Robinhood has democratized investing, making it accessible and affordable for people of any age and income. It offers commission-free trading and has pushed many discount brokers to offer free trading as well.
At the same time, a litany of controversies surrounds the Robinhood brand.
Robinhood has contributed to a culture that has “gamified” securities trading into something similar to a casino. Robinhood makes investing so easy that some people end up trading beyond their knowledge and financial means.
In this post, I’ll explain who should and shouldn’t use Robinhood. I’ll also explain what types of trades and investing work well with Robinhood and what’s better left to other platforms.
Table of Contents
- Quick Look
- Who Should Use Robinhood?
- Where Robinhood Shines
- Where Robinhood Falls Short
- Recent Changes: IRAs, Phone Support, Stock Screeners
- Robinhood’s History of Controversies
- FAQs About Robinhood
Robinhood Review: Quick Look
|Company Type||Self-directed investment platform|
|Key Features||Frictionless investing (free trades, fractional shares, near-instant access)|
|Downsides||Poor trading platform, limited customer service, ease of trading can be problematic|
|Best For||New investors who want to “learn by doing” at low stakes, buy-and-hold investors who like monitoring their portfolios|
Who Should Use Robinhood?
Robinhood is a self-directed investment platform that opened in 2012. You’re eligible to use Robinhood if you:
- Are at least 18 years old
- Have a valid Social Security number
- Have a legal U.S. residential address
- Are a U.S. citizen, permanent resident or have a valid U.S. Visa
I’ve used Robinhood for years. It’s my go-to investment platform, and I also have a spending account with Robinhood (formerly a cash management account).
However, as I’ll explain in this Robinhood review, many people shouldn’t use the platform.
It’s great for introducing people to the concept of investing in the stock market and, hopefully, to get them thinking about long-term financial goals.
Robinhood lets you buy fractional shares and small quantities without jumping through many hoops. A low barrier to entry and an extremely streamlined user experience help inexperienced investors educate themselves.
It’s also a good platform for long-term, buy-and-hold investors who want as little hassle as possible but are interested in checking their investments frequently. But they need to have the discipline to resist the temptation to sell.
Robinhood Review: Where It Shines
Robinhood has served an important role in making the stock market accessible to everyone and encouraging a younger generation to consider investing. If you read a Robinhood review that doesn’t mention that fact, it’s probably incomplete.
“I’m so glad Robinhood exists, because they changed stock trading in the United States by offering zero-dollar trades,” money expert Clark Howard says. “They made trading affordable for people of any age and any income. Robinhood eventually forced discount brokers to go from discount to free.”
- Zero-commission trades. This used to be a big differentiator. Many other brokerages offer free trades now. But Robinhood deserves credit for pushing the industry into a new era in that regard.
- Accessible for everyone. In addition to zero-commission trades, Robinhood requires no minimum deposit and offers fractional shares, making it easy to invest even in the most expensive stocks without much capital. Also, there are no minimums for investing in cryptocurrency, unlike most other platforms.
- The “easy button” for investing. Opening an account takes minutes. It’s possible to go from downloading the app to trading on the Robinhood platform in less than one hour. Deposits of less than $1,000 are instantly available to use. The charts and information are simple to understand, and it’s easy to make trades. It even syncs with TurboTax to help you do your taxes.
- Intuitive app. Robinhood’s app is the easiest way to “watch” the stock market that I’ve ever seen. It’s intuitive and streamlined, creating a great user experience if you want to monitor stock prices and the performance of your portfolio. It’s also easy to execute simple trades.
- High-yield savings. Robinhood’s spending account currently pays 1.5% variable APY and automatically sweeps uninvested cash into savings. That number rises to 4.4% APY for Robinhood Gold customers. Robinhood insures your money up to $1.5 million ($2 million as of June 1, 2023) and offers access to more than 75,000 ATMs.
- Free stock for everyone. Robinhood gives one free stock to new members and says there’s a 1% chance that the stock it credits you will be valued between $50 and $200. You can also get free stock by referring new members.
Robinhood Review: Where It Falls Short
The simplicity of the entire Robinhood experience is a double-edged sword.
