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Due to its no-fee business strategy and clean, user-friendly trading interface, Robinhood has evolved to become a very well-known brand among tech-savvy investors and new traders since it first disrupted the brokerage market.
Fee-free trading used to be the company's primary point of differentiation, but many rivals have already decreased their rates in response.
The website makes it simple for users to trade stocks, ETFs, and cryptocurrencies, but it lacks the comprehensive financial tools, asset classes, and research skills that experienced traders need in a broker.
Although there has been a clear focus on strengthening basic charting skills and boosting access to a growing library of educational content, there is still much to be done before the platform meets standards being established across an increasingly competitive market.
We'll enlighten you more below on Robinhood so you can decide if the service is appropriate for you.
Table of Contents
Robinhood Markets Review: Pros and Cons and All what you Have to know
Introducing Robinhood
Through a smartphone app launched in March 2015, Robinhood Markets, Inc., an American financial services company with its main office in Menlo Park, California, enables commission-free trading of stocks, exchange-traded funds, and crypto currencies.
The U.S. Securities and Exchange Commission has registered Robinhood as a broker-dealer, and it is a part of the Securities Investor Protection Corporation. Interest on cash balances of customers, selling order information to high-frequency traders (a practice for which the SEC started an investigation into the company in September 2020), and margin lending are the three main sources of the company's revenue.
Robinhood had 15.9 million monthly active users as of March 2022, and 22.8 million funded accounts. The brokerage provides cryptocurrency trading, making it a viable option for consumers seeking commission-free trading of assets like bitcoin and Ethereum.
Additionally, Robinhood has introduced a cash card that offers bonuses ranging from 10% to 100% and up to 8% cash back at participating retailers.
Even with these amazing features, some people still question this platform with doubts about their liability and how secured they are due to continuous modification of their platform and some limited features they provide. That is why we will tell you some of the advantages and disadvantages of Robinhood.
Pros and Cons of Robinhood
Pros
- Free transactions in stocks, ETFs, options, and crypto currencies
- allows for fractional shares
- Receive free stock for registering.
- specifically created for active and mobile trading
- Simple investment instruments
Cons
- For all functionality, a monthly subscription is necessary.
- Unpopular order flow practices for payments
- Outages during peak trading times have a history.
- Bonds and mutual funds cannot be traded.
Is Robinhood Markets Safe?
Yes, Robinhood is subject to regulation by the Securities and Exchange Commission (SEC), much like other stockbrokers, and it belongs to the Financial Industry Regulatory Authority (FINRA).
The Securities Investor Protection Corporation (SIPC) also offers protection for Robinhood accounts up to $500,000 for securities and $250,000 for cash.
It's crucial to note that the SIPC protection will not apply to any bitcoin assets a Robinhood client may own. Additionally, the company has a history of service interruptions and depends on PFOF for revenue, which some believe creates a conflict of interest.
Ways to invest with Robinhood
Stocks and funds
For active investors looking to execute commission-free transactions in stocks, options, ETFs, and cryptocurrency, Robinhood is the ideal alternative.
The brokerage does not have a minimum account size restriction for the majority of its investments, but its fractional shares and margin trading products require minimum opening deposits (you also need at least $25,000 for pattern day trading).
Fractional shares are also available through Robinhood. This translates to the ability to buy stock in firms in increments rather than at full price. Only $1 is required to get going.
Additionally, all users have access to more in-depth research of various assets thanks to its sophisticated charts, which were introduced on August 17, 2022.
Additionally, Robinhood's web platform and mobile apps are simple and user-friendly. A share of free stock will also be given to you when you register an account.
Also, everytime you successfully suggest a friend, you'll receive a free stock, and beginning of August 11, 2022, customers will earn 1.5% APY on any cash that isn't invested in their brokerage accounts.
Cryptocurrency
The commission-free policy of this platform also applies to crypto currencies. You may trade a variety of digital currencies, including bitcoin, dogecoin, and ethereum, using the Robinhood Crypto service.
Any cash you've deposited into your brokerage account is available for use in Robinhood Crypto purchases.
Earlier in 2022, Robinhood also released cryptocurrency wallets. Users couldn't send or receive cryptocurrency to external wallet addresses before the debut of its wallet.
However, you can now transfer any cryptocurrency holdings to the wallet of your choice. In addition, Robinhood is developing a web3 DeFi platform and non-custodial crypto wallet.
Users of the software will be able to swap cryptocurrency without paying network costs, store and access NFTs, use DeFi protocols, and connect to DeFi apps. Joining the wait-list is possible here.
IPOs
Additionally, Robinhood recently unveiled IPO access. Robinhood claims it has no minimum balance or special status requirements, unlike other well-known brokerages that demand 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 benefit from the IPO offer price.
