Robinhood, established in 2013, is a broker free of fees, that makes stock market trading simple – overly simple, according to several professionals and authorities.
The app accumulated 21 million users and more than $100 billion in assets, and it strives to be “simple, pleasant, and welcoming” to its users. According to a Robinhood representative, the typical age of its consumers is around 30, with almost half of them being newbie investors.
Through its early days, Robinhood struck out as a broker field disruptor. Its biggest strength was that it did not charge commissions for trading stock, options, as well as crypto. That advantage has been negated as the majority of the brokers have agreed to eliminate commissions. Despite growing cost rivalry, the firm has created a powerful brand & particular market with younger, tech-savvy traders because it has a simple design and user experience that concentrates on the fundamentals. In an attempt to attract prospective customers and strengthen the financial connection with current clients, the broker recently implemented cash management services as well as a recurrent investment function.
Though the broker’s client base has risen tremendously in past years, the company’s success has increased attention. In the past year, Robinhood has also been chastised for unexpected breakdowns and deliberate trading limits in the midst of market volatility.
Ease of Use
Robinhood is really simple to set up & operate. It’s is an obvious pick for traders that mainly use smartphones to monitor their assets, thanks to an application with a simple design that concentrates on the fundamentals. Users may also access the web-based service, which looks and feels identical to the app. The same types of orders and types of assets are supported by both systems.
When users first open the app, they’ll observe a line chart that displays the worth of their portfolio as well as their purchasing power. The primary menu is placed at the base of the page, where they can quickly employ the search tool to view a stock’s chart across different time periods.
Generally, the user experience with the broker is enjoyable, and the application runs smoothly. A downside is that users have extremely limited control over personalizing or customizing the application to their preferred trading experience. There are no charting or even detailed research capabilities available in the app.
Robinhood’s investment options are pretty limited, with just stocks, ETFs, options, & crypto available. The broker does not offer mutual funds and fixed income products, and also it does not allow users to trade commodities, fx, or futures. If traders choose Robinhood to be their brokerage, they are able to invest in the following:
- More than 6900 symbols (traded as fractional shares)
The broker was the first prominent brokerage service to abolish fees on stocks as well as options trading, contributing to the industry’s transformation. Trading equities & ETFs (exchange-traded funds) with no commission is now the norm.
Users have to pay a minimum of $5 each month for a Gold account in order to gain entry to a margin account, $1,000 in margin credit, with research tools. Users may also make higher deposits and have faster access to funds using the Gold account.
Every margin exceeding $1,000 is subject to a rather favorable yearly interest rate of 2.5 percent, which is assessed every day and applied to the user’s account at the conclusion of every monthly billing period.
Instead of a fee, the broker gets paid for order flow, or steering orders towards third-party market makers. These different market makers might not always be able to deliver speedier transactions or lower costs. However, since Robinhood is compensated regardless of whether it improves order quickness and pricing for its customers, several industry professionals are suspicious of this strategy.
The broker offers 3 types of accounts. They feature a free option called The Standard, as well as a new Cash Management account and also a Gold account. All of the above are solely available in taxable accounts. As of now, the broker doesn’t provide retirement accounts.
Trading with the Standard account is free of charge. In addition, they just stated that they would begin allowing fractional share trading soon. Using With the Standard account, clients have immediate access to funds made up to $1,000.
Users will also have accessibility to “after-hours” trading. One disadvantage of this account type is the restricted capacity to trade on the same day (3 for each week). Traders can’t additionally use leverage or trade via margin. However, for the majority of users, the broker’s standard account is enough.
The Gold account offers a few nice extra features too. Users have the option of making a quick deposit (up to $50,000). They have leverage of 2:1, meaning they may borrow double the amount they put in. This implies that if they have $50,000, then they may borrow another $50,000, leaving them $100,000 to trade with. It is crucial to understand that they must pay a 5% yearly interest rate on the amount they borrowed.
Types of Orders
Robinhood offers a restricted number of order types. For the accessible assets, users can place market and/or limit orders. Users will be unable to place conditional orders. These small choices might not seem restrictive to rookie investors or perhaps even seasoned investors with simple needs.
In terms of tax lot pick, the standard cost basis selection for shares is FIFO (first-in, first-out). Notify the customer service to modify the standard cost-basis approach for the account or to identify special tax lots for liquidation.
Aside from the dashboard, which shows users how all of their assets are performing, the broker doesn’t offer any effective portfolio management features. This is particularly worrisome for individuals who are inexperienced traders and thus are unaware of their risk tolerance. For traders seeking a more long-period portfolio management strategy, this broker might not be the greatest option.
Education & Training
The broker’s education initiatives are not quite as comprehensive as they should be for a firm whose customer base is new in the investing field. Snacks, a podcast, email, and video series that provides the day’s leading financial headlines to the users each workday, is now available. Since about August 2020, there have been over 20,000,000 users enrolled in the weekly email and 2,000,000 monthly active podcast subscribers, as Robinhood stated. The broker just included video as a new medium for their Snacks materials, with the goal of providing entertaining and useful graphics to make financial headlines less daunting.
The broker has also included a Learn section that provides financial facts, explanations, and markets explainers to help users understand financial terminology and ideas.
Customer Service & Security
The broker’s customer service lacking a bit. There isn’t any customer support number to call or webchat alternative offered. To get a callback from the broker, users have to be logged into their accounts. Although there is a reasonably comprehensive FAQ support section that could be capable of addressing the problems, the absence of convenient immediate customer service can give cautious investors discomfort.
Having said so, the broker does provide reasons to be confident in their safety. Users’ passwords are encrypted with the industry-standard BCrypt hashing technique and are never kept in plaintext. The mobile application also provides safe access through TouchID, FaceID, or a Pin number, and also 2-factor verification via an independent authenticator app or text message.
Pros & Cons
- Quite straightforward and easy to use.
- Accounts can be opened quickly and easily, and deposits can be accessed immediately.
- Low trading expenses, availability of fractional shares, as well as crypto options.
- Trading stocks and ETFs without commissions.
- There are just a few research & educational materials accessible.
- Investing options are limited.
- Inadequate clarity concerning payments regarding order flow.
- There is limited availability of ETFs and no mutual funds.
- Customer service is weak.
Robinhood has grown to be one of the top brokers in the United States, due to its user-friendly app, which can help to invest look relatively straightforward. For certain investors, this broker may be a good fit because of its laid-back attitude, yet there are reasons to be careful of any broker that views markets like a game. Highly experienced investors might be disappointed by the app’s insufficient tools and features.Share this article