Site Loader

Investing is a scary topic for many beginning investors. Luckily, trading platforms, such as Robinhood, have tried to make the process as easy as possible. In doing so, Robinhood has gained significant popularity amongst younger and newer investors. The service definitely does an excellent job of providing an easy and affordable trading platform for investors. However, it still has some drawbacks. With that said, should you use Robinhood for investing?


Pros

No Fees!

When it originally hit the scene, Robinhood’s biggest pro was that it had no commission fees. This was huge, considering that so many competitors charged fees at the time. Today, Robinhood still does not charge fees, but many competitors began to adopt the same policies.

Regardless, allowing individuals to invest for free is always a positive. For the services that still charge, one would pay around $3 to $7 for every trade made.

With Robinhood, this is not the case. With their platform, there are no fees, so all one would have to pay would be the price of the investment. This is especially beneficial for beginning investors, as they do not have a great amount of buying power. This allows them to make every dollar count.

This is not limited to stock trades; there are no fees for trading options, exchange-traded funds (ETFs), and cryptocurrency, which leads to the next point.

Cryptocurrency Trading

For those who are advocates of cryptocurrency, Robinhood might be your brokerage of choice. This brokerage is the only major stock trading platform that provides the option to buy and sell cryptocurrency. Having more investing options is never a bad thing, so this is a pro for Robinhood.

Mobile Device Friendly

Robinhood is a preferable option for mobile devices. Their application is very straightforward, with all features and functions being clearly labeled and explained. This easy-to-use layout can be very appealing to beginning investors, who use their smart devices often.

No Account Minimums

There are no account minimums to open a brokerage account with Robinhood. This means that you would not need hundreds or thousands of dollars to open an account, like with other platforms. One could deposit as little as they want, without worrying about having too small of a balance. This is perfect for first-time investors who do not have huge balances to start.

Free Stock Referral

Robinhood has a promotion, where if you refer a friend, you would both receive a free stock. For example, when I made my Robinhood account off of a referral, I received a free Groupon (GRPN) stock, and my friend received a free stock. It might not seem like a great stock to have, but it is free, which is great to me.

The stock is chosen at random and can be worth as much as $200. To possibly get a $200 value for a referral is a great promotion. This feature is what made me even try the platform in the first place. If you are interested in the platform and want a free stock, here you go.

Robinhood Gold

The platform offers a program called Robinhood Gold, which allows the investor to borrow money to invest. This would allow an individual to double their buying power through borrowed money. You would be charged a monthly flat fee, unlike other brokers that charge daily rates.

This would be for more experienced investors, definitely not beginners.

Research & Education

I had initially written this article a year ago. At that point, I had listed Robinhood’s lack of education and research as a con. However, in the time since, the platform has made tremendous strides to make improvements.

The brokerage formed its own podcast, “Robinhood Snacks.” This allows investors to listen to daily financial news in a quick 15-minute audio clip. Robinhood also improved its news feed within the app. The app now has various articles from sources like the Wall Street Journal and ad-free video content. All of this allows the platform’s users to be more informed when making investment decisions.

Continued Improvements

Robinhood has continuously improved its platform over the past year. The brokerage recently launched its own debit card and interest-bearing checking account for users. It also introduced fractional shares to the platform. This allows users to reinvest dividends and buy partial shares for as little as $1! This completely eliminates the barrier of entry for new investors. These two new features were introduced just in the past year. Going forward, it could be assumed that Robinhood will launch many more beneficial features for investors.


Cons

Limited Investing Options

Robinhood offers cryptocurrency trading, which is unique for a financial services platform. However, it fails to provide other basic investing options. The platform does not support mutual funds, bonds, or foreign exchange trading. This should not be alarming for newer investors, but if you are a more experienced investor, this could be a turnoff.

Read: What is Forex Trading?

Only One Account Type

The investment platform only allows for one brokerage account to be opened. Also, you would not be able to open any form of a retirement account. Most competitors allow you to open an individual retirement account (IRA), a basic retirement investment account, in addition to your brokerage account. For those focusing on creating a retirement account, you may want to look elsewhere.

Read: What is an IRA?

You Never Get the Best Deal

Robinhood profits by squeezing out pennies on every trade that you make, using high-frequency traders or market makers. They will buy from you at a lower price to sell at a higher price to someone else. If you are a short-term trader or a day trader, these small losses can really damage your gains.

In the long-term, however, these penny losses probably will not be a problem. Long-term is my recommendation for investors, especially those who are new to the game.


Final Thoughts on Robinhood

Robinhood might be the best brokerage for beginning investors. The platform has no fees, a free stock promotion, no minimum required balance, and fractional shares. It is evident that the brokerage makes the barrier to entry for new investors as low as possible. This is all in addition to the platform’s unique ability to trade cryptocurrency and its interest-bearing checking account.

With future improvements likely on the way, Robinhood can definitely be a long-term investing platform for even more advanced investors.

Click here if you want to start investing with Robinhood!

Follow me
Latest posts by Anthony Crincoli (see all)

Post Author: Anthony Crincoli

Anthony is the Founder and Lead Content Creator for Common Cents Finance. Away from the platform, Anthony is a CPA Candidate and an auditor for a Big Four public accounting firm. He has a passion for personal finance and looks to promote financial literacy whenever and however he can.

Follow by Email
LinkedIn
Share
Instagram