Author: Alan Hood
Are you looking for the best platform for investing and trading? Then you may have heard of Robinhood. But is Robinhood right for you? What are the pros and cons?
These are the questions we will be answering going to answer in this article, so stay tuned.
A Closer Look at Robinhood
Robinhood is an American financial service company that facilitates commission-free trades of stocks, exchange-traded funds (ETF), and cryptocurrency through its application.
Is Robinhood Safe?
Robinhood is registered with the U.S. Securities and Exchange Commission as a FINRA-regulated broker-dealer.
Robinhood is also a member of the Securities Investor Protection Corporation.
Investing and trading on Robinhood’s platform is generally safe, but there have been cases of security breaches on its platform.
In 2020, Robinhood admitted that about 2,000 accounts were compromised in a hack. Also, in 2021, Robinhood announced that hackers stole almost 5 million email addresses and 2 million customers’ full names through a phishing attack.
Investments Available on Robinhood
Here are the investments you can make on Robinhood:
- American Depositary Receipts (ADR) for over 650 global companies
- Fractional shares.
Here are some of the basic fees involved in using Robinhood:
|Trading and commission fees||$0 for stocks, crypto, ETF, and options $0 ( but extra fees may be added to stocks on global exchanges through ADRs)|
|Account minimum for trading and brokerage services||$0|
|Account opening and maintenance fees (plus inactive fees)||$0|
|Foreign transaction fees||$0|
|Domestic and international wire transfers||$0|
|ACAT (Automated Customer Account Transfer) service and outgoing||$100|
|Gold pricing||$ 5 for 30 days (includes $1000 0f margin)|
|Margin over $1000||4.25% (last updated on the 16th June, 2022.|
Pros and Cons of Robinhood
- No Trading Fees: Robinhood’s no-fee trading policy is one of its best advantages compared to many contenders. There are no transaction fees for trading stocks or bonds.
- Robinhood offers Fractional Shares: With Robinhood, you can place trades as low as $1, and purchase as little as one-millionth of a share.
- Offers Cryptocurrency Trading: Robinhood is no stranger to cryptocurrency trading as they have a wide variety of coins on their platform.
- Robinhood Gold: At $5 a month, Robinhood offers subscribers access to extensive research from about 1,700 companies like Nasdaq and Morningstar. Also, Robinhood’s Gold program lets you buy securities with borrowed money or margin.
- Easy to use
- Gamification of Investing and Trading: Regulators and speculators say that Robinhood is over-gamifying the process of trading and investing. Critics suggest that investing money and trading assets is a delicate and often risky process and shouldn’t be gamified.
- Lack of Educational Resources: Robinhood provides its users with very little in terms of educational resources. However, the information is only to Robinhood Gold members for a $5 monthly fee.
- Lack of Retirement or Tax-Advantaged Accounts: Robinhood is not a full-service brokerage and only supports one account type (an individual taxable account). This means Robinhood doesn’t offer retirement or tax saving accounts which some people see as essential to building long-term wealth.
- Some Obscurities with Cryptocurrency Trading: Robinhood doesn’t charge fees for cryptocurrency trades. But the company indirectly gets a commission by showing you a wider bid-ask price, which is usually more expensive when compared to other exchanges. Also, Robinhood doesn’t disclose the details, so it’s unclear how much spread is added to the asking price.
- Bad Reputation with Customer Service: At some point, it was difficult to chat with a Robinhood representative on the phone. However, they now have added a 24/7 system that calls you back with a human response.
But still, some of their competitors like Schwab or Fidelity can answer you within seconds via chat or phone, whereas Robinhood is still lacking in this department.
- No mutual funds or bonds
- Robinhood sells information about users order flow
Robinhood is ideal for new investors without much cash to invest as there are no trading fees, commission fees, account minimums, or account maintenance fees. However, Robinhood’s gamified approach makes trading and investing too easy and frequent, which poses a risk to investors (especially new investors). Another downside of Robinhood is that they don’t allow Roth IRAs or traditional IRAs, which can help you save on taxes as you build wealth. Also, Robinhood limits vital trading and investing educational information to Robinhood Gold members only.