Robinhood is one of the newest and hottest brokerage firms that started in the last year. It recently came out of beta and is accepting individuals to join it's commission-free trading firm. It bills itself as the future of trading – with $0 trades, a fancy smartphone app (the Android version went live in the Google Play store on 8/13/15), and a bunch of fancy investment-backers that would make it the envy of any Wall Street firm.
But as a customer and investor, is it's commission-free trading platform worth it? Should you give it a try as an investor?
I've been using it for the past month and a half, and here are my honest thoughts on Robinhood. If you want to skip the review, the bottom line is that there are better free alternatives for long term investors. We recommend Fidelity and TD Ameritrade because they both offer $0 minimum IRAs and 100s of commission-free ETFs. They are a better solution because they offer many more tools and resources for the long term. And they both have great apps.
If you're still curious about Robinhood, here's the review.
Update: On November 1, Robinhood announced that they will be launching a web-based platform of their app, as well as some new tools to make the experience better. If you've been a beta tester, please share your insights. We will update this review as we try out their new products.
Update: On December 13, Robinhood announced that they will be launching options trading on their platform for free. If you're interested, you must join the waitlist and we'll share more when we can. However, we do know that you can't use Gold Buying Power for options spreads, and you must use your margin limits or cash on hand to cover the maximum loss.
Update: On January 25, 2018, Robinhood announced free crypto trading will be rolling out in February. Only Bitcoin and Ethereum (ETH) will be available for trading when that rolls out to waves of users starting in California, Massachusetts, Missouri, Montana, and New Hampshire.
Setting Up The Robinhood App
Robinhood does everything through it's smartphone app. Even if you sign up on their website at Robinhood.com, you still have to download their app.
Once I signed up on the website, I received an email with a link to download the Robinhood app:
I followed the link and got started. After creating an account you must download the app from the App Store. Everything for Robinhood is done via the app:
Once I downloaded the Robinhood App for my iPhone, I opened it up to this:
After you login with your information, it asks you to create a Watchlist. I didn't really understand what was even happening at this point – I seriously just entered my login information and it started populating a Watchlist. I wish it didn't do that (and you don't have a choice to skip it that I saw), but here is the screen:
The next screen asks if you want Smart Notifications for the app. I opted out of this because I hate notifications on my iPhone. I'm sure others will find this feature useful though:
The next screen asks you to fund your account. Out of every app I have ever used, this has been the most intuitive part of the process. I find linking bank accounts can be a challenge, even on a desktop computer, but Robinhood made this easy:
Once your account is funded, you'll receive a confirmation email and an alert on the iPhone app. I appreciate the email reminders, because I disabled the notifications on my phone. Here's what your account screen looks like:
However, before I could do anything else, Robinhood once again asked me to setup a bunch of investment objectives. I didn't really understand the purpose of these, as they don't seem to have any software or help to customize a portfolio or trade.
I really didn't take long, but just more added steps that I felt that weren't needed:
It was all pretty standard stuff, but seemed like a robo-advisor:
How To Use The Robinhood App
Now that you have your account funded, you can start using the Robinhood App to look up and trade stocks. They have some very elegant ways to look up stock information. Here's what I started with, looking up Abbott Labs. First, I searched for the symbol:
Once you look up the stock symbol, it gives you a quote, basic chart, and other basic information about the stock. This is all trading information – they don't have any fundamental information about the company:
Before you can make a trade, Robinhood does have this cool feature that lets you look at “Popular Stocks” based on what others are doing on their app. While I don't like to base my investment decision on what others are doing, a little voyeurism is always fun:
When I went to make my first trade, I thought I'd keep it simple and just invest in SPY. So, I typed in the symbol for SPY and got a quote:
I then clicked the big Buy button on the screen and it brought me to the order screen:
It's very intuitive and easy to use to place an order. You simply type in the shares you want to buy and the price. If you don't want a market order, you can tap the “Market” and switch it to a limit order. After that, you review your order:
Then, you just swipe up to submit. Personally, I hate having to swipe to access features on a phone. Just let me push a button.
On 9/28/16, Robinhood announced that the are finally coming out with a premium product.
Robinhood Gold gives you:
- Margin Trading: They call this feature “Gold Buying Power”, but honestly it's just 2x margin on your account. However, unlike other margin accounts, you don't pay interest. Your margin power is based on the flat monthly fee you'll pay
- Pre & After Hours Trading: You can get access to pre market and after hours trading
- Bigger Instant Deposits: You can get instant access to your money, including when you sell a security, you don't have to wait the few days for the settlement(they call this “Instant Reinvestment”)
Here's where it gets tricky. The pricing for all of this is pretty high in my opinion. Of course, this is always subject to change (and please let us know in the comments if it does change):
If you're lucky enough to get an early invite, you can upgrade by going to your Account screen and tapping “Robinhood Gold”.
How They Make Money
I'm always leery when I see a company offering something for nothing. This company isn't a non-profit. It's venture backed and will be looking to go public and make people rich. But, in order to do so, they need to make money, so how do they do it?
They have two models. First, they don't pay you interest on any money left in your account. Rather, they collect the interest on that money and keep it for themselves. They also charge interest on margin for accounts that choose to trade on margin.
Second, they have a longer-term plan to offer an API for their system and charge for access. This is likely to be the bigger money earning source, but doesn't really impact individual investors.
Would I Move My Portfolio Over To Robinhood?
This is pretty simple: no.
I don't see Robinhood as the replacement for anything. I see them as a novelty. I found the app okay to use, not great. I couldn't imagine holding a portfolio within this app/company and trying to manage it. Robinhood also doesn't provide support for Quicken or Mint yet, so you can't track your holdings outside the app. This is pretty frustrating given that people with multiple accounts rely on other services to stay financially organized.
If you trade frequently, the app may be handy, but the research features are too basic to be of any use. Furthermore, I can't image trading from a phone.
- Commission Free Trades
- Pretty App for iPhone & Android
- Security: the app uses Apple Touch to login, which makes it feel secure
- Not easy for managing your holdings (couldn't see holding 5-10 positions with the app)
- No support for Quicken, Mint, or Personal Capital
- Too basic charts and data
- I don't like how everything is mandatory in the app – give me a browser to access my account online on my home computer
- Printing statements and tax documents is a hassle. You have to login to the app, email it to yourself, and then print it.
My final thought is that Robinhood is going to be a novelty that we don't hear about in 1-2 years. They attracted a lot of buzz on social media last year with their free trades, but after using their service, I was pretty disappointed.
I also don't see where the larger market is going to come for this product, if financial product enthusiasts can't get behind it.
Finally, I worry about the money flow. Too many of the “free commission” companies have changed their tune or disappeared over the years. I can see prices rising or services disappearing in their future.
What I'd honestly recommend is opening an IRA or brokerage account at a mainstream brokerage like TD Ameritrade or Fidelity. What most people don't realize is that you can open an IRA with no minimum, you can get access to hundreds of commission free ETFs, and you have a great app to use. You essentially can build your entire diversified portfolio for free, on an app. Check out TD Ameritrade for yourself.
Don't just take my word for it with this review, try Robinhood for free right here: Signup for Robinhood
Have you used Robinhood? Did you like the experience? Are you going to replace your brokerage with it?
Robinhood is a commission free brokerage that is app-based and they recently rolled out Robinhood Gold for margin trading for a fee.