Robinhood, the commission-free stock and trading app. It’s got a nice ring to it, don’t you think? The ability to save money on commissions while trading valuable stocks was a game changer, but does it really make up for any other areas in which the trading platform could fall short? Robinhood certainly made headlines over the last year, as the pandemic drove more and more Americans to look into the investing world.
If you’re looking to put money into the stock market or cryptocurrency, but you’re not sure where to start, you’ll likely have looked into Robinhood. Before, trading stocks was something somewhat exclusive, but Robinhood brought the market to people using it’s app, as well as great marketing for the platform. But does it live up to snuff?
We’ve done a full review of Robinhood, allowing you to take a deep dive on the platform before signing up. Find out if Robinhood is the right trading platform for you!
Robinhood’s Target Audience
Robinhood has firmly made its place in the investing world as the platform for new investors, typically from younger generations. They market their platform as the commission-free option, making it low risk and a lower barrier for entry. Robinhood’s target audience responded well when the app launched, and at this point in time the platform houses over 10 million accounts.
While this can be viewed in a positive light, the platform has also faced controversy for it. In the past, the company has been accused of misleading their customers, as well as manipulating the platform, but we’ll get to more on that later on.
Key Features of the Robinhood Platform
Versatility and options are important on any trading platform, so let’s take a look at Robinhood and all of the features it has.
What Can You Trade on Robinhood?
Due to it being a commission-free platform, you can expect the options for trading to be limited. In fact, this is one of the areas that Robinhood appears to be the most limited in. While it offers cryptocurrency trading, it lacks the options that other platforms provide when it comes to stocks and bonds.
What you can trade:
- US exchange-listed stocks and ETFs
- Options contracts for US exchange-listed stocks
- Popular cryptocurrencies are available
- ADRs for globally listed companies
Now, onto the much larger list of what you can’t trade:
- Penny stocks
- Foreign stocks
- Preferred stocks
- Mutual funds
- Bonds or fixed-income trading
- Spanish ADRs
- Limited partnerships
- Royalty Trusts
- New York registry shares
Robinhood is aware of their shortcomings when it comes to the limited options they offer when it comes to trading, and they actually list it on their website under the “Getting Started” section. The availability is their weakest point in the eyes of many, but the commission-free trading they provide is a good balancing point for that.
As the platform is geared towards new investors, it makes sense that the options are limited, as well. With too many options to choose from, the platform would be too intimidating for Robinhood’s target audience.
Simple Design and Use
Once again, as this platform is aimed at newcomers, the entire experience is simple. While this is one of Robinhood’s greatest strengths, it also becomes its greatest weakness at times. The simplicity that they aim to provide is what causes the limited amount of trading options, yes, but it also allows for a simpler user experience, as well as a simpler application as a whole.
Robinhood was originally offered as a mobile application, and a website came to follow shortly after the launch of the app. The website looks and feels very similar to the mobile app, allowing for seamless transition between the two platforms. While this streamlined interfacing is nice, it doesn’t allow for the website to truly perform fully, and there are no additional customization options that could be better utilized in a web browser, like there are with other investing platforms.
This simplicity bleeds into the user experience when using Robinhood, but not in a positive way. Often, making the simplest of decisions feels clunky. While the watchlists and assets are identical between the website and the application, it still feels fairly hard to navigate when doing almost anything at all.
If looking to trade options, it can become nightmarish. While options are able to be traded on the platform, it’s far more complicated than making market orders for assets. Options can be sought when trying to make quick profits, but Robinhood seems to be against that function, and the platform seems to inherently lag behind others. This gives the majority of users the impression that Robinhood doesn’t want to see options trading flourish, especially since they can’t profit off of it the way a user can thanks to their commission-free guarantee.
It’s Entirely Cost Free to Trade
This is the main selling point behind the platform, and it is pushed heavily by Robinhood. There are absolutely no costs when it comes to actually trading on the platform. We’ve broken down all the functions that you may need to be aware of, as well as any fees that could be incurred on the platform, but when it comes down to their commission-free trading promise, it is absolutely true.
- All stock and ETF trades are entirely commission-free
- Options also trade for free, with no per-leg or per-contract fees
- There is no exercise and assignment fee
- A premium subscription, called Robinhood Gold, is $5 per month, with 5% interest on margin usage over $1,000 (you can only trade on margins using Robinhood Gold)
- Live broker fees are $10 per transaction, though it’s not clear on how to contact a live broker to be able to incur this fee anywhere on the site
- Wire fees are $25 for domestic wires, and $50 for international (these fees are for both sending and receiving wires)
- To send a domestic check overnight it is $35
- Account transfer fees are $75
Relatively speaking, the possible fees that can be incurred on Robinhood are quite low. The 5% interest rate on margins over $1,000 is actually quite low, and a nice thing to know. However, the fees associated with receiving a wire transfer are unorthodox; normally it only costs money to send wires, not receive them.
Education
The education provided by Robinhood is minimal, which is somewhat disappointing as the platform is geared towards new users. While there is a section titled “Learn” it is not very expansive, and can be hard to find specific topics on. They offer articles on “Investing Basics” and a “Library” section where minimal information is located.
Keeping this in mind, it’s probable that the target audience that Robinhood appeals to will outgrow the platform fairly quickly. There are not nearly enough options in terms of trading, and the education provided is lackluster, causing users to have to investigate other websites and platforms. All in all, Robinhood is shooting itself in the foot by limiting their users’ educational opportunities.
The Controversial Platform
As mentioned earlier, Robinhood has been under fire for a number of reasons, but there are two that really cast their shadow over the platform more than the others.
Unreliable Connections
One of the biggest controversies that Robinhood has faced are the outages and restrictions that they’ve experienced. In February and March of 2020, Robinhood experienced significant outages during market surges at the beginning of the pandemic. The founders apologized for not being able to keep up with the network demands the platform faced, and pledged to bolster their systems to prevent any more significant outages.
Following this issue, in January of 2021, the platform restricted trading on specific stocks, including Gamestop. The platform came under fire due to this restriction, and would eventually face class-action lawsuits for their actions.
Misleading New Users
On the ethical side of things, Robinhood has been accused of targeting inexperienced users and investors with their marketing. They were also accused of using manipulation and gamification to attract these users, and of giving users access to advanced and risky options trading tools while providing no support or education to the users. In order to rectify this before any further action could be taken, Robinhood hired more customer service representatives to provide the necessary support to their users.
Key Takeaways
As with all trading platforms, there are some very apparent pros and cons when using Robinhood. For new users, the pros may outweigh the cons, but we are willing to bet that they will outgrow the platform quite quickly. The main pros and cons are as follows:
Pros
- Commission-free trading on stocks and ETFs
- Low costs associated with most actions that have fees
- Access to cryptocurrency trading
- Simple design and use allows for seamless user experience
Cons
- Lack of educational resources
- Easily outgrown
- Highly limited trading options
- Issues with reputation and connectivity
If you’re looking to begin investing and start learning the tricks of the trade, Robinhood is a fine option to start with. It’s important to keep in mind, however, that it’ll likely be outgrown by most users fairly quickly. Seasoned investors would be better served looking for another platform more akin to their existing skills.
