Robinhood Review
In the beginning, Robinhood was an innovative disruptor in the brokerage sector. Since that time, the brand has grown to be very popular with tech-savvy investors and new traders thanks to a no-fee model and a clean, easy-to-use trading experience. Robinhood was a pioneer in the industry. Initially, the company’s primary point of differentiation was its fee-free trading; however, in reaction, many of its rivals have now reduced the prices of their own services. On the site, users have the ability to trade stocks, ETFs, and cryptocurrencies with relative ease; nevertheless, it lacks the more advanced financial tools, asset categories, and research skills that advanced traders look for in a broker. Even though there has been a clear focus on refining basic charting skills and boosting access to a growing library of educational information, there is still a lot of work to be done before the platform reaches the standards that are being established across an increasingly competitive field. We are going to delve deeper into Robinhood so that you can assess whether or not the platform is appropriate for your needs.
Introduction
Vlad Tenev and Baiju Bhaat, who had previously lived together at Stanford, launched the startup Robinhood in 2014.
1 Launched with the intention of increasing access to the market by lowering entry barriers, the platform quickly found a home with younger, tech-savvy traders thanks to its straightforward design and user-friendly trading experience. The platform was initially launched with the intention of increasing access to the market by lowering entry barriers. With over 14 million active users and $64 billion in assets managed as of the 30th of June in 2022, it is evident that the Robinhood brand has struck a chord with its target audience.
Trading with no fees and no minimums makes it simple for novice investors to get their feet wet, and the flexibility to trade fractional shares provides users with access to a wider variety of assets than they might otherwise be able to buy. The trading app and experience can both be simplified thanks to the platform’s provision of a straightforward menu of assets, which includes direct bitcoin trading in addition to equities and ETFs. Options trading is also provided; however, more serious investors may be put off by some restrictions on the order types that can be placed and by worries regarding the quality of transaction executions.
The limits that Robinhood has are a persistent problem for experienced traders, and they are large enough to motivate knowledgeable investors to look for other broker options that are more in line with the way they trade. For instance, Robinhood does not support trading in fixed income, mutual funds, foreign currency, or futures contracts; as a result, establishing a multi-asset trading position on Robinhood is more complex. It is extremely challenging to put into action more intricate trading strategies as a result of this widespread absence of tools, calculators, and advanced charting features. The lack of assets also contributes to this difficulty.
Although it has made strides in recent months, Robinhood’s educational content is still not on line with what many of its rivals have to offer. Despite this, it is clear that there is a deliberate concentration on improving this particular aspect. Robinhood is continually adding new content to their Learn area, and they have improved their onboarding questionnaire to further assist consumers in gaining an understanding of the fundamentals of investing while also customising their risk settings to fit their appetite.
The platform that Robinhood operates on is garnering attention in other spheres as well. Cash management additions such as providing a higher interest rate on uninvested cash as well as a cash card product aim to round out the platform and attract additional customers. Other cash management enhancements include providing a higher interest rate on invested cash. Despite this, concerns continue to be raised regarding the dependability and motivations of Robinhood as a result of significant platform outages, the fallout from restrictions placed on certain meme stocks like GameStop in January 2021, and Robinhood’s practise of misleading customers regarding sources of revenue related to order routing.
Pros & Cons
Pros
• A trading experience that is both straightforward and easy to understand
• There are no transaction fees or commissions required.
• Trading of fractional shares, as well as direct access to cryptocurrencies
• Robust capabilities in terms of cash management as well as recurrent investment management
Cons
• Fewer investment options and account types than competitors
• There is a dearth of scholarly and instructional content
• A lack of openness and honesty
The Positives Exposed
• Investors are able to trade in the market in a seamless manner thanks to the very simple and intuitive trading experience. Although a web-based platform is also available, the streamlined design of the smartphone app reflects the fact that mobile is Robinhood’s primary focus. Robinhood has a strong emphasis on its mobile offering and caters to traders who are searching for fundamental features that can be navigated with ease and in a short amount of time.
