Robinhood App Review
- Trading Platform
- Short Lists
- Ease of Use
- Executions and Routes
The Robinhood Trading App gained a lot of attention by offering free trades with no commissions. Many new traders see this as a great alternative to discount brokers who charge a per-share commission. This isn’t the first time the free trading concept has been applied but it is the first time it gained real traction. So, is it worth to switch to Robinhood and get free trading commissions? Read the review to find out?
- About the Robinhood Trading App
- Opening a Robinhood Account
- Robinhood Gold
- Robinhood Instant
- Who is Robinhood is Best For?
- Common Questions About Robinhood
About the Robinhood Trading App
Robinhood is a mobile trading application for iPhone and Android that provides zero commission trades on U.S. stocks and ETFs. While their website is at Robinhood.com, the platform is purely designed for mobile trades, with no desktop access. Robinhood is an SEC registered broker-dealer and member of FINRA & SIPC. However, they are a mobile-only stock brokerage, with access to listed foreign securities as well (for a fee). The app is intuitively designed and flows very smoothly. Kudos to the designers for the sleek, simple and contemporary feel.
Robinhood was the brainchild of Stanford classmates Vlad Tenev and Baiju Bhatt. The duo designed trading platforms on Wall Street for some the largest financial institutions and derived a mobile platform that could take advantage of electronic trading and automation to cut costs down to zero for the end-user while maintaining efficiency and stability on the back end. As of April 2017, Robinhood has grown to two million users.
Opening a Robinhood Account
To open an account, the trader must have a legal U.S. address and U.S. citizenship or valid U.S. visa, valid social security number, and be at least 18 years or age. The standard/basic account is a limited margin account that allows for instant settlement and instant deposits. This doesn’t allow for shorting shorts or leverage. Those are available through Robinhood Gold fully leveraged margin accounts. Cash accounts are available through downgrading in the app. There are no account minimums for the regular Robinhood account. All accounts for personal single person accounts, no corporate or joint account capabilities are available yet.
I was surprised by how easy it was to open a Robinhood account. Initially, I was concerned that the account opening process would be a hassle on a mobile phone but I was pleasantly surprised. This is one of the easiest account opening processes I have tested. You can open the account directly from your mobile phone and the sign up form is clean and easy-to-use.
Robinhood Gold is an advanced upgrade with flat commission fees. Robinhood Gold requires a $2,000 minimum account as per regulatory compliance. This account allows you to trade extended hours 30-minutes before and 120-minutes after regular market hours. Gold allows for two times your cash value in margin. The app always tracks the available Gold buying power. The commissions are flat rates set by account size tiers currently at 0.005% of the account value. For a $4,000 account, the cost is a flat $20 period month fee to cover all trades. A $6,000 account is $30 per month and $10,000 is $50 period month. Regulatory fees like SEC is $21.80 per $1,000,000 of sells rounded up to nearest penny.
This is a free upgrade lets you use up to $1,000 of pending bank deposits immediately. Robinhood instant allows you to re-invest funds without waiting the three-day settlement process as in a cash account. The limited margin account lets you invest the funds from selling a stock position immediately. Margin regulation and limitations will apply, including the PDT rule (no more than three roundtrips during a rolling five business day period for accounts under the $25,000 threshold).
Commissions & Fees
Commissions are $0 for U.S. equities and ETFs and ACH fund transfers. Outgoing ACAT (automatic customer account transfer service) transfers have $75 fees but incoming ACT are free. International wire transfers are $50 and outgoing domestic wire transfers are $25. Broker-assisted phone trades cost $10. Domestic overnight check delivery is $35 and $30 penalties apply for returned and NSF checks. For Robinhood Gold accounts, the commissions are tiered in increments at a 0.005% monthly account fee. Currently Robinhood only allows trading in stocks and ETFs, not options, futures or commodities. There are no software fees. The company claims to make money only on the monthly fees through Robinhood Gold and interest on cash and securities in Robinhood accounts.
