Could Robinhood be the best trading platform for beginners? This is a review of Robinhood’s services, the pros and cons, and whether it is a good platform for the beginning trader.
- Name: Robinhood
- Services provided: Brokerage provider.
- Price/Fees: zero/low
- Website: https://robinhood.com/us/en
- Main features: Optimized for mobile devices
- My rating: 3 out of 5
Robinhood at a glance – for the beginning trader
 |
|
|---|---|
| Standard brokerage | Limited |
| Cryptocurrencies | Yes |
| Fractional shares | Soon |
| Research tools | 3 of 10 |
| Tutorial resources | 5 of 10 |
| Support | 5 of 10 |
Robinhood – what do they offer?
Robinhood products are targeted at the small investor and trader. With a Robinhood account you can trade and invest in:
- Stocks and ETFs, – over 5,000 US exchange-traded stocks and funds
- ADRs – over 250, US exchange-traded ADRs of foreign stocks
- Options
- Cryptocurrencies – Bitcoin, Ethereum, Dogecoin, and others
They also give account holders access to:
- Zero $ commission on trades
- Cash management – ATM debit cards, and earn interest on uninvested cash
- Margin trading
- Morningstar reports and real-time prices, higher margins– $5 per month fee
What does Robinhood promise
Fractional shares – Robinhood says it will offer its account holders trading in fractional shares in a few months. Which should mean by summer 2020.
What you don’t get:
A Robinhood account will, however, not give you access to the following.
- mutual funds
- bonds, OTC, i.e. Over The Counter stocks
- FOREX
- Preferred stocks or tracking stocks
- IRAs
- Trusts
- Custodial accounts
- Wealth management
- Robo-adviser(s)
Is that a bad thing?
Well, many investors like to include bonds or other fixed income instruments in their portfolios. A beginning investor or trader with a long investment horizon and moderate to high-risk tolerance may not be bothered with bonds.
That Robinhood gives their account holders access to ETFs means that if you want exposure to bonds or other fixed-income assets then you will have to buy ETFs investing in bonds. As your portfolio matures and the closer you come to starting to draw down on your portfolio, you will want to shift into fixed income instruments like bonds.
The lack of retirement accounts would mean you’ll have to go elsewhere for IRAs and the like. Until Robinhood makes these available – which it says they will.
Robinhood Instant
Robinhood Instant is the basic brokerage account you will get when you sign up. This account gives you access to up to $1,000 of your own funds immediately after executing trades without having to wait for the funds to clear. You also have access to out of hours trading.
Robinhood Gold
Robinhood Gold gives you access to Morningstar reports, real-time price data also called level II market data, and higher margins for margin trading.
Morningstar is an independent research and analysis company that produces reports on around 1,700 companies. The reports provide essential analysis of the company from an investment perspective. The reports are updated whenever there is an important or relevant event or change, such as the launch of a new line of products or a change of leadership.
Robinhood Cash
Robinhood cash is like one of the other accounts stripped of margin facilities. With Robinhood Cash, you can trade during regular and extended market hours but you will not have instant access to your funds. You have to wait for trades to clear before you can place another order.
Transparency and honesty
Something quite impressive about Robinhood, is how upfront they are about how their business model works.
Their website explains the ways that Robinhood makes its money in very clear and accessible language.
Checking out the small print, compared with other financial service providers – and the vast majority of other companies in any sector or industry for that matter – it looks as if it would be humanly possible to read through all of Robinhood’s small print within a typical lifetime of the average beginning investor. If you ask me that is unique.
Now that either means they’ve got their act together and they aren’t trying to bamboozle their customers, or their lawyers haven’t got their act together yet. I’m inclined to think that the former is the case.
Educational materials
Robinhood has tutorial materials mostly composed of articles but with some videos covering many areas of investing and trading.
Robinhood educational materials are frankly a little quirky. The material is organized in an organic sort of way which is probably fine if you think like that. If your mind flits from one theme to another for a while and then off on a tangent to something else and then yet again to something else. Then maybe Robinhood leaning materials would work for you.