• The trademark of the Robinhood platform is that it does not charge any trading fees or charges. As a result of their creative and disruptive threat to the industry, several brokers have been compelled to decrease or remove the trading fees they charge in order to maintain their market share.
• Traders now have access to a wider range of investment opportunities thanks to fractional share trading and direct cryptocurrency access. Purchases of fractional shares can be made with as little as one dollar, and the dividend reinvestment program (DRIP) allows dividends from stocks or exchange-traded funds to be automatically reinvested (provided the positions support fractional shares). Traders who have direct crypto access are able to buy and sell a variety of coins with greater ease.
• Traders who use recurring investment functionality and features that are solid for cash management are able to handle their money in a more streamlined manner. Users of a cutting-edge cash card can invest the rewards they have earned from their previous purchases. Users can earn up to 1.5% interest on their cash sweep accounts through the utilization sweep interest. 3 Users are able to easily automate how much money they put into the market at a frequency that makes sense for them thanks to the recurring investment option, which is simple to set up and requires little effort on their part.
Defining the Drawbacks
Users are unable to take advantage of a diverse selection of trading tactics and save money toward their financial goals since limited investment products and account types are available to them. There are several types of investments that Robinhood does not currently provide, such as fixed income, mutual funds, foreign currency, or futures trading. In addition, the platform allows investors to open only brokerage accounts; therefore, investors are unable to take advantage of retirement or other savings accounts.
• The research and educational material offered by Robinhood does not live up to the standards set by its competitors, which makes it challenging for traders to make the most of the platform. There is not a single stock or ETF screener available, and the other research tools are, at best, very basic. The educational material is getting better, but there is still a lot of opportunity for improvement in this field in terms of the subjects that are covered as well as the formats that are available.
• Because Robinhood has a history of not being transparent about downtime and trading limits with meme stocks, many investors will have second thoughts about using it as their preferred platform. There is a possibility that investors might not have complete faith that they will be able to access their positions. Although Robinhood has grown more open regarding payment for order flow and releases its 606 report, the extent to which it relies on PFOF is still not as well understood as it most likely ought to be.
Usability
The Robinhood app is really straightforward and easy to navigate. Because Robinhood places a primary emphasis on providing a trading experience that is accessible via mobile devices, the platform is a natural fit for investors who prefer to do business using their mobile devices. The web-based platform offers a look and feel that is comparable to that of the mobile application. Traders can expect the same kinds of orders, assets, and functionality regardless of whatever version they use.
The primary menu is simple to browse, and it has user-friendly panels that make it simple for investors to see both the value and the positions of their portfolios. Traders are provided with a comprehensive summary of the details of a stock through the use of the search functionality, which includes a stock’s highs and lows, P/E ratio, and market capitalization. Traders are given even greater insight into a company profile by the inclusion of a news feed and a composite of the rankings of analysts. The “Trade” symbol will accompany you as you browse through the information on a stock, giving you the ability to buy or sell the stock as soon as you have made a choice regarding whether or not to do so.
Notably, in August 2022, Robinhood released updates to its charting functionality, much to the pleasure of traders who had been requesting modifications for a considerable amount of time.
5 Traders are now able to better understand and analyse stock trends thanks to new chart elements such as moving averages, which enables them to make more informed investment decisions.
In general, the actual experience of trading itself is very satisfying. However, there are still some restrictions on how much you can personalise the experience, as there is not much you can do to further tailor the app to your tastes. This means that you cannot customise the app as much as you would like to. However, the severe disruptions that the platform had in February and March of 2020, which are still fresh in the minds of many traders, make the app less user-friendly than it otherwise would be.
