Since its launch, Robinhood has been a darling of the fintech startup scene. Its selling point – the fact that it offers retail traders access to commission-free trading – is one that’s hard to beat, at first glance. At a closer look – though there is no “catch” involved with the offer in the traditional sense of the expression – that selling point makes a much less sturdy case though, and that is where some experts and experienced day traders find the “catch” alluded to in the title.
Let us take all this one step at a time though and have a look first at what Robinhood offers. What is it really good/suited for? Frequent ETF and stock traders will probably like it, as will mobile users. Robinhood is indeed a mobile-only application.
Robinhood’s biggest – and according to some: only – selling point is the fact that it charges no commission on trades. This is sort of a big deal indeed, considering how commissions represent one of the most prolific monetization mechanisms for brokers. Commission fees cover a relatively wide range: from $4 to $20 per trade, and all the way up to $65. This makes it clear that the commission is the formidable foe of the frequent trader. Someone who opens 10 positions per day for instance, could end up paying around $200 in commissions. On a yearly basis, that adds up to some pretty breath-taking sums, money which lands in the pockets of the broker, and which, not being around, sets the trader back significantly. This is the conundrum Robinhood aims to solve: it gets the traders off the commission-hook, saving them potentially massive amounts of money.
How does Robinhood generate revenues then and is it really free indeed?
To answer the first part of that question: there’s the interest collected on the cash held by the broker and there’s also interest collected on money lent on the margin. The lion’s share of it all would still be the commission though, and Robinhood have simply given that up. This is where Robinhood Gold comes into the picture. More in it soon.
In regards to the actual fees traders pay on their trades: the commissions are indeed $0. There are the fees associated with FINRA and SEC though, but these don’t even make $0.50 per trade, so indeed, for all practical purposes, it is safe to say that trading is free at Robinhood.
The required account minimum – another major factor in determining the affordability of a brokerage – is $0 as well. For Robinhood Gold – a margin account – we’re looking at the regulatory minimum of $2,000.
The account fees section looks great as well: there are no fees associated with inactivity, or any other annual fees for that matter. ACH transfers are free as well. The ACAT outgoing transfer fee is $75.
The Robinhood Platform
The trading platform is – as said above – mobile only. To certain categories of traders, this may indeed represent an advantage. To others on the other hand, the lack of a desktop-based trading platform with all the bells and whistles it brings to the game, is a definite drawback.
As far as ETFs are concerned, Robinhood offers free access to most US-listed ETFs. The tradable securities are limited to stocks and ETFs though. Problems come about when considering the research and data capabilities of the platform. While there is real-time market data available (according to some experienced traders, this feature is far from being true real-time), there is no market research offered in any shape or form.
Robinhood support is available from Monday to Friday, from 9 AM to 6 PM (EST) through phone, in addition to standard email support. Support is one of the features the community hasn’t exactly been happy with. There are numerous complaints at various forums regarding the availability of support, as well as the proficiency and competence of the support staff. Those who can get hold of support have complained of their direct interlocutor not understanding their problems and having to go through third parties to eventually sort out the issues.
Robinhood Gold – Premium Service
Robinhood Gold is the feature that seems to save the day both service quality- and revenue-wise. This is the missing link in the monetization model. Robinhood Gold has brought extended trading hours to the table, as well as margin trading, opening up new possibilities. It is, of course, a premium service and as such, it charges a flat monthly fee, based on margin and account-size. It also requires a $2,000 minimum portfolio, but this is a legal requirement as well, so there is no way around it.
Where does Robinhood fall short?
According to most, it is not suitable for proper day trading. The platform is designed from the ground-up for the execution of free trades, by traders who already know exactly what they want, meaning that they have done their research somewhere else. Despite the fact that it is targeted towards beginners and young traders, it is sorely lacking in the educational resources department.
Also, there seems to be a fundamental contradiction in its sole selling point too: according to experts, the strength of the platform resides in the fact that it saves its users money. This strength would be in full effect with traders who make scores of moves every day. In its current shape and form though, Robinhood works best for traders who place a few trades per week. This seriously limits its saving potential, so much so in fact, that those truly embroiled in scalping and day trading, may not even find the whole angle appealing enough to ditch their current trading platforms.
Robinhood.com is quite popular and at the time of writing had an Alexa global rank of 27,377. More than 70% of the traffic comes from the United States. Other sources include Canada, Australia, Germany, India and the UK.
Robinhood Review Conclusion
Having drawn investment from celebrities like Snoop Dogg, Nas and actor Jared Leto, Robinhood is indeed something of a fintech celebrity itself. It has adopted a unique approach to giving the little guy free access to trading and to monetization. For many, it seems to work like a charm. For others – usually people with more sophisticated trading needs – it is a bit of a dud.
Whether you end up opening a trading account with Robinhood or with a different online investing broker, you are invited to join the best signals group in the world – Michael Freeman’s manual signals group on Facebook!