The investors who wish to purchase IPO shares of a firm prior to their public listing on an exchange should take advantage of this investment opportunity.
Options
There are no per-contract expenses with Robinhood's commission-free option trading, which is a noteworthy benefit. Many brokers charge less than $1 for each option contract, and some platforms have tiered pricing models where more active traders pay lower costs and less active traders pay greater fees.
However, with Robinhood, you won't pay any such charges. But it's important to note that investing in options is riskier than investing in stocks and ETFs. On its website, Robinhood discloses the risks associated with options.
Additionally, you may now trade options with Robinhood's ordinary cash accounts whereas in the before you had to have a margin account.
Gold Robinhood
You may access NASDAQ market data, Morningstar expert study reports, and margin trading through Robinhood Gold. You can instantly deposit up to $50,000 into the account for a $5 monthly fee. To get started, you'll need at least $2,000
In order to invest in securities or other financial assets that you cannot afford, margin trading essentially involves borrowing money from a brokerage. The margin loan is secured by your investments, and you are responsible for paying back the money you borrowed.
What are the Risks of Trading on Robinhood?
Some of the risks associated with trading on Robinhood might be influenced by how the platform functions and what it can do. For instance, FINRA stated in 2021 that the business did not adequately oversee its technology.
As a result, there were several outages and crucial system failures, including a significant breakdown in March 2020 at the start of the pandemic chaos. Some Robinhood users may have suffered financial losses as a result of this downtime.
The trading limitations that Robinhood imposed on many investors in early 2021 carry a further danger. After a lot of smaller investors united on social media to drive the price of GameStop, AMC, and many other stocks upward, the platform restricted trades of so-called meme stocks.
When National Securities Clearing Corp., its clearing company, issued a significant number of margin calls, Robinhood's response was to impose trading limits on several of these same stocks.
Following these new stock trading limits, lawsuits against Robinhood have mainly been rejected. Investors and potential Robinhood users, however, might not find the possibility of abrupt trading limits appealing.
Finally, even though Robinhood employs a number of data security safeguards, a data breach occurred in November 2021.
The business claims that a fraudster "socially engineered" a customer service representative over the phone in order to gain access to specific customer support systems. Millions of client email addresses and lists were obtained in this process.
Pricing & Account Fees for Robinhood
If you haven't figured it out by now, commission-free trading is Robinhood's main selling point. The majority of accounts have no fees and no trading charges.
Only if you want to use Robinhood Gold or less common services like paper statements or outgoing account transfers will you be charged.
When borrowing more than $1,000 using Robinhood Gold's margin option, you must pay interest at a rate of 2.5% as of the time of this writing. Since it is dangerous, most investors should avoid margin trading.
Contacting Robinhood
Customers of Robinhood have access to email and phone help around-the-clock, but you need to be logged in and follow a few steps on the app or on the website to get to the email form. No live chat help is offered.
Additionally, they do not readily offer a phone number you can call for assistance. Instead, to call customer service, you must log in and press a button.
Therefore, even if 24-hour phone and email support is a nice feature, the additional criteria to use them are a burden.
Some Alternatives to Robinhood
Understanding the Robinhood alternatives that are out there is a part of conducting your study. Or maybe you wish to cancel your Robinhood account and are now searching for a replacement.
A couple of your alternatives are as follows:
- Webull - Provides comparable services to Robinhood with no additional costs or commissions. In contrast to Robinhood, Webull does not provide any credit or debit card services.
- E*TRADE - Has developed programs based on two different trading philosophies. As a result, they might draw in investors with various investing strategies. There is a cost structure for E*TRADE.
- You can access stocks, options, and ETFs with Firstrade. It also supports mutual funds, unlike Robinhood. Although Firstrade does charge non-trading fees, they are very reasonable. Firstrade does not offer debit or credit card services.
Wrapping Up
The platform's architecture makes it obvious that Robinhood is focused on giving increased market access and lowering entry barriers. Users can take advantage of a novel approach to enter the market with a user-friendly, skillfully designed trading experience.
Investors are empowered to begin their trading career without financial obligations because to the absence of fees, charges, or account minimums. Traders can easily trade in equities, ETFs, and crypto currencies while gaining important, albeit somewhat simplistic, market and positional information.
But beyond this, neither professional investors nor individuals looking to carry out anything but the simplest deals should utilize Robinhood. A significant restriction is the absence of assets like fixed income, mutual funds, foreign exchange, or futures trading options. Order types, trading resources, and research facilities are still severely constrained or completely absent.
Overall, Robinhood offers a platform that makes trading simple, but the lack of features and functionality means that many traders won't use the app as their primary broker.
Read more at : https://www.businessinsider.com/personal-finance/robinhood-investing-review