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How to Use Robinhood
At a Glance
- Robinhood is a commission-free broker-dealer and financial app.
- Accessible to new investors with an easy-to-use mobile app and no minimum deposit requirement.
- Critics argue that it gamifies trading, and there are limited research tools available.
- Revenue generation includes premium memberships, margin interest, rebates, cash management services, and stock
As a broker-dealer for the individual trader, Robinhood has taken the millennial investor market by storm. It is a smartphone-first brokerage, allowing easy access to a trading platform for retail traders. With competitive pricing, including $0 commission, and access to ETF, options, and cryptocurrency trades in the U.S. and Australia, it is easy to see why its user base has grown dramatically in the past four years.
In this article, we’ll unpack how to use Robinhood so you can make safe, smart investments.
What is Robinhood?
Robinhood is a broker-dealer, financial application. On the platform, you can trade stocks, options, and funds. You can also buy and trade cryptocurrencies from the Robinhood app.
Some of Robinhood’s most unique features are:
- An easy-to-use mobile app – its ease-of-access and intuitive design makes Robinhood an excellent platform for new traders.
- Commission-free trading platform – due to Robinhood’s no commission and fees policy, it makes investing and trading very accessible.
- No minimum deposit requirement – your trading can begin with any amount of money you can comfortably afford.
- Fractional share trading – fractional share trading means you are allowed to buy a fractional share in a company if you can’t afford a full share. This feature allows new investors to begin investing with very small amounts of money.
How to Use the Robinhood App
If you are a new investor, you are probably wondering how to use Robinhood.
All you need to start investing with Robinhood is a valid Social Security Number and a U.S. address. Download the app and open an account by following the prompts on the app.
The next step is to deposit some money into your account. You can now start investing!
Clicking on a listed stock will allow you to see its price history, further details, and the buy and sell option. If you want to buy or sell at a particular price point, you can enable push notification. Throughout the day, you get essential notifications related to your owned stocks and your watch-list stocks. Your notifications can also be customized in the settings, according to the information you want.
When you log in to the app, you will see an interface that shows you the current market data. Once you have built up a stock portfolio, you can keep track of your investing progress. You can look at previous prices of the stocks you’re interested in, check your account’s history, etc.
If you’re new to investing, the best way how to use Robinhood is by investing a small amount of money you’re okay with losing. Before buying any stocks or ETFs, you should do some research. The research functionality on the Robinhood app is limited, so make sure to get other information as well.
You can also use a stock market simulator to create a “practice portfolio”, which will help you learn how the market fluctuates over time.
Overall, the Robinhood app features a very simple and easy-to-understand layout. Most beginners end up loving this layout, while some experts might dislike it due to the limited information it has.
Pros and Cons of Robinhood
Robinhood has a few pros and cons you should consider before investing.
- Ease-of-use – Robinhood’s incredibly simple mobile app, which is easier to use than those of its competitors, truly means that everyone can invest in the stock market. The democratization of investing is a big plus in Robinhood’s favor.
- No fees – Robinhood doesn’t have any fees or commissions. You don’t have to pay any fees for transferring.
- Diverse investment options – Robinhood gives you the option to trade in stocks, options, ETFs, and even cryptocurrency.
- Notifications – the push notifications option of the app allows you to get important market news quickly and immediately when you need it.
- Gamified trading – one of Robinhood’s biggest pros, its simple investing interface, also has the potential to become a con. The Robinhood app is so easy to use that critics have complained it gamifies the risky practice of trading. Users get so caught up in the dopamine rush of trading that they don’t do the necessary research or develop a comprehensive investment strategy.
- Options trading – while an experienced investor might be able to make a profit from options trading, Robinhood’s new investor target market probably shouldn’t be given easy access to options. Options trading is complicated and extremely risky because you can lose more money than you have invested.
- No research tools – there are no proper research tools on Robinhood. The simplified interface leads to a lack of information needed to make well-educated investment decisions.
- No IRA, mutual fund, or bonds options – Robinhood doesn’t offer any Individual Retirement Account (IRA) services to its customers. It also doesn’t deal in mutual funds and bonds.
How Does Robinhood Make Money?
Since Robinhood doesn’t take fees or commissions from users, they have to make money in other ways.
Here are some of the ways Robinhood makes money:
- Membership options – Robinhood does have a premium membership account that users can upgrade to. For premium membership, you have to pay $5 per month. Getting a premium membership gets you more access and options. You can look at Morningstar’s research reports, make bigger deposits, etc.
- Margin interest – when users make margin trades, they are borrowing money from Robinhood. Robinhood charges interest on the borrowed amount.
- Rebates – by combining all of its users, Robinhood has buying power on the market. Market makers compete with the exchanges and therefore give volume rebates to the brokerage firms, like Robinhood.
- Cash income – any uninvested cash is taken up by Robinhood and deposited in bank accounts, giving reasonable interest rates.
loans– Robinhood Securities also lends stocks. These stocks are given to various parties who have purchased them on a margin.
- Cash management services – Robinhood receives some income from the interchange fee that comes with licensing their debit and credit cards.
Alternatives to Robinhood
Part of doing your research is understanding what alternative trading platforms to Robinhood are available out there. Or perhaps you want to close your Robinhood account and now you’re looking for an alternative.
Here are a few of your options:
- Webull – Webull offers similar services to Robinhood, including no fees or commissions. Webull however doesn’t offer any credit or debit card services, unlike Robinhood.
- E*TRADE – E*TRADE has modeled applications that focus on two distinct trading styles. This allows them to attract investors with varying investing styles. E*TRADE does have a fee structure.
- Firstrade – Firstrade allows you to access stocks, options, and ETFs. Unlike Robinhood, it also supports mutual funds. Firstrade does have non-trading fees, but they’re quite low. There are no debit/credit card services available through Firstrade.
- How to Withdraw Money from Robinhood
- How to Close a Robinhood Account
- How to Make Money with Robinhood
Robinhood, as the name implies, makes it extremely simple for anyone — not just the wealthy — to invest in the financial markets.
If you want to get your share of these investment profits, you need to know how to use Robinhood the right way.
Although it is super easy to use Robinhood, keep the limitations of this straightforward platform into account. Do your research on any stocks or ETFs that you purchase. Try to avoid margin or options trades.
Invest what you can afford and watch it grow!