Trade Experience
The trading experience provided by Robinhood is rapid and simple to use, making it particularly enticing to new investors in particular because it enables them to get started trading quickly. Traders are able to enter, exit, and monitor positions in a streamlined manner thanks to the elegant mobile app’s uncomplicated layout. Because of its emphasis on straightforward functionality, Robinhood is best suited for investors that employ straightforward trading tactics, regardless of the level of experience of the user.
Users of Robinhood have access to fundamental features such as stock quotations and watch lists, along with charts, analyst ratings, and market news. Investors now have access to a more comprehensive view of stocks and their positions as a result of improvements made to chart overlays. After this point, there is not much more in the way of granular insights or the capacity to customise the experience. Even with the improvements made to the charting functionality, it is possible that experienced traders will not find everything they require to successfully execute more complex trading tactics.
Mobile Trade Experience
The goal of the mobile-first brokerage Robinhood is to make trading as easy as possible without making the user experience more difficult by including more in-depth features. In light of this, the fact that more sophisticated trading tools and research alternatives are, for the most part, absent from the mobile trade experience makes perfect sense. For example, there are no chart drawing tools that can be used on mobile, and it is not possible to place trades straight from chart views. In addition, the capabilities for simultaneous order entry and order staging are unable to use.
Through the app, you will only have access to the most fundamental order types, such as trailing stop orders and stop limit orders. Conditional orders are not supported, which is something that advanced traders will notice immediately. Having said that, though, Robinhood’s app does, at the very least, transmit data in real time.
Variety of Services and Products
Trading in stocks, ETFs, options, and cryptocurrencies are the only asset classes supported by Robinhood. This severely restricts the app’s overall functionality. You are unable to trade commodities, foreign currency, or futures with Robinhood, and the platform does not support mutual funds or fixed income products. You have the ability to invest in the following markets if you choose Robinhood as your broker:
• Long positions exclusively for stocks. There will be no short sales. In the month of July 2022, more than three hundred new American Depository Receipts (ADRs) were issued.
• Fractional share orders can be placed on stocks that have a market capitalization of at least $25,000,000 and a share price of at least $1.00 per share. The broker is able to trade in both equities and exchange-traded funds. 8
• Choices between a single leg and multiple legs
• Cryptocurrency: Traders can choose from a variety of coins to transact with.
• As was previously stated, you are not allowed to invest in mutual funds or fixed income, futures, FX, or futures options.
• Non-Custodial Wallets: Robinhood is in the process of developing a web3 wallet that will enable users to exercise control over cryptocurrency while utilising a streamlined and decentralised web interface. At this time, only a waitlist option is available. 9
• Stock Lending: Robinhood users will be able to lend out fully-paid equities in their portfolios beginning in May of 2022, when this feature was first announced.
Order Types
There are only a select few different types of orders that can be placed using Robinhood. There is a selection of market and limit orders available, but conditional orders are not supported at this time. In addition, there is no order staging present. Due to the significant restrictions placed on trading techniques as a result of these limits, all sorts of investors are impacted.
Support for more advanced order types, such as order-triggers-other (OTO), is essential because these order types assist traders in navigating risk, quickly entering and exiting positions, and taking gains off the table. As a result, traders utilising conditional orders can spend more time researching the market and looking for their next move without having to observe existing trades as closely. Another indication that Robinhood isn’t designed for active traders is that this is the case.
When it comes to tax optimization, first-in, first-out (FIFO) is the default setting for tax lots for all equity investments. If you contact Robinhood’s customer service, you will be able to adjust the default cost-basis method that is associated with your account as well as select various tax lots for liquidation.
Technology Used in Trading
The manner in which a broker processes your order is what determines whether or not you will have a chance to make the most profit from your trade at the moment it is executed. The term “price improvement” refers to the best price available. According to Robinhood, their trading platforms are designed to automatically route your order to the market-maker who is most likely to provide you with the best price, based on the behavior of those market-makers in the past. According to Robinhood’s data, 95.53 percent of orders are filled at prices that are equal to or better than the National Best Bid and Offer (NBBO). The stock market has seen an average price increase of $0.0193 per share over the past day, however the corporation does not provide these numbers for options. 11
With regard to many other trading technologies, Robinhood provides you with the option to set up regular investments, which is an advantageous feature. Due to the streamlined nature of Robinhood’s approach to investing, the platform does not have the option to do backtests nor does it provide a demo account.
