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What Should I Know About Robinhood?

Robinhood was founded in 2014 by Stanford University graduates Baiju Bhatt and Vladimir Tenev and began as a software trading service for hedge funds. They were inspired to build a company that used technology to give everyone, not just the wealthy, a chance to participate in the financial markets. Since the company's inception, many competing app-based investment platforms have copied the Robinhood model.

Users might appreciate these new features:

  • Crypto Gifts allows you to send cryptocurrency to friends.

  • New users can choose free stock from a list of 18 S&P 500 member companies.

  • You can receive free stock when you refer friends.

Pros

Tech-savvy investors who are short on cash are likely to consider investing via Robinhood.

The platform's top features include:

  • Commission-free stock, exchange-traded fund, options and cryptocurrency trading.

  • Access to investing in publicly traded companies with limited capital.

  • Educational resources for beginners.

  • Trading on a mobile device.

  • Access to Morningstar research with Robinhood Gold.

Cons

The company suffered from trading outages and halted trading on certain securities during periods of high demand.

Robinhood disadvantages include:

  • Difficulty contacting customer service via email.

  • No mutual funds, individual bonds, futures or options on futures.

  • No stocks that trade on foreign exchanges, closed-end funds or preferred stocks.

  • Limited account types – no joint or retirement accounts available.

  • No downloadable advanced trading platform.

Robinhood Fees and Costs

Robinhood doesn't charge trading commissions or fees to open or maintain an account. There are also no fees to transfer funds into your account.

Other Fees

Most funds levy management fees that go directly to the fund management company. Wherever you invest, you'll pay these fees.

There's a $75 fee for transferring an account to another brokerage firm. Other fees relate to overnight mailing charges and other infrequent services.

How Much Does Robinhood Gold Cost?

The Robinhood Gold subscription offers extra services and products including access to margin trading. For a service fee, starting at $5 per month, users get:

  • Access to research reports.

  • A 2.5% per year margin interest rate.

Product Offering

Robinhood's product offerings are narrower than its larger brokerage firm competitors. The service is suitable for investors and traders who seek a basic app for trading stocks, ETFs, cryptocurrency and options. Extended hours trading is available from 7 a.m. to 8 p.m. EST. If you're seeking a full-service investment brokerage platform with access to bonds, mutual funds and futures trading, Robinhood isn't for you.

Available assets include:

Investment Assets

Stocks

  • Trading is available for more than 5,000 stocks and ETFs.

  • Users receive one free stock for referring a friend (and they get one, too).

  • Penny stock trading is available, but the stock must trade on the NYSE or Nasdaq exchanges.

  • ADRs, which offer a way to trade international stocks, are available for more than 650 global companies.

  • Day trading is also available at Robinhood, subject to Financial Industry Regulatory Authority rules.

  • Fractional shares, which are fractions of whole shares of a company or ETF, are available.

ETFs

  • Publicly traded ETFs are available from a variety of providers, giving investors access to bonds, stocks and other assets, along with strategy investing.

Options

Robinhood is commission free and without per-contract fees, a rare advantage in the options investing arena.

To help retail investors understand what they're getting into, the platform has made efforts to ramp up its options educational portal.

  • Approval is required to trade options, as is the custom at all brokerage firms.

  • Options trading is also available and should be sufficient for all but the most sophisticated options traders.

The following shows a sample of the platform’s Level 2 and Level 3 options trades:

Level 2

  • Buying a call or put.

  • Selling a covered call.

  • Selling cash-covered puts.

Level 3

  • Call credit spreads and put debit spreads.

  • Iron condors.

  • Iron butterflies.

  • Calendar spreads.

Robinhood doesn’t allow selling uncovered options as there’s no limit to the amount of money you could lose with some naked strategies.

Cryptocurrency

  • Robinhood was one of the first trading apps to offer cryptocurrency.

  • Investors can buy and sell Bitcoin (BTC), Ether (ETH), Dogecoin (DOGE), Litecoin (LTC) and more.

Services

Robinhood Gold is the platform's fee-based premium service.

Gold users have access to in-depth research reports from Morningstar, bigger instant deposits, access to margin and Level II market data (monitoring real-time bids and asks directly from Nasdaq).

Access to the Morningstar reports is an important feature for investors who lack other sources of unbiased research. Even if you don't use margin trading, Morningstar research, among the other perks, might still interest you.

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