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Since 2013, Robinhood has shaken up the brokerage and investing arena by offering commission-free investing options. This has lowered the barrier of entry for hopeful equity traders as before you could expect to pay anywhere from $5 – $7 per trade.
This is especially true for those traders that want to trade more frequently like swing or pattern day traders. In the past, the frequency of trades would eat into and possibly destroy any profits. With Robinhood’s commission-free investing, more frequent traders can now pocket the profits.
I have personally used Robinhood for the past couple of years for some trading outside of my retirement accounts (I have a pension and separate Roth IRA).
I don’t recommend it as your first investment brokerage (I use Vanguard for my retirement accounts and invest in low cost index funds), but if you’ve maxed out your retirement vehicles (or aren’t eligible), only have taxable accounts left to contribute to, and are interested in trading ETFs or stocks, I highly recommend it.
Please keep reading this Robinhood review to learn more.
Table of Contents
What is Robinhood?
Robinhood was founded in 2013 as a free trading platform in the form of an app for Apple phones and tablets. At the time, it was one of a kind because it required no minimum deposit and charged no commissions or fees on stocks or exchange-traded funds.
Since that time, Robinhood has been gradually rolling out new services for their customers like the ability to utilize Android devices, trade options and cryptocurrency, high-yield checking and saving accounts, desktop functionality and support, etc.
Robinhood’s services and marketing are geared more toward a millennial audience and the DIY investor/low volume stock trader.
How Does Robinhood Work?
Robinhood is an equity brokerage which basically means they buy and sell equities for their members. They are essentially a middle man of sorts, executing your orders with exchanges to ensure that the equity is bought or sold according to your requirements.
Getting Started with Robinhood is Free
To get started, visit Robinhood.com and sign up for a free account.
When you sign up, they’ll even give you a free stock to get started.
They claim you have a chance to get Berkshire Hathaway stock (~$200), Apple stock (~$180), or Facebook stock (~$170). The odds are 1 in 150 of getting one of these stocks, but you still can’t beat free.
When you signup, you’ll automatically be given a Robinhood Instant account, which is a margin account. This means that you can start investing immediately (up to $1000) while Robinhood waits for your deposit to clear.
They offer a variety of trading options including stocks, ETFs, options, and cryptocurrency to pick from.
How Does Robinhood Make Money – How is it Free?
According to the Robinhood website, “We generate revenue from: Robinhood Gold, our margin trading service, which starts at $5 a month”, “Interest from customer cash and stocks, much like a bank collects interest on cash deposits”, and “Rebates from market makers and trading venues”.
Interest
Robinhood makes money from the interest made by lending out the cash you have sitting in your account that isn’t invested. This is similar to how banks, insurance companies, and other brokers use your cash to make money.
Rebates
Robinhood makes a small percentage of cash back for every dollar traded. According to co-CEO Vlad Tenev from a statement issued in 2018, “Robinhood earns – $0.00026 in rebates per dollar traded. That means if you buy a stock for $100, Robinhood earns 2.6 cents from the market maker.”
Premium Services – Robinhood Gold
Robinhood’s premium service, Robinhood Gold, charges customers $5 a month for access to margin lending. This essentially means that you’re paying Robinhood $5 a month for access to a quick, easy access loan when you need it for more buying power.
I don’t personally recommend paying for anything on Robinhood at this time. One of the main reasons folks join Robinhood (it was my main reason) is for the commission-free investing.
If you’re going to have to spend money for features, you’re better off going to a full-service brokerage firm with better research, trading tools, customer service (phone support), etc. like Fidelity or Charles Schwab and investing that $5 a month in no fee ETFs.
How to Make Money on Robinhood
Since Robinhood offers fee and commission free investing, you make money investing in their offered investment products. These are stocks, ETFs, options, and cryptocurrency. Investment advice and research is limited, so you’ll need to do your own research independently.
They also currently offer a referral program where the referral and referrer both earn a free stock. The max value of the stocks earned is capped at $500.
If you are interested in signing up with Robinhood and earning a free stock, would you please click on my referral link?
Can You Day Trade with Robinhood?
Yes, you can. A day trade is defined as buying and selling equities within the same day. Do this too often and you must follow the rules associated with being a pattern day trader.
If you are planning on pattern day trading, you need to learn and follow the rules. To day trade, a pattern day trader must have at least $25,000 in equity ($25,000 in their brokerage account) on any day that they day trade. This means you need to have and maintain $25,000 in your account to be able to day trade. This doesn’t include any type of margin.
Robinhood Day Trade Limit
Robinhood has their system setup to prevent illegal day trading. What they do is monitor how many day trades you make in a given 5-day period. If you attempt to make more than 3-day trades in any 5-day period, they will block you from day trading until you either are outside the 3 in 5 rule or maintain $25,000 worth of equity in your account.
