Robinhood's claim to fame is that they do not charge commissions for stock, options, or cryptocurrency trading. Due to industry-wide changes, however, they're no longer the only free game in town. The firm’s target customer base is young people new to investing, who are drawn to the app by advertising that leans heavily on words such as "free" and "democratization." By and large, this tactic has succeeded, drawing in 10 million accounts held by an unknown number of customers. But what happens to them when they outgrow Robinhood's meager research capabilities or get frustrated by outages during market surges?

Important During the sharp market decline, heightened volatility, and trading activity surges that took place in late February and early March 2020, Robinhood experienced extensive outages that affected its users' ability to access the platform at all, leading to a number of lawsuits. There were also several outages at the end of August 2020. However, Robinhood's customer agreement, a multi-page document most customers electronically sign without reading, is intended to legally absolve the firm of any responsibility for these outages.

We'll look at Robinhood and how it stacks up to more established rivals now that its edge in price has all but evaporated.

Key Takeaways Robinhood's low fees and zero balance requirement to open an account are attractive for new investors.

Customers must pay at least $5 per month for Robinhood Gold in order to trade on margin, view market depth data, and access research, such as Morningstar reports on high-volume stocks. Robinhood customers can try the Gold service out for 30 days for free.

Robinhood does not publish their trading statistics the way all other brokers do, so it's hard to compare their payment for order flow statistics to anyone else. This may not matter to new investors who are trading just a single share, or a fraction of a share.

Who Robinhood Is For

Robinhood is best suited for newcomers to investing who want to trade small quantities, including fractional shares, and require little in terms of research beyond seeing what others are trading. Robinhood's overall simplicity makes the app and website very easy to use, and charging zero commissions appeals to extremely cost-conscious investors who trade small quantities. That said, the offerings are very light on research and analysis, and there are serious questions about the quality of the trade executions.

Pros Trading costs are very low and cryptocurrency trades can be placed in small quantities

Very simple and easy to use

Customers have instant access to deposited cash Cons Trades appear to be routed to generate payment for order flow, not best price

Quotes do not stream, and are a bit delayed

There is very little research or resources available

Pros Explained

Robinhood allows cryptocurrency trades to be placed in very small quantities. Most other cryptocurrency-friendly platforms require certain minimums in order to trade.

Robinhood's mobile app and the website are extremely easy to use.

Robinhood is very efficient at getting your cash into the market. All customers have instant access to deposits and immediate access to funds after closing positions, and your buying power is increased as soon as you initiate a deposit into your account.

Cons Explained

There is no commission charged by Robinhood for trades, but the spread we saw for our cryptocurrency transactions was considerably wider than those we saw on other platforms.

Though prices update on the Robinhood app and the website, they lag other real-time data providers by several seconds.

New investors who are dedicated to improving their trading skills will outgrow the resources provided by Robinhood, especially options traders.

Usability

3.1

Robinhood is very easy to navigate and use, but this is related to its overall simplicity. Robinhood's initial offering was a mobile app, followed by a website launch in Nov. 2017. As a result, Robinhood's app and the website are similar in look and feel, which makes it easy to invest through either interface. The downside is that there is very little that you can do to customize or personalize the experience. Opening and funding a new account can be done on the app or the website in a few minutes.

The opening screen when you log in is a line chart that shows your portfolio value, but it lacks descriptions on either the X- or Y-axis. You can hover your mouse over the chart, or tap a spot if you're on your mobile device, to see the time of day for each data point.

An order ticket pops open whenever you are looking at a particular stock, option, or crypto coin. All the asset classes available for your account can be traded on the mobile app as well as the website, and watchlists are identical across platforms. Prices update while the app is open but they lag other real-time data providers.

The mobile apps and website suffered serious outages during market surges of late February and early March 2020. The founders said in a blog post that their systems could not handle the stress of the "unprecedented load" and pledged to beef up their systems.﻿﻿

Robinhood website login.

Trade Experience

0.9

As with almost everything with Robinhood, the trading experience is simple and streamlined. Robinhood deals with a subsection of equities rather than the entirety of the market, but on every quote screen for the stocks and ETFs you can trade on Robinhood, there is a straightforward trade ticket. All the asset classes available for your account can be traded on the mobile app as well as the website, and watchlists are identical across the platforms.

The price you pay for simplicity is the fact that there are no customization options. If you want to enter a limit order, you'll have to override the market order default in the trade ticket. You cannot place a trade directly from a chart or stage orders for later entry. Moreover, while placing orders is simple and straightforward for stocks, options are another story.

Placing options trades is clunky, complicated, and counterintuitive. Although Robinhood allows options trading, the platform seems geared entirely towards making market orders for assets rather than actually attempting to strategically use options to profit. This perception is reinforced by the fact that pricing refreshes every few seconds, but the actual pricing data lagged behind two other platforms we opened simultaneously by 3–10 seconds. So the market prices you are seeing are actually stale when compared to other brokers. This will not faze anyone looking to buy and hold a stock, but this data lag kills any idea of using Robinhood as a trading platform.

Robinhood order entry.

Range of Offerings

1.5

Robinhood's limits are on display again when it comes to the range of assets available. Robinhood allows you to trade cryptocurrencies in the same account that you use for equities and options, which is unique, but it's missing quite a few asset classes, such as fixed income. Investors using Robinhood can invest in the following:

Stocks: Long only. No short selling. No OTCBB (penny stocks).

Simple and multi-leg options.

Cryptocurrency: Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Dogecoin (DOGE), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC). Data is additionally available for ten other coins.

No mutual funds, fixed income, futures, or futures options.