Maybe Robinhood’s educational materials have been organized according to some clever new understanding of how the 21st-century brain works. That is quite possible in all seriousness.
But on the other hand, some material is skimpy in the extreme. The piece on investing strategy is seriously poor:
– Step 1 – find companies you and your family and friends like and research them! – Seriously!
Well, to be fair that is at least a strategy. I suppose if you sign up for Robinhood Gold at least you’ll have the Morningstar reports to refer to. And then as a regular account holder, you can also get Robinhood’s weekly newsletters.
Tools
The Robinhood platform lacks a few important tools for traders and investors.
No screeners – This would be a serious limitation for the quantitative investor. If you have a Robinhood account and want to invest with a quantitative approach you will need to do your screening, filtering, and sorting somewhere else.
No charts or other research.
All of this implies that if you use Robinhood as your broker and want to do some in-depth research on stocks, ETFs, or other instruments you will have to look outside of the Robinhood platform.
Robinhood – the pros – for the beginner
Robinhood is a new low-cost player on the brokerage scene. It has been around since 2013. Robinhood has a history of innovating in the brokerage industry forcing larger competitors to follow and copy.
The ability to trade cryptocurrencies with zero commission is a plus.
The promise of fractional shares is a plus.
For the beginning trader, Robinhood could be a platform of choice if you like working with small honest companies.
Robinhood – the cons – for the beginner
It is difficult to ignore the many downsides of Robinhood for a beginning trader.
That access to fixed interest investment is only through ETFs limits flexibility.
The learning materials are patchy.
The lack of screeners, charts, and other research tools constitute a serious limitation for quantitative investing. If you have to go elsewhere for screening and research you either have to pay for that, or you risk a free online screener may at some point no longer be available and you have to find an alternative that may not work as well. I know what I am talking about. This happened to me some years back.
The lack of retirement account possibilities may mean a Robinhood account holder would have to go elsewhere to get fully tax-efficient investing and money management.
Customer complaints about Robinhood point to the technical weaknesses of their trading platform. They did not fare well during the market turmoil in early March 2020 and many trades and transactions failed. To learn more about these issues check here.
Robinhood – how does it rank?
I’d say 3 out of 5. To be honest that is probably a bit generous given the limitations and issues. On the other hand, this is an innovative company that seems to adopt an honest transparent approach to customer and public relations and it may find new ways to reinvent itself, shake up the brokerage industry and thereby gain an edge as it has done on previous occasions. To see how Robinhood compares with its main competitors, check here.
My recommendation
If you are a beginning investor or trader looking for a brokerage account, if you don’t want to buy bonds, if you have other avenues to do technical research, and if you like working with small young companies, Robinhood could be the broker for you.
Affiliate Disclosure: This article contains affiliate links. If you click on a link and buy something, I may receive a commission. You will pay no more so please go ahead and feel free to make a purchase. Thank you!
Hi Andy
Very informative article. Thank you very much for the detailed review
Many thanks,
Yoana
Thanks for the comment Yoana. I am glad you found it interesting. Kind regards Andy
I’ve noticed many of these opportunities cropping up all over the internet and to be honest not my thing and can’t see how you could ever make any money through them unless the stock is a long investment.
You are certainly not going to be getting a true stock valuation through any piece of software like this unless you were a trader on the floor.
As for crypto, it might have been OK in the early days when they were valued at $.0000001 and even then there wasn’t a way to spend or cash them in.
My brother has been trying for years to work all this out and does nothing but lose money.
The internet breeds scams and nobody can be trusted.
Thanks for sharing
Mick
Hey Mick your observation on the scam-breeding capacity of the Internet is spot on. I recently had to come to terms with having lost an embarrassingly large sum of money because I thought I was getting in on a great way to make money out of internet advertising. From what I can tell Robinhood is a viable platform and many people are using it successfully. I wouldn’t necessarily invest in Robinhood as a stock. At least with stocks you are investing money in business enterprises that are somehow using your money to deliver value into the economy and – we hope provide a return. Someone I know well, did make a bucket load of money with Bitcoin in the very early days and then later repeated the experience with Ethereum. But as you say I’m not sure where that will go now. He is no longer involved in the crypto-world, so that might be saying something. Thanks for the comment. And we should all stay vigilant for the scams. Best regards Andy
Hi Andy! I’ve already played a bit with Alpaca API. This is another “broker” on top of Robinhood but with zero comissions! I started once to write a trading bot with this api and it looked very easy-to-use, not only the api but the UI also. I think it’s a good one to consider!