While Robinhood’s “free trading” was a game-changer when it initially launched, traders now have more options for free trading. Companies like Webull and Firstrade have recently announced free trading options as well.
Platforms & Tools
Robinhood is purely a mobile low-cost mobile execution platform. There are very simple line graphs with no indicators or charting tools. There are streaming news feeds, just headlines. There are no scanners or layout pages to contend with. All research has to be performed on your own through other services. This is strictly a base bones no-cost execution system. Regular margin is available through Robinhood Gold.
The charts may be one of the most disappointing components of the Robinhood platform. I appreciate the clean, modern design of the app, but I value utility over aesthetics. Robinhood uses line charts and allows traders to select time frames (such as 1 day, 1 week, 1 month, etc.). I really wish the company would add candlestick charts in the near future. Candlestick charts are a necessity for traders, and while I understand that many Robinhood customers are novice investors, it would still be nice to see the addition of some industry standard tools.
Research and Fundamental Data
Robinhood offers the same set of fundamental information that you will find on sites like Yahoo Finance or FinViz. You can quickly get a snapshot of a stock’s yearly range, market cap, P/E ratio and more. You can also view the most recent news stories.
In no way will this replace your other fundamental research, but it’s a nice addition and a helpful way to get a quick understanding of a company’s current standing.
The app also provides an earnings chart which does a good job of comparing earnings estimates to actual earnings.
You can add watch lists simply by typing in the company name/symbol. This is a simple and convenient feature. The platform is all about simplicity, like a tiny house. You really have to know which stocks you want to monitor and trade. The watch lists are clean and easy to read. The line chart next to each ticker is a nice additional feature.
Like everything in the Robinhood app, placing an order is very simple. Traders can choose between market, limit, stop loss, and stop limit orders. There are no advanced order types (such as conditional orders) available, but most new traders will not utilize these anyway.
The order screen is clean and easy to use. Simply enter the amount of shares you want and the price you are willing to pay (with limit orders).
Executions and Routes
Robinhood doesn’t allow direct order routing like a direct access online brokerage. The platform allows market orders. Market buy orders are actually adjusted to limit orders “collared” up 5% to prevent overpaying for shares. Market sell orders have no collars. Limit orders are available for both buy and sell orders with good-for-day (GFD) or good-til-cancelled (GTC) time in force choices available. Stop Loss orders are stop limit orders that trigger a market order when the stop price is reached.
Robinhood receives order flow payments from various clearing and execution firms including Apex Clearing Corporation averaging less than $0.0008 per share, Citadel Execution Services averaging less than $0.0016 per share, KCG Americas, LLC averaging less than $0.0017 per share and Two Sigma Securities, LLC, averaging less than $0.0015 period shares for order flow executed in Q1 2017.
Borrows and Locates
Currently, Robinhood does not allow for short selling on the app.
Traders can e-mail and message customer service with issues. Phone support is also available. Keep in mind broker assisted phone trades are charged $10 each.
As noted multiple times in this review, the Robinhood app is intended to simplify trading for the average investor/trader. Accordingly, the app is easy-to-use but limited in features. That said, the company hasn’t failed to keep up with modern technology. The app accepts Touch ID authentication and Face ID authentication (for iPhone X). This is a useful feature for traders who don’t want to enter their password every time they log in.
The app also includes a feature called “Pattern Day Trade Protection.” This feature will prevent users from placing trades that may be in violation of the PDT rule. Basically, if you’re about to place a 4th trade in a period of 5 days, the app will prevent you from doing so. This is definitely a helpful tool for new traders who are either unaware of the PDT rule or lose track of how many trades they’ve placed.
Who is Robinhood is Best For?
The Robinhood application caters to new and casual investors who rely solely on their mobile devices. The simplicity of the app appeals to Millennials who are the most comfortable demographic with a mobile-only stock brokerage. We discuss this demographic further in our Acorns Review as we analyzed another service designed specifically for “app investors.” Newer traders like those in Ricky Gutierrez’s Learn Plan Profit group seem to really like the simplicity of the platform.