Costs
Robinhood, much like the majority of its rivals, does not impose any trading fees on its users. The following is a list of various other fees that are not connected to trading that may apply.
• There are no commissions charged on any equity trades (stocks or ETFs).
• Options trading are conducted free of charge.
• If you want to trade on margin, you will need a Robinhood Gold subscription, which costs $5 per month and includes $1,000 in margin trading. If you use more than $1,000 of your margin, you will be charged an interest rate of 9%.
• There is a cost for transferring money out of the account that is $100.
• There are no wire fees, either domestically or internationally.
• There are no fees associated with opening an account, maintaining an account, or having an inactive account.
• The cost to send a domestic check overnight within the United States is twenty dollars.
How this Broker Will Make Money for You While Also Making Money Off of You
Customers are aware of the fees and commissions that are listed above, but there are a few other ways that Robinhood makes money from you (and for you) that are not as obvious. These include:
• Interest on cash: Like most brokers, Robinhood generates interest income from the difference between what you are paid on your idle cash and what it can earn on customer cash balances. Some brokers pass part of these earnings on to customers. At the time of the review, U.S. Robinhood clients earn 1.5% interest on cash balances.
• Payment for order flow: Many brokers generate income by accepting payment from market makers for directing orders to those trading venues. This is called payment for order flow (PFOF). Robinhood-Pro clients can route their orders as they please and the default routing doesn’t seek PFOF. Robinhood-Lite clients get zero commission trading and fixed rate US equity options, but those orders are run to market makers who provide Robinhood with PFOF. Robinhood’s PFOF is $0.00499 per share on stocks and $0.53 per contract on options.
• Stock loan programs: Stock loan programmes generate revenue for brokers when stocks held in customer accounts are loaned to other traders or hedge funds, usually to sell that stock short. Robinhood pays you 50% of the income it earns from lending the shares. The programme is available to customers who have been approved for a margin account or have a cash account with at least $50,000.
• Price improvement: Robinhood’s smart order router seeks out price improvement and attains an average of $0.0193 per share traded.
• Portfolio margining: Eligible Robinhood clients can apply for portfolio margining, which can lower the margin you need based on the overall calculated risk. Typically, portfolio margining works best for customers who trade derivatives that offset the risk inherent in their equity positions.
Account and Research Amenities
Although the overall account and research amenities are meagre in comparison to larger rivals, there are some useful features including cash sweeps and basic charting. However, no screening functionality is available.
Stock Screener
No stock screeners are offered by Robinhood.
ETF and Mutual Fund Screener
No ETF or mutual fund screeners are offered by Robinhood.
Options Screener
No options screeners are offered by Robinhood.
Fixed Income Screener
No fixed income screeners are offered by Robinhood.
Tools and Calculators
No tools and calculators are offered by Robinhood.
Charting
Robinhood rolled out improvements to their charting capabilities in August, 2022. The new features include more advanced charts and indicators such as moving averages, relative strength index (RSI), moving average convergence divergence (MACD), Bollinger Bands, and more. Line and candlestick charts are also available for stock and crypto trading.
Both the web and mobile platforms include these updates. These improvements help investors get a better sense of a position’s trends so that more informed trading decisions are made. However, you can’t customise charts and drawing tools aren’t provided.
Trading Idea Generators
Robinhood does not offer trade idea generators. However, you can access trusted news sources for free through the newsfeed.
