What is Robinhood?
Cryptocurrency markets or ‘exchanges’ have become a juicy business for those who operate them. It is there where these virtual currencies are bought, sold or transferred, and now the well-known American company Robinhood enters this segment with a very striking proposal, its Robinhood crypto.
Its service will imitate that of other markets of this type such as Coinbase, but it will do so with a spectacular premise: zero commissions in its operations. That has been enough for more than a million users of the platform to have signed up to be the first to invest in these cryptocurrencies.
Robinhood day trading rules
Robinhood is a company that provides a mobile application with which clients can invest in the Stock Market without paying any commission for these operations. In just three years in the market, the company has become a benchmark, especially for a particularly young investor profile.
The company has had a total investment of 176 million dollars in venture capital, and a few days ago it announced its intention to become a cryptocurrency investment market. Those responsible for Robinhood have published a series of FAQs in which many of the terms of a service are clarified that will have some important limitations, at least in its initial phase of implementation. For example, it will only be available to customers in five states in the United States (“we will add support for more states soon”), and there is no mention of future international expansion. Robinhood account restricted is real, even in the US.
Robinhood is one of the most accessible brokers on the market, especially in the United States. Its ease of use, the large number of resources devoted to advertising to attract users and the low commissions, make many young people feel attracted to this company when they take their first steps on the stock market. In addition, with only $ 1 you can start trading and without money you can have your account open waiting for opportunities.
Overall, this tactic has been successful, attracting 10 million new customers. But Robinhood’s views are not as good as expected and many investors are frustrated by market disruptions or lack of tools from this broker.
For example, during the sharp market decline, increased volatility, and surges in trading that took place in late February and early March 2020, Robinhood experienced service outages that affected its users’ ability to access the platform, which made those who had open operations lose a lot of money and could not close them.
To solve this problem, Robinhood invested in improvements in the platform, which managed to stop the falls, even the market was again very volatile. But, this company was once again seen in a scandal when after what happened with the Reddit forum and the increase in the demand for shares for the company GameStop, they decided to prevent operations. This led many to suspect a conflict of interest of the broker, which led to class action lawsuits and the attendance of some members of the American Congress to explain what happened.
To consider:
– You can start trading after opening the account and with just $ 1.
– It is a broker fully involved in controversy, but today it has achieved more than 10 million clients.
– To get the most out of it you will have to subscribe to Robinhood Gold
Who is Robinhood for
Robinhood is intended for investment newcomers who want to trade small amounts, including fractional stocks and cryptocurrencies, and require little in terms of research beyond seeing what others are trading.
Robinhood’s overall simplicity makes the app and website very easy to use and the zero commissions attract new investors. That said, there are serious doubts about the quality of commercial executions.
Pros:
– Commissions are very low and cryptocurrency transactions can be made in small amounts
– Very simple and easy to use
– Clients can operate with their account from $ 1
Cons:
– Trades do not always enter at the best price
– Quotes lag behind reality
– There is very little research or resources available.
– There are several scandals in recent months surrounding Robinhood
Pros explained
Robinhood commissions are very small and in most cases, you will not have to pay for the sale of shares.
Robinhood allows cryptocurrency transactions to be done in very small amounts. Most crypto-friendly brokers require certain minimums to trade.
The Robinhood mobile app and website are extremely easy to use.
You can open an account without depositing and you can start trading with just one dollar. In addition, you will have immediate access to your funds after depositing or closing positions.
Cons Explained
As Robinhood does not charge any commission for transactions, it has to have a high margin which makes the price you enter not the best for us in each operation. This margin is common in all brokers, but in this case, it is too high.
Prices lag several seconds behind other real-time data providers.
There are very few training resources to use the platform or learn about the market.
In recent months we have seen scandals related to this broker that will make us doubt the safety of our money, although, especially on the side of software problems, they are working to improve them.
How to withdraw money from Robinhood
Robinhood commissions are easy to describe and boil down to the fact that there is no commission to pay per trade. Although it is true that there are some other non-trade related fees that are listed below.
– All stock trades (stocks and ETFs) are commission-free.
– Trading on margin requires a subscription to Robinhood Gold of $ 5 per month, which includes $ 1,000 of margin. Margin usage greater than $ 1,000 is charged at 5% interest.
– The transfer fee is $ 75.
