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
|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
- 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
- Preferred stocks or tracking stocks
- Custodial accounts
- Wealth management
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 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 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 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.
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.
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.
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.
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