News
As a Robinhood customer, you can stay up-to-date with WSJ Markets coverage in-app, as well as news from Reuters and Barron’s, and video from CNBC Business, Reuters, and Cheddar. Additionally, Robinhood offers Robinhood Snacks, which is accessible on the homepage and also pops up in the app for daily ease-of-use. 12 Snacks come in podcast, newsletter, and video series formats which deliver the day’s top financial news stories every weekday.
Third-Party Research
Robinhood provides Morningstar analyst ratings to all customers in the stock detail page in the app. Morningstar provides Robinhood Gold members unlimited access to their premium, in-depth stock research reports. As a Robinhood Gold member, you will have access to Nasdaq Level II Market Data powered by NASDAQ Totalview. These reports are available on 1,700 stocks and are updated frequently to reflect important company events.
Cash Management
Robinhood does not support money market funds. However, its cash management brokerage feature offers 1.50% on uninvested cash balances to customers enrolled in the deposit sweep programme. 13 The auto sweep feature is enabled by default, which is an added bonus. You also don’t have to pay ATM fees at any of the 75,000+ ATMs in their network.
In March of 2022, a revolutionary Cash Card was released to the public, which enabled users to receive cashback in the form of stock and cryptocurrency awards.
14 The card expands on Robinhood’s objective of democratising banking and investing in a fresh and exciting way, and it does so by allowing users to make purchases using physical cards.
Plan for the Reinvestment of Fractional Dividends (DRIP)
If you are a user of Robinhood, you will have the ability to designate the reinvestment of dividends at the time that you purchase a stock that pays dividends. In the event that the stock can be split into fractional shares, the DRIP will use any unused funds to buy those shares.
Research Facilities for SRI and ESG
Even while there are no socially responsible investing (SRI) or environmental, social, and governance (ESG) screeners in the traditional sense, Robinhood Lists will enable you to search and find numerous sectors and themes within the market, including firms that focus on SRI and ESG.
Portfolio Analysis
Robinhood’s offering of portfolio analysis is extremely limited, particularly when compared to that of its larger competitors. You will only be able to view your real-time balances, margin, and purchasing power. Nothing else. The home screen displays a graph of the value of your portfolio over the course of one day. At the bottom of the graph, you can select a different time period using the mouse or touch screen to view specific dates and values.
There is no means to assess the tax repercussions of a planned trade, nor is there an asset allocation study, nor is there an internal rate of return. Additionally, there is no trade journal available. You will need to import your transactions into another programme or website in order to carry out any kind of analysis pertaining to your portfolio.
Education
In recent years, Robinhood has placed a primary emphasis on enhancing educational opportunities. In comparison to earlier iterations, the “Learn” component of the platform now features articles covering a wider range of topics, including fundamentals of investing, market insights, and general knowledge-building content. 15 In January of 2022, a brand new function known as First Trade Recommendation was made available. 16 This tool is intended to assist new investors in getting started on their path to financial success. In addition, new content that assists traders in comprehending more complicated options trading tactics has been introduced. 17 The acquisition of Say Technologies enables traders to have a greater sense of ownership over the businesses in which they invest and gives users the ability to actively participate by posing questions to the management teams of the companies in which they invest.
The knowledge of investors can be advanced as a result of all of these qualities. In addition, Robinhood provides its customers with access to Snacks, a podcast, newsletter, and video series that summarises the most important developments in the financial world over the course of each weekday. As of April 2022, Snacks has amassed an impressive following consisting of 40 million users. The structure of the information known as “Snacks” is designed to offer engaging and informative graphics in an effort to make reading about the economy feel less daunting.
Assistance to Customers
• All interactions with customers take place through either the mobile app or the website.
• Robinhood is equipped with chatbot functionality.
• There is no telephone number listed, so you won’t be able to get in touch with Robinhood for help. On the other hand, you have the option of entering your own phone number to receive a callback. You also have the option, as a customer, to communicate with the support team via social media.
• Robinhood increased its trading hours, allowing customers to engage in financial transactions between the hours of 7:00 a.m. and 10:00 p.m. Eastern Standard Time (EST).
