Robinhood Review

It isn’t difficult for investors to earn commission-free trades as part of new-customer promotions, but once that free ride is over, online brokers typically charge $5 to $10 per trade. For frequent traders, that adds up quickly and eats into returns. But trading app Robinhood is attempting to change the game: The company offers 100% commission-free trading of more than 5,000 equities and exchange-traded funds listed on the major U.S. exchanges. Features are fairly limited, but if costs are your No. 1 concern, the service is more than worth a look.

Robinhood

Arielle O’Shea
January 26, 2016
NerdWallet’s rating: 4 / 5

Open a Robinhood Account

Fast facts:

• Commissions: None
• Account minimum: $0

Robinhood is best for:

• Frequent stock or ETF traders
• Mobile users
• Individual taxable accounts

Robinhood at a glance

Overall
Stock trading costs		$0
Account minimum		$0
Account fees (annual, transfer, closing, inactivity)		No annual or inactivity fee; $75 outgoing transfer fee
Trading platform		Purposefully simple. App only; there is no desktop or web version. Available for iPhone, iPad and Apple Watch, as well as Android.
Commission-free ETFs		All U.S.-listed ETFs
Research and data		Real-time market data; no research
Tradable securities		• Stocks • ETFs
Customer support/branches		Phone support during market hours; email support

Where Robinhood shines

Commissions: We’ll resist the urge to say “duh,” but this is obvious: What’s better than completely free? Robinhood’s commitment to providing 100% commission-free stock and ETF trades is admirable. Is it sustainable? We don’t know. The company says it intends to make money by collecting interest on margin accounts — currently in beta — and uninvested cash balances. (Robinhood has also raised $66 million in funding from the likes of Snoop Dogg, Nas and Jared Leto.) The commission savings for investors who trade frequently is significant.

Account minimum: Robinhood doesn’t have one, which means investors can get started right away. Of course, in order to invest, you’ll need enough to purchase at least one share of the stock or ETF you have your eye on. But this is a low bar of entry in a sea of online brokers that often require $1,000 or more to open an account.

Ease of use: If you’re accustomed to using a smartphone or tablet — and Robinhood’s target user base obviously is — you’ll find the sign-up and account funding process quick and painless. It all happens within the app in less than five minutes, with just a few quick questions that gather your personal information, contact details, Social Security number and means of funding your account. The company says approved customers are notified in less than an hour, at which point bank transfers are initiated.

You can link up to three banks and the company uses instant verification with many major banks, sparing users the hassle of reporting micro-deposits to an account to verify information. Bank transfers are completed in three business days and can be set up to happen automatically on a weekly, biweekly, monthly or quarterly schedule. The first $1,000 deposited is available for trading instantly; any initial deposit above that amount will be available in two to three days.

Streamlined interface: This could potentially be a negative, as the service doesn’t offer all the bells and whistles of a typical online broker. But for investors who know what they want, the Robinhood platform is more than enough to quickly execute trades, and the app supports market orders, limit orders, stop limit orders and stop orders.

Where Robinhood falls short

Limited securities: This app is for stock and ETF investors only; you can’t trade options, mutual funds or bonds. That said, it does give investors access to more than 5,000 securities, so it’s not as limited as Loyal3 — another free trading platform — and the company says it hopes to support more investment choices in the future. Robinhood also lacks an automatic dividend reinvestment program, which means dividends are credited to accounts as cash rather than reinvested in the security that issued them.

One account option: Robinhood currently supports only individual taxable accounts, though the company says it has plans to add joint accounts, custodial accounts and IRAs in the future.

Lack of tools and resources: You’ll have to do your trade research elsewhere. The app doesn’t include the support that you’ll find on other trade platforms, such as research reports or analysis software. It’s designed for executing free trades once you know what you want. However, you can create watch lists, and the app offers real-time data and alerts.

No broker transfers: Robinhood currently does not support ACAT transfers, which allow customers to transfer assets already in existing brokerage accounts into the service. The company says this functionality is coming.

The bottom line

Robinhood does what it promises: It allows users to trade a large number of stocks and ETFs for no commission. It’s a stripped-down means of trading that is easy to use and easy to access, with a $0 account minimum and quick sign-up process. The company seems to be actively working to add more features, so it’s certainly a service to watch — and it’s worth considering today if you have your retirement account(s) funded and want to dabble in the stock market without incurring commission charges.

Open a Robinhood Account

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.