I’ve never experienced such an easy-to-use investment platform. Robinhood has made a clear judgment to prioritize ease of use over almost everything else.
If the goal is to attract otherwise-uninterested people to learn more about investing and long-term financial planning, that’s helpful. But several problems arise from its “simple over everything” ethos.
“You’ve got inexperienced people without a lot of capital that are engaging in trading activity that can be dangerous to their financial well-being,” Clark said. “You have people who are trading like it’s gambling. To them, it’s like they’re in a giant electronic casino rather than investing in stocks as a long-term financial security.”
- Poor trading platform. The stock quotes on Robinhood’s app and website seem to be delayed. The spreads between buy and sell orders for cryptocurrency often are larger than on other platforms. Robinhood’s payment for order flow practices can prevent you from getting the best prices on trades. You can’t place certain types of trades such as conditional orders. Its options trading function is clunky.
- Lacks basic investment features. Robinhood does not offer access to mutual funds, 401(k) accounts, shorting stocks, futures trading or joint accounts.
- Meager research capabilities. Fidelity Investments, Charles Schwab and TD Ameritrade all offer superior research and educational tools. For example, Robinhood’s watch lists and candlestick charts, which are basic monitoring and research tools for investors, are less customizable and offer less information than other online investment platforms. As most Robinhood reviews point out, it lacks research filters and trading analysis tools.
- Attracts uninformed investors. Robinhood offers the lowest barrier to entry. There are no account minimums and $0 trades. It makes smaller deposits available for immediate trading, and again, its app is extremely easy to use. All these features can serve as a beacon for those who want to eschew research and education and jump quickly into the deep end of the investing pool.
- Encourages more frequent trading. Its app is one of the most intuitive I’ve ever used. The clean, shareable charts of your portfolio performance make it tempting to check the app multiple times per day. It even displays confetti animation when you complete a trade. This can tempt some people into trading more frequently — just for the sake of action.
Recent Changes: IRAs, Phone Support, Stock Screeners
Don’t look now, but Robinhood is starting to grow up. The investment platform has added a steady drip of new features that has it closing the gap with the more established, full-service discount brokers.
That gap remains considerable in certain areas. But Robinhood continues to move at a fast pace.
IRAs Now Available Through Robinhood
Robinhood recently announced that they now offer IRAs.
In conjunction with the launch of IRAs, the company offered a now-expired promotion for a 1% match for contributions from a linked bank account, provided you keep the money in your account for at least five years. This was a nice temporary perk to encourage users to open IRAs.
Robinhood detractors can argue that it’s a poor platform to hold a retirement account, as its gamified design seems to inspire active trading, and the best retirement strategy is to create a long-term plan and stick to it. However, considering the average user age in the early 30s, it’s possible this feature will encourage people to open and contribute to an IRA who have never done so before.
Increased Customer Support
I’ve been critical of Robinhood in the past for offering email-only customer support. Those days are over. Robinhood now offers live support via phone or chat 24/7.
The procedure for starting a phone call is a little wonky.
You have to navigate through the app or the website, fill out information about your question and then request a call. You’ll then get a notification when you’re next in line as well as the number from which Robinhood will call you.
But at least you avoid waiting on hold forever, listening to music you’d rather not.
Robinhood has never been the best investment company for buy-and-hold investors that meticulously research a company’s fundamentals in the vein of Warren Buffet.
Nor has it been great for short-term or swing traders focused on volume, implied volatility and other numbers.
Fidelity, Schwab and others still have a huge lead in terms of stock research. But Robinhood is closing the gap significantly with competitor Webull.
No More Cash Management Account
Robinhood closed its cash management accounts in May 2023. It is still offering interest on uninvested cash held in your brokerage account.
Previously, you could stash all your cash in your cash management account, earn interest, invest and spend money through your debit card. Now the Robinhood equivalent of a checking account is separate from your brokerage account.
If you want to earn interest, you must do it via your uninvested cash in your brokerage account.
Robinhood’s History of Controversies
1. Access to Options Trading and the Alexander Kearns Suicide
Alexander Kearns, a 20-year-old college student from Naperville, Illinois, committed suicide on June 12, 2020, after his Robinhood account showed a negative cash balance of $730,165.
