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Robinhood has grown to become a very well-known brand among tech-savvy investors and new traders because of its no-fee business model and clean user-friendly trading interface.
The company's key point of differentiation was first of all fee-free trading, but many competitors have already lowered their prizes in response.
Users can easily trade stocks, ETFs, and cryptocurrencies on the platform, but it lacks the extensive financial tools, asset classes, and research capabilities that seasoned traders demand in a broker.
There is still much to be done before the platform satisfies standards being established throughout an increasingly competitive market, even if there has been a clear focus on improving fundamental charting abilities and enhancing access to a growing collection of educational content. We'll go into more information about Robinhood so you can decide if the service is right for you.
That is why we have this article to give you an idea on what Robinhood is and what Robinhood can do to assist you in trading and investments.
Table of Contents
Robinhood Markets Review: Pros and Cons and All what you Have to know
Introducing Robinhood
Robinhood Markets is an American financial services firm with its headquarters in Menlo Park, California, which allows commission-free trading of stocks, exchange-traded funds, and cryptocurrencies through a smartphone app that was released in March 2015.
As a broker-dealer, Robinhood is a member of the Securities Investor Protection Corporation and has received registration from the U.S. Securities and Exchanged Commission.
The three primary sources of revenue for the company are interest on customer cash balances, selling order information to high-frequency traders (a practice for which the SEC launched an investigation into the company in September 2020), and margin lending.
As of March 2022, Robinhood had 22.8 million funded accounts and 15.9 million active monthly users. The brokerage offers cryptocurrency trading, making it a credible choice for customers looking to trade assets like bitcoin and Ethereum without paying a commission. Additionally, Robinhood has launched a cash card that provides bonuses at participating stores ranging from 10% to 100% and up to 8% cash back.
Due to ongoing platform modifications and some limited capabilities, some users still have concerns about this platform's liability and level of security, despite its incredible features. Because of this, we'll outline some of Robinhood's benefits and drawbacks for you. But first of all let's see if Robinhood is a safe platform.
Is Robinhood Markets Safe?
As of March 2022, Robinhood had 22.8 million funded accounts and 15.9 million active monthly users. The brokerage offers cryptocurrency trading, making it a feasible choice for customers looking to trade assets like bitcoin and Ethereum without paying a commission.
Additionally, Robinhood has launched a cash card that provides bonuses at participating stores ranging from 10% to 100% and up to 8% cash back.
Due to ongoing platform modifications and some limited capabilities, some users still have concerns about this platform's liability and level of security, despite its incredible features. Because of this, we'll outline some of Robinhood's benefits and drawbacks for you.
Pros and Cons of Robinhood
Pros
- Receive free stock for registering.
- specifically created for active and mobile trading
- Simple investment instruments
- Free transactions in stocks, ETFs, options, and cryptocurrencies
- allows for fractional shares
Cons
- Unpopular order flow practices for payments
- For all functionality, a monthly subscription is necessary.
- Bonds and mutual funds cannot be traded.
- Outages during peak trading times have a history.
Ways to invest with Robinhood
Cryptocurrency
This platform's policy of no commissions applies to cryptocurrencies. Using the Robinhood Crypto service, you can trade a number of digital currencies, such as bitcoin, dogecoin, and ethereum. You can use whatever money you've put into your brokerage account to buy Robinhood Crypto.
Robinhood also introduced bitcoin wallets earlier in 2022. Prior to the release of its wallet, users could not transfer or receive cryptocurrency to external wallet addresses. To your preferred wallet, you can now transfer any bitcoin holdings you may have. In addition, Robinhood is creating a non-custodial cryptocurrency wallet and web3 DeFi platform.
The program will enable users to store and access NFTs, exchange cryptocurrencies without incurring network fees, use DeFi protocols, and connect to DeFi apps.
Stocks and Funds
Robinhood is the best substitute for active investors who want to carry out commission-free transactions in stocks, options, ETFs, and cryptocurrencies.
The majority of the investments offered by the brokerage do not have a minimum account size restriction, but the brokerage does have a minimum opening deposit requirement for its fractional shares and margin trading products (you also need a minimum opening deposit of $25,000 for pattern day trading).
Through Robinhood, fractional shares are also available. This corresponds to the option of purchasing company stock in installments rather than in full. All you need to start is $1. The complex charts, which were released on August 17, 2022, also allow all users to conduct more thorough study on a variety of assets.
The web platform and smartphone apps for Robinhood are also straightforward and user-friendly. When you open an account, you will also receive a free share of stock.
