If you are an American and you are looking for an investment option, consider Robinhood. Robinhood provides commission-free stock, ETF, option trades and cryptocurrency investing. The minimum account balance is $0 making it a suitable option for beginners. However, Robinhood does not offer mutual funds and bonds.
Many Americans are now investing in the platform. Whether you are an experienced investor or a new investor, this is our guide on investing with Robinhood for beginners.
Robinhood has done a great job of simplifying the complex process of trading into a very user-friendly interface. This makes it a great option for beginners. Most users have found Robinhood to be very easy to set up and use. The user interface is clean and straightforward, and the app provides all the essential features you need to start trading, such as real-time quotes and charting tools. At FiFi Finance, we appreciate the fact that Robinhood makes trading accessible to everyone, regardless of their experience level.
- 1 What Does Robinhood Do?
- 2 Requirements to Start Robinhood Investing
- 3 How Robinhood Works
- 4 Pros and Cons of Robinhood Investing
- 5 Investment Strategies for Robinhood Beginners
- 6 Investment Options on Robinhood
- 7 Robinhood Fees
- 8 Useful Tips for Robinhood Investors
- 9 Is Robinhood Safe to Invest In?
- 10 Consider Alternatives to Robinhood
- 11 Guide to Investing with Robinhood for Beginners
- 12 Read More
- 13 Robinhood FAQs
What Does Robinhood Do?
Robinhood investing app is an online investing platform that offers commission-free trading. It allows you to trade on stocks, ETFs, option trades and cryptocurrencies. Besides, it also offers fractional shares, margin investing, IPO investing and cash management accounts.
In the past, the investing world in the US was dominated by a few large players. The biggest among them were Fidelity, Schwab, E-Trade, and TD Ameritrade. These companies use a fee-based model, where they take a small commission for every order they execute.
Requirements to Start Robinhood Investing
You need the following to open a Robinhood account:
- Be 18 years or older
- Have a social security number
- Have a U.S. address
- Have a U.S. bank account or debit card to fund your Robinhood account
- Download the Robinhood app from the App Store or Google Play
How Robinhood Works
It is fairly easy to buy your stocks, ETF’s, gold, futures or crypto through the Robinhood app. After opening a Robinhood account, you have to deposit money in your account. This can be done by linking your bank account or using a debit card. You cannot use a credit card. You then select the share or fund that you want to own and proceed to purchase by clicking on the Trade button.
The point of investing in Robinhood for beginners is that you select the shares you want, based on the type of investor you are, and then basically move on and not look back to it. Robinhood is definitively not the app you use if you want to day trade for example. It simply doesn’t offer the features you need if you like to do technical analysis properly, for example. Therefore, we think that the best way to use Robinhood is nothing more than to use it as a simple method to purchase the stocks you actually want to own.
What the Robinhood app does well is news coverage and comparing analysts forecast with actual results. Robinhood gives a nice little overview, so you can see and understand better the excepted results of a company, an option or an ETF. This makes it a lot easier to see if you’d actually like to actually buy this particular share or not. Now you don’t have to search around the web to actually research a company. See also the video below with a hands-on explanation and more tips.
Pros and Cons of Robinhood Investing
Robinhood is a good option for beginner investors who are looking for a commission-free brokerage with a simple user interface. However, it is important to be aware of the limitations of the platform before you start investing.
Pros of Robinhood
Here are a few reasons why you should consider investing with Robinhood.
- The apps and web platforms are free to set up.
- No commission for trades.
- There is no minimum balance requirement to open a Robinhood account, so you can start investing with as little as $1.
- Access to professional research from top providers like Morningstar and Morgan Stanley.
- Free access to market news from top publishers.
- Access technical analysis tools.
- Access to margin trading.
- Access to fractional shares of stocks, which means you can invest in a company even if you can’t afford to buy a full share.
- Ready-made watch-lists.
- Access to Nasdaq level 2 data.
Cons of Robinhood
- Robinhood does not provide options for investing in mutual funds or bonds, which could be significant for specific investors’ portfolios. It also does not support auto-investing
- Robinhood’s research tools are comparatively restricted when compared to those offered by other brokers.
- If you are not a US citizen or resident, you cannot sign up with Robinhood. There are some alternatives, such as Interactive Brokers, which is accessible globally.
- Recent years have seen increased regulatory scrutiny of Robinhood, which may result in alterations to the company’s operational practices.
- Robinhood generates revenue through payment for order flow (PFOF), a practice that has faced criticism from certain segments of the investor community.