Swing traders and investors will appreciate the portability and streamlined convenience of the app. Intra-day traders will need a more thorough routing system as well as research and charting features found with a direct access broker.
It’s very hard to trade actively on this platform since there is no direct order routing, chart indicators, news feeds, scanners or much screen space. While the zero commissions are the main selling point, the portability and convenience is an additional benefit. Robinhood is like the tiny house of online brokerages. Users need to be self-directed, independent and resourceful enough to supplement this no-cost platform with research and analysis off another platform. The fills may also be tricky since Robinhood has order flow deals with multiple firms.
Robinhood is best for traders with very small accounts. It can almost be considered of a learning tool that allows new traders to test their skills without burning money in commissions. For traders with more experience, brokers like ETRADE, TD Ameritrade, and Schwab will likely be more suitable. While these brokers charge commissions, they also provide a suite of advanced tools that make a trader’s life easier.
“Free” commissions may sound enticing, but they come at a cost. You will not have access to level 2 trading, advanced charts, advanced order types, and more. Furthermore, trading commissions should never be the difference between a profitable and unprofitable trading strategy.
Common Questions About Robinhood
Robinhood is quickly becoming one of the most popular stock brokers for new traders so we figured we should address some of the most common questions about the broker.
How does Robinhood offer free trades?
Brokers don’t just make money from commissions. In fact, commissions aren’t even the biggest source of revenue for brokers who charge commissions (i.e. ETRADE, Interactive Brokers, etc.). Stock brokers can make money from commissions, but the bulk of their income comes from interest on client accounts and payment for order flow. The second revenue source is definitely worth exploring further.
When you place a buy or sell order, your order needs to be sent to the market. Most of us don’t think much about this process but there’s a huge industry surrounding it. Orders can take a few different routes before being executed and companies are actually competing to get access to your orders. These companies want your orders so badly that they’ll actually pay for them. In these cases, the broker is compensated for sending your order to a specific route, and this is what’s known as “payment for order flow.”
The truth is, most casual traders won’t even notice a difference between the different order routes. That said, Robinhood’s practice of internalizing order flow does come at a cost. For certain trades, this process can result in slower executions which can lead to worse fill prices and or missed trades.
Does Robinhood have a desktop platform?
Robinhood recently released a web trading platform that looks very similar to the company’s mobile app. While it’s convenient to manage your account online, the desktop platform really doesn’t add much value. It’s quite simplistic and most of the information it provides can be found for free elsewhere.
Robinhood’s free commissions are not a “bait and switch” tactic, nor are they intended to distract clients from other account fees. Robinhood is actually pretty good at providing transparent, fair pricing. You can either choose the free plan, which is absolutely free, or you can opt for Robinhood Gold for $5/month.
What can I trade at Robinhood?
Robinhood clients can trade stocks, options, and cryptocurrencies. That said, traders cannot trade the full range of these asset classes. For example, sub-penny OTC stocks are not available through the platform, nor are a lot of the cryptocurrencies you’d find with services like Coinbase.
How does Robinhood compare to other discount brokers?
Robinhood is a simplified version of discount brokers like ETRADE and TD Ameritrade. This simplicity comes at a cost, as the brokerage has eliminated many beneficial resources that you will find at other discount brokers. Absolute beginners are unlikely to notice the missing features, however most experienced traders will prefer another broker.
How does Robinhood compare to free brokers like Webull?
Robinhood is a pioneer in the mobile investing industry and, to date, it’s hard to beat the app’s simplicity and ease of use. That said, many competitors are catching up and filling in the gaps in Robinhood’s service. For example, Webull recently launched as a free app-based brokerage that offers advanced trading tools alongside free commissions. In my opinion, Webull is a clear winner over Robinhood.
- Zero commissions on U.S. stocks and ETFs
- Convenience and accessible through mobile
- Always connected to the U.S. equity markets
- Flexible API
- Seamless design integrates features well
- Good intro/starter brokerage for Millennials
- No order routing options or short selling
- Weak chartings and research functions
- Lacking advanced tools
- Not the best fit for active traders (mostly designed for investing)