Robinhood for sure is a well stablished platform anyways!
Hey Daniel, thanks for the tip I will definitely check out the Alpaca API. Zero commissions is quite the norm these days. They have to be making their money somewhere though. Thanks again for the comment. Best, Andy
Yeah, they earn money from interest of cash deposits on their accounts, margin lending, and order flow, like Robinhood in the end.
Thanks for sharing Daniel.
Best regards
Andy
Great article, Andy! You do an excellent job of providing an objective analysis of Robinhood, from its features to its rankings. I have friends who have used Robinhood in the past, and they definitely give similar rankings. It’s always good, especially as a beginner, to understand how to best capitalize on your money. I will definitely pass this article along. God bless you!
Thanks for the comment and kind words. Robinhood definitely has a young feel to it and it looks as if their platform is better optimized for mobile devices rather than the desktop. That says a lot about their target customers. I think the brokerage industry is in for some consolidation or some kind of shake up as I am not sure they can all thrive with the now ubiquitous zero commissions. Thanks again for the feedback. Kind regards Andy
Hey Andy,
I’ve been looking for a trading platform for beginners for a while. Most of the platforms are not for beginners and they are very pricey to invest in. To be honest, I just want to try it out while we are in lock down.
As the price is really low, I think I may try this out. If I do then I will come back to you and let you know what I think. If I find that it’s good then I’ll let my friends know about it too.
Thank you for sharing, and keep up the amazing work on your site.
All the best,
Tom
Hi Tom, I’m sure there would be many less profitable ways to use spare time during the lock down than investing in the stock market. Sorry, I can’t stop the implied double negatives! I know a lot of people like Robinhood so they must be doing something right. Good luck and stay safe. Cheers, Andy
Hi Andy. Thank you for sharing this informative article. Although the pros look attractive, but because of the limitations and issues, plus its a small young company, I will usually just keep in an observation mode before taking any action. Thank you for your review.
Thanks for your comment Janet. That is probably a wise move. You need to take time over this kind of thing and only make a move when you feel confident to do so. All the best. Andy
I have used Robinhood in the past and was not a fan for a lot the reasons you mentioned and a few more. Mainly the limited trading platform, coming from platforms like TradingView, it is pretty bad.
Thank you so much for putting this together, it will definitely save people a lot of time when choosing a place to invest.
Great article!
Thanks for this. I greatly appreciate you sharing your experience. I can also see how some customers might have a soft spot for them. Though they haven’t managed to keep all clients happy during the recent market turbulence. Thanks for your comments. All the best.
You did a great job Andy! I believe that this is the information that can’t be find on the web easily and you decided to share it with others for free, that’s really great!
I didn’t know much about the best trading platforms for beginners but I’ve been always interested to know more about this and your in-deep post helped me a lot. I don’t know if you wrote this post 100% by yourself or got help from other sources as well, anyway, it has really brilliant information which convinced me to share it with my friends on social networks.
I think, the Internet needs more quality posts like yours these days, especially when we see that it’s full of ads and scams about this topic. You can’t read a post easily on a website without seeing tons of ads and popups but your site and post is an ideal example of an article which is not covered by annoying ads and let readers enjoy reading every piece of it.
Thank you again and I wish you continue providing such that quality information in the future which turn the Internet and blogs into a better place to surf!
Best,
Ali
Thank you very much Ali for your kind and helpful comments. I’ve been looking at similar competing trading platforms, researching what their own websites offer, what other reviewers and articles report, documented customer complaints and in some instances from my own experiences using these platforms for over 18 years now. I am glad that you found it worth the read and I hope it would help you make a decision when you might be ready if you wanted to opt to use any one of those services. My best wishes and regards to you, Andy