Trading with Robinhood Review: Fee-free Platform to Make Investments

Are you looking for an easy-to-use, zero-fee platform to invest in the stock market? No worries. Trading with Robinhood gives you an easy and sleek way of accessing financial markets without paying commissions or fees. 

Moreover, the commission-free model of Robinhood prompted many other brokerages to get rid of commission fees. Also, Robinhood provides its customer’s cash management to help clients earn interest on uninvested funds. 

Although Trading with Robinhood is the best choice, there are other reasons to consider before making any decisions. In this Robinhood review, we will explore in detail whether it’s the best pick or not. Let’s get rolling down!

What is Robinhood?

Two roommates, Baiju and Vlad, founded Robinhood Markets, Inc. almost a decade ago. The company’s mission is to encourage ordinary people to participate in the financial system. It offers commission-free trading of stocks, exchange-traded funds, and cryptocurrencies.

The company introduced a mobile app in 2015 to further ease the process of investment. Young fresh investors found a home with the company thanks to its simple design and intuitive trading experience. Hence, the average age of users is 31, and about 50% are first-time users.

The number of users reached 22.9 million as of June 2022. Also, the company’s total revenue at the end of the second quarter of 2021 was 565 million U.S. dollars. However, the more sophisticated investors seek alternatives that better match their approach.

The primary limitations driving sophisticated investors away are:

• No fixed income
• No Mutual funds
• Foreign exchange, or futures trading, makes a multi-asset trading position more difficult to set up.

Also, the lack of tools, calculators, and advanced charting features makes it impossible to carry out complex strategies. 

How to Start Trading with Robinhood?

Starting trading with Robinhood is as simple as opening an account. For registration, you can apply if you meet the following requirements:

• You are 18 years of age or older
• You have a valid social security number
• You have a legal US residential address

After registration, you can start investing with a few dollars as the company supports fractional shares. Also, Robinhood is available on iOS, Androids, and web browsers. That’s how you can efficiently operate from any device you feel is easy.

Before getting started, figure out what your motive is. Are you investing for quick cash? If you are a fresh investor, start with a small amount of money and stick to stocks and ETFs.

Moreover, it is better to secure your financial future with diversified securities.

How Does Robinhood Work without Charging Fees?

Transaction-Based Revenues

Robinhood generates revenue by routing its user’s orders to market makers. Instead of charging fees from customers, Robinhood sells orders to large trading outfits. These include Citadel Securities, Two Sigma Securities, and Virtu Financial. 

Large firms generate a profit due to the difference between bid and offer. Contrary, Robinhood gets paid for its customers’ orders. This process is called Payment For Order Flow (PFOF). Large firms earn by offering bids to one retail customer and selling to another.

Net Interest-Based Revenues

Another way Robinhood generates revenue and passes a portion of it to customers is by lending shares to 3rd parties. The mechanism is simple ( net revenue = Interest revenue minus Interest expenses). The company also earns interest on margin loans to users. 

Other Revenues

Robinhood also makes money through membership fees for its paid services. Robinhood Gold is a paid service. It offers users premium features like:

• Enhanced instant access to deposits
• Professional research
• Access to Nasdaq Level II market data
• And access to margin investing for approved users
• Miscellaneous user fees and proxy rebates

Trading Fees on Robinhood

Robinhood is a brokerage that offers commission-free investing. However, brokerages like Robinhood must pay a fee to the organisations like the Financial Industry Regulatory Authority (FINRA) for all types of selling orders.

Regulatory Transaction Fee

FINRA pays Regulatory Transaction Fee to Exchange Commission (SEC) and the Securities by law. FINRA members use the fee to generate the necessary funds. Many of them, including Robinhood, pass it on to customers afterwards. 

Trading Activity Fee

The Trading Activity Fee is $0.000130 per share (equity sells) and $0.00218 per contract (options sells). This fee is rounded to the nearest penny, no greater than $6.49. The company may charge a cost of more than $6.49. The limit on this fee depends on the execution of your order, which can occur in multiple parts.

American Depositary Receipt (ADR) Fees

American Depositary Receipts (ADRs) are certificates that represent foreign stocks and can trade on American exchanges. The banks issuing these certificates may charge custodial fees ranging from $0.01 to $0.03 per share.

Pros and Cons of Trading with Robinhood

Pros

• Intuitive and user-friendly interface
• No commissions or fees
• Allows cryptocurrencies and fractional share trading
• Solid cash management and recurring investment functionality
• Beginner friendly

Cons

• Limited account types and investments
• Limited customer support
• Lack of proper education and training
• Research features are limited
• Not transparent enough

Trading with Robinhood: Conclusion

Trading with Robinhood provides you more access to the market with itsRobinhood’s zero-fee business model. Its easy-to-use interactive user interface gives new investors a fresh start.

Also, it relieves the tension of financial commitments if you’re a fresher. Investors can invest in stocks, ETFs, and cryptocurrencies with ease. 

Furthermore, investors get valuable but fundamental insights about the market and their position while trading with Robinhood. Due to its limitations, Robinhood is not the best platform for making sophisticated investments.

The lack of advanced features and transparency issues make it a little unfavourable option compared to advanced brokers. 

Thus, if you’re new to stocks and marketing, it’s better to think carefully about your priorities before trading with Robinhood. Do you want to join Robinhood? Let us know in the comments box if you plan to start trading with Robinhood.