You may wonder, since there are no commissions to pay, how does Robinhood earn money? Like most brokers, Robinhood generates interest income from the difference between what they pay for their idle cash and what they can earn from clients’ cash balances. How to cash out on Robinhood? Don’t worry as Robinhood clients can earn modest interest on their uninvested cash, which is passed on to their network of FDIC-insured banks.
Quite a few brokers like this also generate income by accepting payments from market makers for directing their clients’ stock and option orders to those trading venues.
Stock loan programs including penny stocks on Robinhood also generate income for brokers when the shares in their account are loaned to another trader or hedge fund, usually for the purpose of selling those stocks short. Robinhood retains all the income it generates from lending the client’s shares and does not share it with the client.
Trading platform
Robinhood is very easy to navigate and use as it is one of the simplest brokers on the market. Robinhood was born as a mobile application, followed by the launch of a website in November 2017. As a result, the Robinhood application and the website are similar in appearance, making it easy for investors to adapt to using either interface. The downside to this is that there is very little you can do to customize the trading experience on each interface.
Opening a new account can be done in the app or on the website in a few minutes.
The opening screen when you log in is a line chart that shows the value of your portfolio, but lacks descriptions on the X or Y-axis. You can hover your mouse over the chart or touch a spot if you are on your mobile device to see the time of day for each data point.
All asset classes available for your account can be traded on the mobile app and on the web, and the watchlists are identical on all platforms. Prices are updated while the application is open, but lag behind other real-time data providers.
The price to pay for the simplicity of this platform is the fact that there are no customization options. If you want to enter a limit order, you will need to void the market order. You cannot perform a trade directly from a chart. Also, while ordering is simple and straightforward for stocks, options are much more complex to trade.
Robinhood launched Recurring Investments in October 2020, which allows clients to schedule a repeat investment in stocks or ETFs of their choice on a daily, weekly, biweekly, or monthly basis.
The cuts that occurred in the most volatile times of recent months are behind those negative opinions of Robinhood that lower the note of this section because the platform is good, simple, and ideal for those who have just started to invest.
Financial product offerings
When we talk about the offer of financial products of this broker, its limitations become apparent again. Robinhood allows cryptocurrency trading on the same stock and options account, but is missing some asset classes, such as fixed income. Investors using Robinhood can invest in the following:
– Stocks: Long only, no short sales.
– Simple options
– Cryptocurrency: Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Dogecoin (DOGE), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC).
– No funds, fixed income, futures, or futures options.
Robinhood customer service
All customer service is done through the app or website and is only available in English. There is no phone number, so Robinhood cannot be called for help. If you manage to advance through the options to self-solve your problems, you can enter your own phone number so that they will call you back. This, for cases in which you need to contact an agent because there is a lot of money at stake, becomes a serious problem. They don’t do great customer service on social media either, so Robinhood has a lot to improve in this regard if it wants to get clients beyond new investors.
Training
Robinhood’s education offering is disappointing for a broker that specializes in new investors. However, it is important to mention that this company has been adding content on a regular basis. The training page has a list of articles, displayed in chronological order from newest to oldest, which is updated frequently. It would be a great benefit if these articles were organized by topic.
There are no videos or webinars available, but Robinhood Snacks’ daily three-minute podcast provides market information. A page dedicated to explaining market volatility was appropriately added in April 2020.
Security
Robinhood security complies with the standards as we can see below:
– Mobile app users can log in with biometric recognition (facial or fingerprint) or a custom pin.
– Robinhood encourages users to enable two-factor authentication.
– New logins from unrecognized devices must also be verified with a six-digit code that is sent via text message or email in case two-factor authentication is not enabled.
The problem with this broker came from the operations supposedly closed to users who had shares in Game Stop, as well as the failures of the platform in times of great volatility. For all this, we believe that you have to be careful when operating with Robinhood and once you start investing large amounts, look for other brokers.
Conclusion
If you are a new investor and have a small amount of money to start with, Robinhood could be the place to get used to the idea of trading. The app and website are extremely simple, not intimidating at all, and provide a seamless path to the investment experience, especially for those exploring stocks and ETFs.
If you are an active trader using charts, filters, and analyst research, it is best to register with other brokers. Most other brokers still charge contract fees on options, and some still charge for stock transactions, but in return, you get helpful research, data, customer service, and educational offers.
We cannot omit everything that happened in recent months with this broker that has been questioned. Only time will tell if it is once again a recommended option for new investors or it is definitely discontinued.
