Robinhood Review – User-Friendly Investing & Trading Platform

Robinhood is a commission-free trading platform that has done more to democratize investing than any company since Vanguard. When Robinhood debuted in 2013, it was alone among U.S. investment companies in offering commission-free stock and exchange-traded fund (ETF) trades. Today, commission-free trades are the norm at giant “establishment” brokerages like Schwab and TD Ameritrade, “discount” brokers like E*Trade, and upstarts like TradeStation alike.

Robinhood is no longer the darling of the low-cost trading space, however. In early 2021, the platform buckled under the weight of a massive short squeeze in GameStop (GME) and other “meme stocks,” in some cases temporarily refusing to fill orders in heavily traded names.

Subsequently known as the Big Short Squeeze — a play on contrarian investor Michael Burry’s “big short” bet against the U.S. mortgage-backed securities market some 15 years earlier — that event spurred thousands of traders to look for low-cost Robinhood alternatives. Thanks to Robinhood’s success in bending the retail brokerage industry to its will, such alternatives were by then plentiful.

Robinhood remains a going concern — indeed, it’s still one of the most popular outlets for active traders to buy and sell stocks, funds, options, and cryptocurrency. But it’s by no means the best of the bunch.

Key Features of Robinhood

Robinhood is a mobile-friendly investing app with a stripped-down interface that makes it easy — some would say too easy — for inexperienced users to buy and sell risky financial products on a whim.

Robinhood does make some accommodations for more experienced traders, such as access to margin trading and Level II market data through the Robinhood Gold premium plan. But its bread and butter is the nonprofessional set.

Robinhood Trading Account and Investment Options

Robinhood is built around a crisply designed trading platform that’s made to be used on a mobile device. The Robinhood trading app makes it easy to transfer funds via ACH, peruse market data and analysis, search for stocks and other market-traded instruments, and place trade orders with a few taps.

Robinhood Trading Account

Robinhood offers just one investment account option: a taxable brokerage account (general investing account) with no deposit minimums or ongoing balance requirements. Robinhood doesn’t support tax-advantaged accounts like traditional or Roth IRAs, employer-sponsored 401(k)s, or 529 college savings plans.

Funding a Robinhood Trading Account

Robinhood allows all users to instantly add up to $1,000 in deposited funds, with the remainder of larger deposits clearing in the subsequent business days. Users can trade instant-deposited funds right away, but the remainder must settle before it can be used to place trades.

Robinhood Investment Options

Robinhood offers access to four main types of market-traded instruments:

• Individual stocks
• Exchange-traded funds (ETFs)
• Options
• Cryptocurrency, including Bitcoin, Ethereum, Dogecoin, and other coins (subject to change at Robinhood’s discretion)

All of these instruments fall under Robinhood’s free trading umbrella. Robinhood allows fractional share trading (with order minimums as low as $1) in most stocks and cryptocurrencies as well. Fractional share trading may not be available for stocks priced under $1 per share with market capitalizations under $25 million.

Robinhood does not support mutual funds, including no-load and transaction-fee-free mutual funds. Also absent from Robinhood are alternative asset classes like forex (foreign currencies), precious metals, and commodities.

Robinhood Cash Card (Bank Account)

Robinhood used to offer a cash management account with virtually no fees and a competitive yield (interest rate or APY) on all balances. Offered through Robinhood Financial, this account had some useful features and benefits:

• Free-free transactions (no ATM fees) at about 75,000 ATMs nationwide
• A Mastercard debit card accepted at millions of merchants worldwide
• No fees for overdrafts, no account minimums, no account transfer fees, and no foreign transaction fees
• Up to $1.25 million in FDIC insurance through partner banks
• Built-in bill pay

The Robinhood cash management account was a logical place to store short-term uninvested cash but could also pass as a day-to-day money management account.

Unfortunately, it’s no longer accepting new users. In its place, Robinhood is rolling out the Robinhood Cash Card, which promises stock or crypto rewards on everyday purchases and makes it easy to invest a portion of each paycheck.

As of May 2022, the Robinhood Cash Card waitlist is open, but no firm rollout date has been set.

Robinhood Gold

Robinhood Gold is Robinhood’s strictly optional premium membership plan. For $5 per month, Robinhood Gold members enjoy features and benefits not available to regular Robinhood users:

Margin Accounts

Robinhood Gold users with at least $2,000 in their accounts (the minimum margin balance set by FINRA) can apply to trade on margin, meaning they can borrow from Robinhood to increase their market buying power. Robinhood allows margin borrowing at rates as low as 2.5%, although this is subject to change at Robinhood’s discretion.

Higher Instant Deposits

Robinhood Gold members enjoy higher instant deposit limits.

Instead of the flat $1,000 instant deposit limit available to regular Robinhood members regardless of account size, Robinhood Gold members’ instant deposit allowances are based on portfolio size:

• $5,000 instant deposits for portfolios with less than $10,000 in value
• $10,000 instant deposits for portfolios with $10,000 to $25,000 in value
• $25,000 instant deposits for portfolios with $25,000 to $50,000 in value
• $50,000 instant deposits for portfolios with more than $50,000 in value

Access to Level II Market Data

Robinhood Gold members get access to Level II market data, a Nasdaq information product that shows multiple bids and asks (with aggregated bid-ask quantities) for any given stock.

Although Level II market data does not show the sum total of all investor interest in a particular stock at any moment, it can help retail investors gauge market sentiment in near-real-time in a way that less granular market data can’t.