Kearns had been trading options on Robinhood. His suicide note reportedly expressed disbelief that the platform had allowed him “to get assigned almost a million dollars’ worth of leverage.”
News reports after Kearns’ death indicated he had not actually built up nearly $750,000 in debt. But it drew attention to how easy the Robinhood platform made it for new investors to make risky, complicated trades.
Robinhood users can access options trades by doing just three things:
- Signing up for a gold membership ($5 per month after a free 30-day trial)
- Depositing at least $2,000 in their brokerage account
- Answering a few questions on the Robinhood app about their trading experience
The last two requirements are enough to meet federal regulations. But other brokerage firms provide more substantial caution flags, including the offer of a phone consultation to explain the risks of options trading, a service Robinhood does not provide.
The New York Times was one of several publications to hammer Robinhood as a result, writing an editorial titled “A Suicide, an App and a Time for a Reckoning.”
2. Controversial Order Flow Practices
When you buy stock, there must be a seller to complete the trade.
Unless you specify your bid price for a stock, a matchmaker of sorts — known as a market maker —will help execute your trade.
For popular stocks, the difference — or spread — between buyers’ bid prices and sellers’ asking prices tends to be small. But for more volatile stocks with less trading volume, the spread can be larger.
Handling those orders gives market makers insight into how much demand there is for specific stocks and gives them a chance to shape the prices.
Brokers like Robinhood take orders from their users and sell them to third-party market makers to execute trades. It’s called payment for order flow (PFOF), a controversial but common practice. Market makers, also known as speed traders, can use the order flow data and the spread to make their own profits.
PFOF is Robinhood’s biggest source of revenue. The company tends to command higher payment rates for its order flows than most other platforms. In 2019, Robinhood got fined $1.25 million for failing to secure the best possible prices for its customers.
If you trade on Robinhood, you may not get the best possible price. Also, Robinhood isn’t a good platform for trades with shorter time frames.
3. Outages During High-Volume Days
Technical and performance issues have plagued Robinhood’s trading platform, especially on volatile, high-volume days.
According to DownDetector, Robinhood experienced outages every month in 2020.
That included 21 outages in March 2020. An outage on March 2 lasted for nearly 17 hours. The S&P 500 rocketed up nearly 116 points that day — or 3.9%. As stocks surged higher in the wake of the coronavirus crash, Robinhood traders did not have access to their platform.
4. The “Robinhood Rally” and the Gamification of Investing
Robinhood’s frictionless trading and game-like app (including that confetti animation when you execute a trade) have helped attract a certain type of investor.
In fact, Robinhood added more than 3 million new users to its platform in just the first five months of 2020.
Critics say Robinhood is the stock market equivalent of a casino, where the uninformed and inexperienced flock to certain stocks based on tips from online influencers and news headlines.
The Reddit forum r/wallstreetbets exploded in popularity in the late 2010s, signaling the development of a new investing culture among young people.
The forum is full of people posting screenshots of their Robinhood returns, often bragging about making large, risky bets on options trades or cryptocurrency. Posters often seem equally impressed by big wins and big losses, which tend to spawn clever memes and inside jokes, creating a cycle of engagement around Robinhood-themed content.
The slow, state-by-state legalization of sports betting combined with a COVID-19-induced shutdown of sports seemed to create a cultural tipping point. Barstool Sports’ Dave Portnoy, a leading digital influencer, started day trading in front of tens of thousands of young followers, creating “an army of day traders,” according to Bloomberg. Many of those traders were new Robinhood users.
Retail trading, and specifically Robinhood users, helped drive Kodak to a 2,189% two-day rally, leading to the term “Robinhood Rally.”
5. Robinhood’s Involvement in the 2021 GameStop Saga
In January 2021, Reddit users from the Wall Street Bets group loosely organized and created chaos in the stock market when they started buying up shares of the moribund video game retailer GameStop.
The price of GameStop’s stock jumped quickly, catching off guard the traders who expected the stock to fall. That forced them to buy more stock to prevent massive losses, causing what’s called a short squeeze.
Institutional investors with hundreds of millions of dollars were betting on GameStop to go out of business, essentially. Yet the stock price soared nearly 3,000% in January!
