Robinhood is a very popular investing app that offers FREE trades of stock, ETF, options, cryptocurrency and commodities. Included is all you need to research and analyze your trades. Robinhood is one of our favorite investment apps and also our best rated for a beginner.
Ease of use
What is Robinhood?
Robinhood is an online investment broker that offers commission free trades on stocks, options, ETFs, commodities and cryptocurrencies. Their easy to follow tools and resources makes it one of the best platforms for both beginner and expert investors.
Almost a decade ago at Stanford University Baiju and Vladimir met and became roommates. After the two graduated they headed to New York and built software to trade hedge funds for a company called Celeris. They later abandoned it to create Chronos Research, this company sold low-latency software to other trading banks and firms. In 2013 they built what we know today as Robinhood. The popularity and success of their company made them billionaire’s in 2018.
Robinhood’s main goal is to “Provide everyone with access to the financial markets, not just the wealthy”.
Free trading of stocks, ETFs, options, and even crypto. Sound too good to be true? We it is and Robinhood packs this all in an easy to use app.
Sure a lot of sites offer zero commission… on most things. But options, yea thats a big one for Robinhood. Anyone who traded options know that with most brookers they charge fees for each transaction. This as an investor is money wasted that could be put in to other trades. Robinhood charges no per-contract fee whatsoever making it a go to for investors looking to get in to the market.
Cryptocurrency is getting more popular and with Robinhood allowing trades just adds a bit more value to the app. In our opinion if you are just looking to profit from buying and selling then their selection of crypto options is just fine. But for a true avid of crypto we do not recommend using Robinhood to trade cryptocurrencies. We will touch more on that later.
Account minimum: With Robinhood there is zero account minimum to start with. Heck you can put in $5 and get the ball rolling, but it’s funding process is also great. Depositing funds with almost any broker can take days, even with opening a new account.
Robinhood gets part of your deposit in to your account instantially. This is done by instant verification with the major banks. Robinhood avoids the hassle of basic verification by allowing tiny deposits into your bank account. For traders without a gold account your instant deposit amount will be $1,000.00. So if you want to fund your account with $50 this will immediately be available for you to use. Now if you are wanting a larger amount lets say $1,500.00 you will get $1,000 of that instantly and the remaining $500 will be available in a few days.
Robinhood Gold is an added feature that allows you to buy securities with borrowed money, or margin. Robinhood charges only $5 a month for the gold program, which offers research info from Morningstar, Level II Nasdaq quotes and margin loans.
Robinhood Gold allows $1,000 margin with no fees. If you decide you want to borrow more than that you will be charged %5 yearly interest on that borrowed amount. For example, let’s say you were to use $3,000 worth of margin this would come out as followed:
- $3,000.00 margin used
- $1,000.00 is included leaving the remaining $2,000.00 subject to the interest.
- $2,000.00 *5%/350 = $0.28 per day
This daily interest will be billed at the same time as your Gold membership, every 30 days. We recommend you pay this down as soon as you can and only use margin if you are very knowledgeable about investing. These margins are there to help you invest faster while waiting on a deposit and not recommended to use as a loan to try trading for the first time.
Bigger instant deposits
With Robinhood Gold subscription, you get larger instant deposit so you can use your money instantly instead of waiting days for your funds to clear. If you see a great investment or trade opportunity in the market, you can increasing your buying power right away.
The instant deposit limit is based on your account balance, for example:
- $50k instant deposit limit if your portfolio value is over $50k
- $25k if your portfolio value is over $25k
- $10k if your portfolio value is over $10k
- $5k for every other Gold user
Remember without Robinhood Gold you can only have up to $1,000 instant deposit.
Level II Market Data
Level II Market Data is used to show the multiple bid and ask price for a stock. This allows investors to some help in determining the availability or desirability of a stock at a certain price. Think of a BID like a limit buy order that other investor opened on the market. Same goes for the ASK but like a limit sell order. Just like a limit order, each one of the bid and ask price is represented by the price and quantity of the order.
How do investors use Level II Market Data? Level II market data in conjunction with the price chart representing recent trades gives investors more informative investment decisions. This data shows the changes in the bids and asks on the NASDAQ stock market allowing traders to compare how many shares are on each side. This is typically a feature to help indicate the short term direction of the price.
We looked around for a great informative video on how this works to give you a better picture of market data. Our search led us to MHIFN’s video on “Level 2 market data on robinhood” Check it out on his youtube channel.
Robinhood has partnered with morningstar to provide Gold members unlimited access to their premium reports. These reports are currently available on 1,700 stocks which are updated frequently.
If you take a look at Morningstar’s website you will see two plans. A paid version $199 a year and a free limited version. Comparing my free version of morningstar to selected stocks on Robinhood it appears that Robinhood is pulling data from the Premium version of Morningstar and embedding that data in the app. Just that alone is a great value if you consider Robinhood Gold is only $5 a month ($60 a year).
Also a great take away is that Morningstar is also a stock listed on Robinhood (NASDAQ: MORN). Great investment? That’s for you to decide but we like it. We also recommend joining the free version of Morningstar as they have fantastic articles and research tools. Check them out, the more tools you have gan give you a better edge in the investing world.