Access to Professional Research From Morningstar

Robinhood Gold members get access to Morningstar research reports on more than 1,700 stocks. The Robinhood mobile app has a phone-friendly reader that adapts these often dense reports to smaller screens.

Customer Support

Robinhood has a basic customer support apparatus built around a detailed onsite knowledge base. Unfortunately, Robinhood makes it difficult for the average user to get in touch with actual humans who work at the company, and there’s no 24/7 phone, chat, or email hotline to get fast answers to pressing questions.

Advantages of Robinhood

Robinhood has a lot of problems, but it’s true that it’s a beginner-friendly investing platform that makes it easy to trade stocks, funds, and other investments on the go. It’s also a good fit for lower-asset investors allergic to account minimums and trading fees.

• No Account Minimums. Aside from the federally mandated $2,000 minimum for margin trading with Robinhood Gold, Robinhood doesn’t impose any minimum deposit or ongoing balance requirements. This is welcome news for new investors without thousands upon thousands of dollars to invest right away.
• No Trading Commissions. Robinhood is a truly free trading platform with no commissions for stock, ETF, options, and cryptocurrency trading. This is no longer a singular differentiator, thanks in large part to the success of Robinhood itself, but it’s still a selling point in comparison to trading platforms that still charge commissions and other trading fees.
• Access to Options and Cryptocurrencies. Robinhood allows users to trade options and cryptocurrencies in their Robinhood accounts without upgrading to Robinhood Gold. Some competing low-cost brokerages don’t offer access to alternative investments like crypto and options, so this is a welcome feature.
• Allows Fractional Share Investing. Robinhood allows fractional share investing in most stocks starting at just $1 per trade. Robinhood users can also purchase fractional cryptocurrencies, making it easy to construct customized, diversified portfolios with relatively small amounts of seed capital.
• Robinhood Gold Offers Excellent Value for Active, Sophisticated Traders. Robinhood Gold is tailor-made for active traders whose sophistication isn’t necessarily matched by their personal wealth. Its key advantages include Level II market data that affords real-time insights into market sentiment (useful for day trading), professional research reports on nearly 2,000 stocks courtesy of Morningstar, margin trading at low interest rates, and bigger instant deposit allowances. For what you get, the $5 monthly fee is a bargain.
• Clean, Mobile-Friendly Interface. Robinhood is incredibly easy to use on a mobile phone. For all its flaws, it has real appeal for designed for on-the-go traders.

Disadvantages of Robinhood

With a distinct lack of account options other than its standard taxable account, persistent trust and reliability issues, and limited customer support, Robinhood falls short in some important ways.

• No Tax-Advantaged Account Options. Robinhood offers just one type of investment account: a taxable brokerage account that’s suitable for general investing but not for long-term retirement or education planning. Robinhood doesn’t support any IRAs, including rollover IRAs, nor more specialized tax-advantaged account types like 529 education savings plans.
• Persistent Trust Issues. Even before the Big Short Squeeze of early 2021, Robinhood had a public trust deficit. The roots of this deficit go back to 2015, when — according to the Securities and Exchange Commission (SEC) — Robinhood first made misleading statements about how it made money. At issue was what the SEC called Robinhood’s “unusually high payment for order flow rates.” Basically, high-frequency traders paid (and still pay) Robinhood for orders placed by its users, giving them a pricing advantage — and putting Robinhood’s users at a pricing disadvantage. Robinhood settled the SEC complaint, but the company hasn’t fundamentally changed its business model.
• Reliability Issues. During periods of exceptionally high volume, such as the market panic that accompanied the first wave of the COVID-19 pandemic and the Big Short Squeeze of early 2021, Robinhood occasionally experiences outages during regular market hours. These outages may impact users’ ability to schedule and execute trade orders, potentially causing or magnifying trading losses as a result. Any market-hours outage, no matter how brief, is unacceptable for a major online broker.
• Limited Customer Support. Robinhood does not have a robust customer support infrastructure. Its first and most comprehensive layer of support is a detailed knowledge base that contains answers to most common customer questions but can’t address customer-specific issues, including potentially costly ones like problems placing trades or accessing accounts.
• No Mutual Funds Available. Robinhood doesn’t support mutual fund trading. Although many mutual funds now have more liquid ETF analogues, some higher-asset investors still prefer mutual funds, and it’s curious that Robinhood doesn’t feel the need to offer them.

How Robinhood Stacks Up

Robinhood might have been a first mover in the commission-free trading realm, but it no longer has the space to itself.

Far from it. Today, Robinhood competes with a host of low-cost online brokerages, with more coming online all the time. Here’s how it stacks up against one of its most popular competitors, Ally Invest.

Final Word

It’s not much of an exaggeration to cleave the history of online trading into “before Robinhood” and “after Robinhood” epochs. Robinhood really has been that influential.

No one can take away Robinhood’s original innovation: commission-free trading for all. Nor can one argue convincingly that Robinhood is no longer a force to be reckoned with. The Big Short Squeeze, which bled tens of billions of dollars from master-of-the-universe short sellers, is proof positive of that.

But Robinhood does have real flaws, the most serious of which revolve around persistent trust and reliability issues that have bedeviled Robinhood users since the platform’s founding. You may or may not find these issues problematic enough to steer clear of Robinhood altogether. Or, you might conclude that Robinhood’s usability and low cost make up for its unseemly side.

In either case, it pays to be an informed consumer — to understand how Robinhood operates and how to get the most out of it if you choose to use it.