Is Robinhood Safe?
Robinhood is regulated by the Securities and Exchange Commission (SEC) and is a registered member of Securities Investor Protection Corporation (SIPC) and Financial Industry Regulatory Authority (FINRA). SIPC protects up to $500,000 (or $250,000 for cash claims). The company has had no recorded security breaches since its formation in 2013.
According the Better Business Bureau (BBB), Robinhood is not accredited and has a B rating. They have 12 reviews on the BBB’s site with an average rating of ~1.5 stars, but it looks like all complaints have been addressed.
Robinhood has a 6.6 out of 10 rating with Trustpilot. Not sure this is a representative sample though, since there are only 2 reviews on the website.
In my personal experience, I’ve used the app and website without any trouble. I only invest in stocks and ETFs on the platform, so I can’t speak to options or cryptocurrency, but I’ve experienced no issues. Also, I don’t day trade or swing trade, so I can’t personally speak to the timing of the trades or any issues with day trading, but can confidently state that buy and hold stock traders will see a benefit from using the platform.
Robinhood Pros and Cons
Robinhood Pros
- App and website platforms are well designed and easy to use
- Supports market orders, limit orders, stop limit orders, and stop orders
- $0 commissions and fees
- $0 account minimum
- Instant verification with many major bank – bank transfers up to $1,000 and proceeds up to $1,000 from selling stocks are available instantly for investing
- Continues to improve and add new features
- Margin trading with Robinhood Gold
Robinhood Cons
- Mutual fund and bonds are not supported
- No automatic dividend reinvestment program
- No retirement accounts – only individual taxable accounts
- Limited market research – although this is improving, most other brokerage firms have either their own market research or better access to research services.
- Customer support – Robinhood offers support over the web through email and a FAQ located in their help center section, but they do not currently offer phone support
- $75 full account transfer fee
How to Withdraw Money from Robinhood
To withdraw money from Robinhood on your mobile device, just go to your account, then transfers, then transfer to your bank.
To withdraw money from Robinhood on your desktop, go to account, then banking, withdraw funds (popup box on the right).
At this time, Robinhood only performs bank transfers, so no cash withdrawals or checks.
Why Can’t I Withdraw Money from Robinhood?
There may be a few reasons that you’re having difficulty withdrawing money from Robinhood. The main reasons are related to waiting the requisite amount of time before being allowed to withdraw money (please see the next section) and not trying to withdraw more than $50,000 per business day.
How Long does it Take to Withdraw Money from Robinhood?
In addition to the normal processing time it takes between financial institutions (anywhere from a 1-3 business days), there are also other additional waiting periods in Robinhood that may delay how long it takes you to withdraw your money from Robinhood.
Waiting for a Deposit to Complete
If you just deposited money into your Robinhood account and need that money immediately, you may be out of luck. It can take up to five trading days to complete a deposit. You won’t be able to withdraw money or spend your funds during that time. Once it’s marked as complete, you’ll be able to withdraw it.
Waiting for Funds to Settle
If you just made a sale, the funds from the sale need to “settle” in your account before you can withdraw them from Robinhood. This settlement period is the trade date plus two trading days otherwise known as regular-way settlement. Once the funds are ready, they’ll show up in your buying power and be eligible for withdrawal.
Referral Stock
For any referral stock you receive, the cash value of the stock needs to remain in your account for 30 calendar days. This means even if you sell the stock immediately, you’ll still need to wait 30 days from the date you received it to withdraw the money to your bank account.
Robinhood Withdrawal Fee and Process
Withdrawing your money from Robinhood is free. In my experience, the withdrawal typically takes 3 business days.
Before you can withdraw deposits, they need to be in your account for a minimum of 6 days.
Before you can withdraw sale proceeds, they need to be in your account for a minimum of the trade date plus 2 trading days (typically 3 days).
As a money laundering deterrent, for the first 60 days following a deposit from your bank account to Robinhood, you can only withdraw to the same bank. There are exceptions to this rule, but you’ll need to jump through some hoops to get around it.
You are currently only able to withdraw $50,000 per day.
Is Robinhood Legit?
I believe Robinhood is an innovative company with a long runway and is on its way to becoming a great brokerage firm. They have a great model and have added more and more features over the years.
If they continue to add features (especially retirement accounts), they should continue to disrupt the industry and possibly even overtake some of the bigger brokerage firms.
Right now, I personally recommend Vanguard for all of your investing except stock trading in a taxable account, but with $0 commissions and fees, $0 account minimum, easy to use interface, and an introductory free stock, Robinhood is a great way to get started investing.
How do you invest? Do you trade stocks or other equities in a taxable account? Have you had any experience with Robinhood?