- In the past, the company has received criticism for selling the free trades to market makers, who can then bet against the customers. However, according to research, most brokers generate money from selling this type of data to market makers and high-frequency traders.
Investment Strategies for Robinhood Beginners
Robinhood is developed to target millennials. As such, the Robinhood app and website are designed with simplicity in mind. However, before you invest and start, it is important to know a few things.
Read also: 5 Key Investment Strategies for Beginners
Decide the Type of Investor You Are
In this, you should think about your style and the general type of investor that you are. If you are a technology investor, you should focus only on technology companies like Salesforce and Apple. If you like retail, you should focus on companies like Walmart, Amazon, and Lululemon. Similarly, if you are a transport investor, you should focus on companies like United Airlines and Delta.
In addition, you should decide on the stage of the companies you want to invest in. If you love growth stocks, you can invest in companies like Twilio and Chipotle. If you are an income-focused investor, you should specialize on companies like Boeing and Illinois Tool Works.
Next, you should look at the duration you want to hold your investments. In this, you could be a day trader, who leaves trades open for just a day, or a swing trader, who leaves trades open for a few days. Alternatively, you can be a long-term investor like Warren Buffett.
Create Robinhood Investing Strategy
After this, you should work to refine your investment strategy. This is similar to how hedge funds do. There are long-short hedge funds who buy companies they hope will move up and short companies they expect will go down. Similarly, there are long-only and short-only investors. There are others who focus on macro issues and others who focus on special situations like mergers and acquisitions. If you are a newbie investor, you should spend a lot of time creating and testing the strategy you want to specialize on.
Read our guide on Investing Strategy in the Stock Market
Investment Options on Robinhood
You need to know what to invest in on Robinhood. Luckily, it has a user-friendly interface that makes it very easy for you to navigate and invest. This is what you can buy on Robinhood.
1. Stocks and Funds
One of the ways of investing in Robinhood is through stocks, options, RTFs and cryptocurrencies. There is no minimum account balance for most of its investments. However, for fractional shares and margin trading, you need minimum opening deposits. You can buy Robinhood fractional shares for as low as $1. One advantage of investing in Robinhood stocks is that you get free shares for every successful referral.
You can invest in Robinhood’s Options that are commission-free and has non-per-contract fees. If you use other brokers, you will be charged around $1 per options contract. However, with Robinhood investment, there are no such fees. Investing in options carries a higher risk than investing in stocks and ETFs. Robinhood provides option risk disclosure on its website.
You can use Robinhood to invest in Bitcoin buy and sell meme coins and altcoins such as Dogecoin and Ethereum. You can buy the cryptocurrencies using the funds you have deposited in your brokerage account. After the introduction of Robinhood wallet, you can transfer crypto into or out of your account. This means you can send and receive crypto, rather than just buying and trading it on the platform.
Since December 2021, Robinhood allows its users to send a crypto gift cards to friends and family from the Robinhood app. Crypto gifts are 0% commission. You are able to send as little as $1 worth of 7 supported cryptocurrencies including Bitcoin (BTC), Ethereum (ETH) and Dogecoin (DOGE). You can then send it directly to the recipient by sharing a link via email or text.
4. Robinhood Gold
You can also invest in Robinhood using Robinhood Gold that allows you to trade on margin. You can also use it to research and reports and NASDAQ market data. Investors have to pay a $5 monthly fee, and you can deposit up to $50,000. You need at least $2,000 to start to get started with Robinhood Gold.
You can also invest in Robinhood using IPO. Unlike many other brokerages that require a minimum balance like Fidelity that requires $100,000 or $500,000, Robinhood does not have any minimum balance requirement. You can invest in a company’s IPO shares through Robinhood before they are listed on an exchange to the public.
You should expect the following fees from Robinhood.
|Account Opening Fee||$0|
|SEC Fee (for sell orders)||$8 per $1,000,000 of principal|
|SEC Fee (Sales with notional value ≤ $500)||Not applicable (fee not passed on)|
|Trading Activity Fee (Equity Sells)||$0.000145 per share|
|Trading Activity Fee (Options Sells)||$0.00244 per contract|
|Trading Activity Fee Limit (per trade)||$7.27 (rounded up to the nearest penny)|
|ADR Custodial Fees (per share)||$0.01 – $0.03|
|Options Regulatory Fee (ORF)||Varies by options exchange|
|Clearing Fee (Central Counterparty)||Industry standard fees|
|OCC Fee for Options Contracts||$0.03 per options contract|
Useful Tips for Robinhood Investors
Here are some tips for using Robinhood to invest wisely and avoid making costly mistakes.
