With traditional stock investing, trade commissions are a part of life. However, this new platform called Robinhood is turning conventional wisdom on its head. This is my Robinhood review…
TL;DR
- Robinhood Allows You To Trade Stock Free
- You Get Instant Buying Power
- Share With Friends And Get Free Stock
Are you an active stock market investor? If the answer is yes, that’s great. I’m here to tell you about a tool that will eliminate your commissions expense. If the answer is no, that’s okay too. I’m here to tell you about a tool that is easy to use and will help you get started without any fees. I’m talking about the Robinhood investing app.
What Is Robinhood?
Robinhood is a relatively new app available on both desktop computers as well as mobile devices. Their biggest advantage over traditional brokerages is the fact that they are 100% commission free. In the past, when you opened a brokerage account with say, TD Ameritrade or Etrade, every time you bought or sold stock, the clearing house would take a commission of about $7.
Now $7 doesn’t seem like a lot of money, but if you’re extremely active it can eat into your profits quickly. This problem gets compounded if you’re just getting started and do not have thousands to invest.
Who Is Robinhood For?
Before I dive into the details, it’s important to keep in mind that Robinhood is geared towards active investors. This is because it’s 100% manually controlled and there is no automation of any kind. If you’re looking to throw money into the stock market every month and forget about it, this is not the app for you.
Check out my write-up on Acorns if passive investing is more your style. It’s also important to note that Robinhood doesn’t offer any kind of tax-advantaged accounts. This is not the app to start funding your retirement in either. The money you make will be taxed as ordinary income unless you hold stocks for more than a year. Then they will be taxed as long-term capital gains.
Is Robinhood Beginner Friendly?
The beginning investor will like Robinhood for two main reasons. There is no account minimum and the interface is clean and easy to read. Normally, a brokerage interface is information overload to the average beginner and very intimidating to look at. Robinhood cuts out a lot of noise and only shows basic information so it’s easier to understand. Couple this with no account minimum, and you can literally start investing with just the money in your pocket and make somewhat educated investments.
So What Does Robinhood Do?
Now that it’s clear who the Robinhood app is for, let’s dive into what it does. The app allows you to trade various types of assets including stocks, ETF’s, REITS, and even cryptocurrencies. ETF’s (Exchange Traded Funds) trade just like stocks, but they are actually a group of stocks meant to mimic the performance of a particular index.
What’s an ETF?
For instance, let’s say you thought the Oil & Gas industry was set to have a major boom this year. Rather than trying to pick individual oil and gas stocks to buy which can be time consuming and often expensive, you can simply purchase a share in an Oil & Gas ETF.
The person managing the fund picks the stocks for you so that when the Oil and Gas industry does well, the fund does too. If you felt major retailers or fishermen were going to do well, just buy a retail or fishing ETF. There is an ETF for just about anything you can think of out there. It just might take a little googling.
And REITs?
REITs (Real Estate Investment Trusts) are like ETFs, but instead they focus on real estate. The person managing the trust picks properties to buy, maintain, rent, or sell and then you as a share holder get a portion of the rental income or sale profits. It’s a lot cheaper and easier than going out and buying a rental property of your own. It also carries a lot less risk.
Robinhood Can Also Trade Crypto?
As far as I know, Robinhood is the only app on the market that allows you to trade both traditional assets as well as cryptocurrencies. With the surge in interest in the past two years, Robinhood has made top cryptocurrencies available to trade on their platform.
I personally do not know much about trading this, but I do know it’s available on the app. I’d rather skimp on details here than provide you with misinformation. You can buy Bitcoin, Litecoin, and Ethereum through the Robinhood app at the time of this writing.
How Do I Know Which Stocks To Buy On Robinhood?
When finding stocks to buy, it is always important to have solid research. Robinhood is a little lacking on research in my opinion, but for someone just starting out, it seems to give you enough info to make an informed decision without causing paralysis by analysis. When you look at a stock’s page, it will have things like a news feed for that company, the average price people are paying for the stock, and pro analyst ratings.
It’s enough to make a general “should I or shouldn’t I buy” decision if you’re a beginner, but it doesn’t have things like financial reports to do a fundamental analysis and detailed price histories to do a technical analysis. I would look to somewhere like Yahoo! Finance for that info. It’s free and very easy to find.
However, I am not a financial advisor. I cannot give you investment advice and you should ALWAYS talk to a professional before investing to fully understand the risks involved.
What If I Want To Make a Big Move Now?
If you’re looking to make a quick move in the market, Robinhood has an instant deposit feature as well. With normal brokerage accounts, when you deposit money, you generally have to wait about 3 business days for the deposit to clear before you can start trading.
By that time, whatever event you were trying to capitalize on will most likely have passed. With the instant deposit feature you can begin trading immediately after you deposit your money without waiting for it to clear. However, instant deposit is capped to $1000 if you’re on Robinhood’s free plan. If you’re on Robinhood’s gold plan, that limit increases to $50,000.
Do More with Robinhood Gold
Speaking of Robinhood’s gold plan, there is a premium plan called Robinhood gold available for $5 a month. What the monthly fee buys you is the aforementioned instant deposit limit, more tailored research articles, and access to margin trading. Margin trading is trading with borrowed money.
I do not recommend margin trading unless you are an experienced investor. Margin will increase your earnings if you make a good pick, but it will also increase your losses if you make a bad one. However, if you choose to take advantage of margin trading, Robinhood offers up to $1000 interest free. After that, margin trading carries 5% interest to borrow.
How To Get Free Stock With Robinhood
Once you have installed the Robinhood app on your phone or computer, tell your friends about it because they have an excellent referral program. If you refer a friend to Robinhood, you both get a free share of stock. Now there is a 99% chance the stock both of you receive will be valued under $10, but there have been reports that Amazon and Apple shares have been given away.
If you’re not aware, Amazon is trading around $1800 a share at the time of this writing and Apple is going for about $208. It would be pretty sweet to get one of those for simply referring a friend if you ask me. Sign Up Here using my link if you don’t already have an account. I’m hoping for an Amazon share just like you.
Sum Up
To wrap it all up, my opinion on the Robinhood investing app is simple. If you’re looking to actively trade and try your hand at beating the market, this is a very good tool to use because there are no fees to pay. You can supplement the lacking research by looking elsewhere for free and in my opinion, research is the only thing Robinhood is lacking.
You can buy everything offered at a traditional brokerage and then some, and it’s executed in a format that’s easy to understand. However, if you’re looking for a more passive investment platform, Robinhood is not for you. Again, check out Acorns if passive investing is a little more your speed.
Until Next Time,
Dom