The ability to buy a fraction of a stock is new to robinhood and they made it very simple. So what is buying fractional shares? This is the purchase of a piece of a stock aka fractional. Let’s say stock (X) is trading for $1,000.00 but you do not want to pay the full amount for that stock for whatever reason. You have the ability to buy a piece of the stock. You can spend $1 or even $100 and now own a fraction of the (X) stock.
This is very useful if you want to invest in some long term stocks like facebook, apple, google. You may not have a big account or may be starting small and just starting to invest. You can budget and purchase a fraction of each whenever you want. I personally put aside a fixed amount every payday and split it into multiple high value stocks.
After a while of investing fractions of the total value of a stock you will hopefully at some point have a full share. For instance if using the same example of stock (X) if you purchase $100 of the stock every month in 10 months you will have a full share of (X).
Another great feature of fractional shares is that even if you don’t own a full share of a dividend paying stock you will still get a dividend. Just keep in mind the dividend will be a fraction of what you have invested in a full share.
Dividend reinvestment is another feature that goes along side of fractional shares. If you own a share or even a fraction of a share you can enable (DRIP) allowing the app to take any dividends earned and automatically reinvest it in to that particular stock. This will create a fraction share of the stock.
Robinhood offers options trading with no base fee, exercise or assignment fee and no contract fees. That is FREE options trading from Robinhood where other brokers charge for. The only costs that you will have are the prices of the contract premiums. We encourage you to have knowledge and experience in trading before trying options.
So what are options?
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell the underlying asset at a specific price on or before a certain date. There are two common types of options that investors utilize calls and puts.
There are various different subtypes and strategies, but these are the most basic ones that we are going to use.
Puts: When you purchase a put, you are buying the right to sell that security at a set price. Put options are used when an investor thinks a security is in a downtrend and will fall to a certain price within the time frames given.
Calls: Calls give investors the right to buy a security at a set price by the contract expiration date. A call is the opposite of a put. Investors may purchase a put when they believe a stock is in an uptrend and is going to rise in price by a certain date.
We will use an example of a simple call option in order to get a simple understanding of how options work. We will use a fake stock we will call (X)
An investor has analyzed and watched (X) for the past few weeks. This whole time it has held steady at a price of $150. The investor see growth and maybe a future catalyst that will increase the value of (X) in the near to distant future.
This investor could just purchase shares of (X) at $150 and if correct they would have made some gains. What if the investor does not want to risk a lot of capital on his assumption? This is where buying a call option could come in handy.
An investor could buy a call option on stock (X) for $2.00 at a strike price of $150. This means the investor would be in the money if the stock rose to a price of $152 or higher.
Are you a bit confused yet? Most beginners are and that is why more research is needed to successfully trade options. There is more, options contracts carry what is called leverage. Each contract controls 100 shares of the underlying security.
So the above example of buying a call for $2.00 does not cost just $2 and you’re in the game. You are buying contracts of 100. So this contract would cost $200.00 referred to as a premium. So you are basically paying $200 to enter in to this option and depending how the market trades you can gain or lose. If the cost of the security is not $150 or higher by the time the contract expires you lose the premium ($200).
That is a basic concept of how options work, not only on Robinhood but in general amongst other brokers. We have found another great video explaining this in better detail from Youtube’er projectoption. Check out his video here – Options Trading Basics EXPLAINED (For Beginners)
Robinhood Cash Management
Another great feature that recently launched back in October of 2019 is Robinhood’s cash management system. This feature did launch with a waiting list which can be tracked through the app when you enable it. Once approved and off the waiting list you will now have another fantastic feature from Robinhood.
Cash management lets uninvested cash in a brokerage account earn interest or be spent like cash using a special Robinhood debit card. In October this launched at a 1.3% rate but due to the changes in rates over the covid pedemic it is not at 0.30% which is still high compared to that of traditional banks. That being said i’m sure the rate could increase over time.
Use your Robinhood debit card virtually anywhere Mastercard® is accepted and at 75,000+ fee-free ATMs. This can be used to pay bills, spend, invest or pull out cash.
In the background Robinhood works with Sutton Bank allowing direct deposit or AHC transfers to be done. Just like a bank you will get an account number and a routing number to perform those tasks.
Just like the app there are no cash minimums to start using their cash management program. Just be cautious because you can overdraft, remember it works like a bank and uses your unused funds. They are also FDIC insured up to 1.25 million.
Robinhood is an all around beginner and advanced user app that is easy to understand and use. We love all the features and options it comes packed with. Do we recommend using this program? We sure do, especially if your new to investing.
One takeaway for those looking for more advanced chart data like i typically use. I would recommend Webull for advanced traders or just use tradingview. Webull is basically an advanced version of Robinhood but without cash management and fractional shares. Tradingview i use just for its charts.
Keep in mind Robinhood is constantly adding more features. The competition is getting big with commission free trading popping up on a lot of new and existing platforms. Please check out all fees as some if not the majority of those platforms do charge fees for other services some in which pertains to withdrawing and transfers. So far Robinhood is the fee free champion and as long as they keep up with all the great features they are going to stay on top.
Check it out using the link below and we will both get a free stock.