Both Safety and Trustworthiness
• Users of mobile apps have the option to log in using a face scan, a biometric scan, or a personalised pin.
• Users of Robinhood are strongly encouraged to turn on two-factor authentication.
• In the event that two-factor authentication is not turned on, all new logins made from devices that have not been previously authorised will require an additional verification using a six-digit code that is delivered by email or text message.
• Robinhood is a member of the Securities Investor Protection Corporation (SIPC), which covers consumers of its members who trade in securities up to a total of $500,000 (including $250,000 for claims for cash). Robinhood, on the other hand, does not carry any extra Securities Investor Protection Corporation (SIPC) insurance, in contrast to other brokers.
Within the previous four years, Robinhood has stated that there were data breaches. The most recent one occurred in 2021 and affected over 5 million client accounts; nevertheless, there were no monetary losses associated with these accounts.
Transparency
Once upon a time, Robinhood was a disrupting fintech player in the brokerage business that assisted new investors in getting started in the market. In recent years, the company’s goals have come under scrutiny, and the concerns at hand revolve mostly around trust, transparency, and data. The SEC levied a fine against Robinhood in the amount of $65 million in December of the year 2020 for “misleading customers about revenue sources and failing to satisfy duty of best execution.” The Securities and Exchange Commission found that Robinhood had failed to disclose to its clients between the years of 2015 and 2018 that its primary source of income came from the market makers to whom it sent customer orders. Because of this technique, customers eventually made less money from their transactions than they would have done so at other brokers. This was the end effect of the practise.
Additionally, on its website, Robinhood made a deceptive claim that the quality of its execution matched or exceeded that of the company’s rivals. The SEC came to the conclusion that Robinhood’s subpar trading pricing eventually resulted in a loss of $34.1 million for investors who used its platform.
During the market frenzy that was caused by the Reddit short squeeze on the stocks, Robinhood made headlines once more in January 2021 when it chose to restrict access to specific assets. These securities included GameStop, AMC Entertainment, and Nokia, amongst others. Citadel Clearing, one of the key market makers for Robinhood, is a shareholder in Melvin Capital, a hedge fund that was one of the largest short sellers of GameStop and other companies. A number of people began to assume that there was a conflict of interest when the decision was made to restrict customer buy orders for these stocks. This led to the filing of class action lawsuits and attracted the attention of some members of Congress.
At Robinhood, what kind of account should I get started with?
Robinhood only offers brokerage account options as either margin or cash accounts.
Because of this limitation, traders who have more ambitious financial objectives are significantly hindered in their ability to use the platform.
Final Verdict
It is abundantly clear from the structure of the platform that Robinhood’s primary focus is on delivering more access to the markets and reducing the number of barriers to entry. A trading experience that is both user-friendly and well developed gives users the opportunity to enjoy a novel approach to entering the market. The absence of account minimums, commissions, and fees gives investors the freedom to begin their trading careers without making any upfront financial commitments. Traders are able to trade in stocks, ETFs, and cryptocurrencies in a streamlined manner, and they can obtain insights into the market and their positions that are both practical and relatively fundamental.
However, beyond this, Robinhood is not a place for expert investors or individuals who wish to carry out anything other than the simplest possible trades. A significant obstacle is presented when there are no assets available, such as fixed income, mutual funds, foreign exchange, or futures trading options. Order kinds, trading tools, and research amenities are either not available at all or are extremely limited. Even while the instructional content and certain tools, such as charting, are getting better, there is still a great deal of work to be done in order to achieve the standards that are being established by other brokers and to fulfil the expectations of sophisticated users. Another important factor to take into account is the company’s track record of lacking transparency regarding outages and trading limitations. Overall, Robinhood offers a platform that simplifies the trading process, but because it lacks certain features and capabilities, it is unlikely that many investors will use the app as their primary broker.
