID, if the technology is available on their smartphone.
Users can also use a personalized 6-digit PIN to get into their accounts.
Authentication using 2FA
Robinhood also advises consumers to use two-factor authentication on their devices to protect themselves from cyber-attacks.
For example, anyone wishing to withdraw funds from an account will be forced to input a pin from the Google Authenticator app, which can only be accessible through the user’s phone. This guarantees that no one other than the account’s owner may sign in.
Robinhood is also a member of the SIPC, an organization that allows Robinhood to secure consumer deposits on the site. The SIPC protects Robinhood deposits up to $500,000 or $250,000 if a cash claim is made.
Final Verdict on Robinhood
If you are a newbie investor searching for an easy, safe method to start investing, Robinhood is the place to be.
This is due to the fact that it provides a diverse product offering, a simple platform, and the possibility to trade without paying fees.
Despite the fact that the problems surrounding Robinhood have tainted its reputation and caused consumers to question it, it still offers a range of essential services and features that make for a very nice trading experience. However, it is vital to keep in mind that the platform’s PFOF algorithms are not transparent during trading.