This historic event eventually led Robinhood to suspend trading on GameStop, causing a national uproar. Questions arose about whether the fintech investment platform was colluding with hedge funds.
Because Robinhood accepts PFOF, it gets a bulk of its revenue from the hedge fund world. Some felt that Robinhood was doing this to protect the rich hedge fund companies at the expense of the retail investors — the opposite of the company’s marketing theme (including the very name of the company).
When margin accounts are involved (Robinhood’s default account type), such high volatility can be dangerous even for enormous investment firms. Regulators stepped in and required companies like Robinhood to set aside hundreds of millions of dollars with the National Securities Clearing Corporation.
Other popular trading platforms like Charles Schwab, TD Ameritrade, Interactive Brokers and Webull also restricted trading for GameStop for various periods of time.
Robinhood’s CEO was called to testify before Congress about the matter, and several publications reported that, as of February 2021, federal investigations were underway into the GameStop incident.
Frequently Asked Questions About Robinhood
Who Are Robinhood’s Competitors?
Few well-known companies are apples-to-apples competitors to Robinhood. Webull is probably the largest name that offers a similar product. However, you can access many of the same services through most of the traditional discount brokers, some of which are now free (see next question). They tend to offer superior research, customer service, access to more products and better trading platforms.
Do Any of Robinhood’s Competitors Offer $0 Trades?
Yes. Charles Schwab and Fidelity Investments offer $0 stock trades. TD Ameritrade, TradeStation and E*TRADE also are among the brokers that now offer free trades.
Is Robinhood Completely Free?
Yes, at a certain level of access. Robinhood does not charge a penny for stock, options and cryptocurrency trades. However, Robinhood Gold costs $5 per month after a 30-day trial, and you have to have Robinhood Gold to get access to common investing research tools such as Level II market data and Morningstar reports. And without Robinhood Gold, you can’t trade on margin.
Robinhood also accepts payment for order flow (PFOF), so it does make money off of your trades. There are also fees for some services, such as a $75 charge if you want to transfer your portfolio from Robinhood to another brokerage.
How Do I Contact Robinhood Customer Support?
Robinhood now offers phone support and live chat every day, 24 hours a day. That’s a huge upgrade considering the average age (and, in theory, experience level) of the traders on its platform. Robinhood’s customer support requires you to be signed into your account in the app or on the website. The company offers some level of support through its social media accounts and via email.
Can I Trade Immediately After I Open My Robinhood Account?
Robinhood says it notifies you in less than one hour if your application is approved, at which time you can initiate a bank transfer. Because Robinhood uses instant verification with several major banks, transfers of up to $1,000 are instantly available for investing. The same goes for proceeds of up to $1,000 from selling stocks. Deposits of more than $1,000 take about four or five days to process.
Can I Day Trade Stocks on Robinhood?
Yes, but it’s not a good idea.
Clark recommends against day trading. Knowledgeable stock market veterans can lose large sums of money in minutes. Even if you do well, short-term capital gains taxes eat away at your profits. Plus you’re required to have at least $25,000 in your account if you make more than three day trades in a rolling five-day period.
Robinhood is also a poor high-volume, real-time trading platform because it lacks the customizable charts and data of other brokerages’ sites. And as I’ve mentioned, Robinhood’s quotes are delayed, sometimes significantly so.
|• $0 trades||• Poor trading platform|
|• Frictionless and accessible investing||• Limited research capabilities|
|• High-yield savings||• Too easy for inexperienced people to place risky trades|
Robinhood is so easy to use. It has helped create a powerful subculture.
The combination of those things can tempt those without much market experience to execute riskier trades than they should, to assume they can beat the market or to expect outsized returns.
The entire Robinhood experience is so streamlined that it can tempt even “buy and hold” investors to be more active.
If you’re more interested in learning about investing by playing around with a little capital rather than by reading theory, it’s a fine introduction — as long as you keep the amounts small. Robinhood is also good if you’re a long-term investor who just wants minimal friction and you enjoy monitoring your finances.
On the other hand, if you’ve got an addictive personality or if you’re looking to be an active trader who does hours of research and needs to fight for every penny on purchase and sell prices, Robinhood is not for you.