Investing is not about getting notifications on your cell phone. You want to reduce stress in your life, especially when it comes to finances. You shouldn’t really be trading like a monkey on speed. I’ve done it myself, and you can get the impression of making money, but in the long run you will not beat the market. No one does.
- Research before buying: Before you buy any stock, understand the company by reading its financial statements, news, and analyst reports.
- Start small: If you’re new to investing, begin with a small investment to avoid costly mistakes.
- Invest long-term: Focus on holding shares for years in companies you believe in, rather than trying to time the market.
- Avoid panic selling: Market ups and downs are normal. Selling during a downturn locks in losses; be patient.
- Be patient: Investing takes time; focus on steady wealth growth instead of quick riches.
- Use limit orders: Set a maximum price you’re willing to pay for a stock to avoid overpaying.
- Use stop-loss orders: Set a price to sell a stock if it falls too much to limit losses.
- Be aware of fees: Robinhood doesn’t charge trading fees, but remember other fees like margin rates and lending fees.
- Investment funds: You should think about the funds that you will use to invest. Since markets are always risky, you should only invest using money that you can comfortably afford to lose. For this reason, you should be careful about investing money you have set aside for food, rent, and other general necessities.
- Avoid hype: Robinhood’s gamification can be exciting, but stay focused on your strategy, not just the excitement of trading.
Is Robinhood Safe to Invest In?
Robinhood is a safe and legitimate brokerage platform, but it is important to understand the risks involved before investing in any brokerage firm, including Robinhood.
Your securities and cash are protected up to $500,000 (including $250,000 for cash claims) in the event that Robinhood fails. This is because Robinhood is a member of the Securities Investor Protection Corporation (SIPC). However, SIPC protection does not cover losses due to market volatility or investment risk.
Robinhood is also regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). This means that Robinhood is subject to a variety of rules and regulations designed to protect your funds.
In 2020, Robinhood was fined for misleading customers about how much it really costs to trade with them.
Consider Alternatives to Robinhood
If you are looking for a brokerage with more research tools and investment options, you may want to consider a different option. There are plenty stockbrokers you can choose as Robinhood alternative. Some examples include:
Read also: Robinhood vs Fidelity Review
Guide to Investing with Robinhood for Beginners
Robinhood has revolutionized the world of investing. In fact, many of the old brokers like Fidelity and Schwab have started to lower the fees. As an investor, this is a good thing, because these commission fees tend to add up with time. Therefore, as you begin your investing journey, you should consider using Robinhood while realizing the risks that come with all types of investing. It is a good option for beginner investors who are looking for a commission-free, simple and easy-to-use platform.
The platform offers a variety of investment products, including stocks, ETFs, and options. However, it is important to be aware of the limitations of Robinhood before you start investing. For example, it doesn’t allow for investing in mutual funds or bonds, and it lacks certain features and research tools that some investors might require. Bear in mind that investing is a risk, and you should only invest money that you can afford to lose.
- How a glitch allowed one trader to turn $3,000 into $1.7 million
- Robinhood Investing Help Center
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- Robinhood Was Indeed Too Good to Be True
What is Robinhood?
Is Robinhood good for beginners?
Robinhood is good for beginners since it does not have a minimum balance requirement. Also, it does not charge commission.
How does Robinhood make money?
Robinhood makes money by charging market makers a fee for routing its users' orders, subscription fees, interest on margin loans, interest on securities lending, cash management fees, and interchange fees.
Whois the founder of Robinhood?
In 2013, Baiju Bhatt and Vladimir Tenev saw an opportunity to disrupt this industry by creating a free method for anyone to invest in stocks. They named the company Robinhood.
What is Robinhood crypto?
Robinhood crypto is a service offered by Robinhood that allows you to buy, sell, and trade cryptocurrencies.
What is Robinhood interest rate?
Robinhood offers a cash management account that allows you to earn interest on their uninvested cash. The current interest rate for Robinhood Cash Management is 1.5% APY for all balances up to $1.5 million.
What is Robinhood Gold?
Robinhood Gold is a premium subscription service that offered extended trading hours, increased buying power, professional research, and other benefits for a monthly fee. It allowed users to trade during pre-market and after-hours sessions, access Morningstar research, and trade on margin for potential higher gains.
What is a limit order on Robinhood?
A limit order on Robinhood is a specific instruction to buy or sell a stock at a particular price. This means you're indicating to Robinhood that you'll only purchase the stock if its price matches your specified amount or sell it if the price reaches the level you've set.
How do you fund your Robinhood account?
You can fund your Robinhood account via your bank account or debit card.