Additionally, starting on August 11, 2022, consumers will earn 1.5% APY on any cash that isn't invested in their brokerage accounts and every time you successfully refer a friend, you'll receive a free stock.
Options
The commission-free option trading offered by Robinhood has a notable advantage of having no per-contract fees. For each option contract, many brokers charge less than $1, while some platforms have a tiered pricing structure where more active traders pay lower charges and less active traders pay higher fees.
However, you won't incur any such fees if you use Robinhood. It's crucial to remember nevertheless that investing in options carries a higher risk than investing in equities and ETFs. The risks connected with options are disclosed by Robinhood on its website.
Additionally, whereas before you required a margin account, you may now trade options using Robinhood's regular cash accounts.
IPOs
Robinhood also recently offered IPO access. Unlike other well-known brokerages that require a minimum household asset size (Fidelity requires $100,000 or $500,000, depending on which company is sponsoring the IPO) for investors who want to take advantage of the IPO offer price, Robinhood claims it has neither a minimum balance nor special status requirements.
Investors should seize this investment opportunity if they want to buy IPO shares of a company before they are publicly listed on an exchange.
Gold Robinhood
Through Robinhood Gold, you can get access to NASDAQ market data, Morningstar expert research reports, and margin trading. For a $5 monthly fee, you can instantaneously transfer up to $50,000 into the account. You will require at least $2,000 to begin.
Margin trading is basically borrowing money from a brokerage in order to invest in securities or other financial assets that you cannot afford. Your investments serve as collateral for the margin loan, and you are responsible for repaying the borrowed funds.
Pricing & Account Fees for Robinhood
If you haven't guessed it by now, Robinhood's key selling point is commission-free trading. Most accounts don't charge any fees or for trading. You will only be charged if you choose to use Robinhood Gold or other uncommon services like paper statements or outgoing account transfers.
Robinhood Gold's margin option requires you to pay interest at a rate of 2.5% as of the time of this writing on any loans over $1,000. The majority of investors should steer clear of margin trading due to its risk.
Some Risks of Trading on Robinhood
The functionality and capabilities of the trading platform may have an impact on some of the risks connected with using Robinhood. For instance, FINRA claimed in 2021 that the company's technical oversight was insufficient.
Due to this, there were a number of outages and catastrophic system failures, including one that occurred in March 2020 at the beginning of the pandemic panic. Some Robinhood users might have lost money as a result of this outage.
There is also a risk associated with the trading restrictions that Robinhood implemented on many investors in early 2021. The platform limited trades of so-called meme stocks after numerous tiny investors banded together on social media to raise the price of GameStop, AMC, and many other stocks.
In response to its clearing firm, National Securities Clearing Corp., issuing many margin calls, Robinhood placed trading restrictions on a number of these identical equities.
Lawsuits against Robinhood have largely been dismissed as a result of these new stock trading restrictions. The danger of abrupt trading limits, however, may not be appealing to investors and potential Robinhood consumers.
Lastly, despite the fact that Robinhood uses a variety of data security measures, a data breach happened in November 2021. According to the company, a fraudster "socially engineered" a customer service agent on the phone to access particular customer support systems. This procedure yielded millions of client email addresses and lists.
Robinhood Contact
Customers of Robinhood have 24/7 access to email and phone support, however getting to the email form on the app or website requires logging in and following a few steps. Help via live chat is not available.
They also don't readily provide a phone number you may call for support. Instead, you need to log in and push a button in order to contact customer assistance.
The additional requirements to use them are therefore a nuisance, even though 24-hour phone and email help is a wonderful feature.
Final Thoughts
The design of the platform makes it clear that Robinhood's priorities are broader market access and lower entry barriers. Users can benefit from a revolutionary strategy that allows them to enter the market with a trading experience that is both user-friendly and expertly designed.
Because there are no fees, penalties, or account minimums, investors are free to start their trading careers with no financial commitments. Trading in shares, ETFs, and cryptocurrencies is simple, and investors can get useful, albeit oversimplified, market and positioning information.
Beyond this, however, neither seasoned investors nor those seeking to make anything but the simplest of transactions ought to use Robinhood. The lack of assets like fixed income, mutual funds, foreign exchange, or futures trading options is a serious restraint. Research facilities, order kinds, and trade resources are still severely limited or nonexistent.
Despite providing a platform that makes trading simple overall, many traders won't utilize the Robinhood app as their main broker due to a lack of features and usefulness.