Fractional share trading in nearly 7,000 stocks and ETFs.

Order Types

2.1

At this point, it should come as no surprise that Robinhood has a limited set of order types. You can enter market or limit orders for all available assets. You cannot enter conditional orders. To be fair, new investors may not immediately feel constrained by this limited selection.

Trading Technology

0

Robinhood does not publish its trading statistics the way all other brokers do, so it's hard to compare its payment for order flow statistics to anyone else. The industry standard is to report payment for order flow on a per-share basis. Robinhood reports on a per-dollar basis instead, claiming that it more accurately represents the arrangements it has made with market makers. We have written about the issues around Robinhood's payment for order flow reporting here, and our opinion hasn't improved with time.

The way a broker routes your order determines whether you are likely to receive the best possible price at the time your trade is placed. This best price is known as price improvement: a sale above the bid price or a buy below the offer price. Robinhood does not disclose its price improvement statistics, which leads us to make negative assumptions about its order routing practices. The target customer is trading in very small quantities, so price improvement may not be a huge consideration. However, other brokers who also charge $0 for equity trades are offering their customers impressive price improvement, so Robinhood needs to get serious about execution quality in order to stay competitive.

Costs

4

Robinhood's trading fees are easy to describe: free. There are some other fees unrelated to trading that are listed below.

All equity trades (stocks and ETFs) are commission-free.

Options trade for $0—no per-leg fee and no per-contract fee.

Trading on margin requires a Robinhood Gold subscription at $5 per month, which includes $1,000 of margin. Margin usage over $1,000 is charged 5% interest, which is relatively low.

Account transfer fee is $75.

Exercise and assignment fee is $0.

Wire fees to send or receive: $25 for domestic wires, $50 for international. It is unusual to be charged to receive a wire.

Check fees: $35 to send a domestic check overnight.

Live broker fee is $10 per transaction, though it's not obvious how to contact a broker.

How This Broker Makes Money From You and for You

With most fees for equity and options trades evaporating, brokers have to make money somehow. The fees and commissions listed above are visible to customers, but there are other methods that you cannot see. Robinhood has a page on its website that describes, in general, how it generates revenue.﻿﻿

Interest on cash : Like most brokers, Robinhood generates interest income from the difference between what you are paid on your idle cash and what they can earn on customer cash balances. Robinhood clients, once they make it off the waitlist and design their own Mastercard debit card, can earn modest interest on their uninvested cash, which is swept to its network of FDIC-insured banks. On several pages of the website, the cash feature is labeled "Coming Soon." ﻿ ﻿

: Like most brokers, Robinhood generates interest income from the difference between what you are paid on your idle cash and what they can earn on customer cash balances. Robinhood clients, once they make it off the waitlist and design their own Mastercard debit card, can earn modest interest on their uninvested cash, which is swept to its network of FDIC-insured banks. On several pages of the website, the cash feature is labeled "Coming Soon." ﻿ Payment for order flow : Quite a few brokers generate income by accepting payment from market makers for directing their customer's equity and options orders to those trading venues. This is called payment for order flow (PFOF). We discussed Robinhood's lack of transparency around PFOF above, but it is worth repeating that this appears to be a major revenue stream for the broker.

: Quite a few brokers generate income by accepting payment from market makers for directing their customer's equity and options orders to those trading venues. This is called payment for order flow (PFOF). We discussed Robinhood's lack of transparency around PFOF above, but it is worth repeating that this appears to be a major revenue stream for the broker. Stock loan programs : Stock loan programs generate revenue for brokers when the stock held in your account is loaned to another trader or hedge fund, usually for the purposes of selling that stock short. Robinhood retains all the income it generates from loaning out customer stock and does not share it with the client.

: Stock loan programs generate revenue for brokers when the stock held in your account is loaned to another trader or hedge fund, usually for the purposes of selling that stock short. Robinhood retains all the income it generates from loaning out customer stock and does not share it with the client. Margin interest : Robinhood's margin interest rates are lower than average, though using margin requires paying $5/month for their Gold program whether you are using margin or not.

: Robinhood's margin interest rates are lower than average, though using margin requires paying $5/month for their Gold program whether you are using margin or not. Portfolio Margining: Portfolio margining, which can lower the amount of margin you may need, is not offered by Robinhood.

Account Amenities

2.2

Robinhood does not offer portfolio margining.

Robinhood does not have a stock loan program.

Robinhood clients can earn interest on their uninvested cash, which is swept to its network of FDIC-insured banks.

Cash sweeps are automatic once a client is enrolled in the program.

Clients can enroll in dividend reinvestment programs once they have fractional shares enabled for their account.

Research Amenities

0.5

Robinhood's research offerings are, you guessed it, limited. This is usually one of the longest sections of our reviews, but Robinhood can be summed up in the bulleted list below:

There are no screeners for stocks, ETFs, or options.

There are no investing-related tools or calculators.

The trading idea generators are limited to stock groupings by sector. Once you click on a group, you can add a filter such as price range or market cap.

News is available from The Wall Street Journal, Reuters, and Barron's in addition to videos from CNN Business, Cheddar, and Reuters.

Third-party research from Morningstar can be accessed by Robinhood Gold clients ($5/month subscription).

The charting is extremely rudimentary and cannot be customized.

Portfolio Analysis

1.8

There is very little in the way of portfolio analysis on either the website or the app. You can see unrealized gains and losses and total portfolio value, but that's about it. The start screen shows a one-day graph of your portfolio value; you can click or tap a different time period at the bottom of the graph and mouse over it to see specific dates and values. There is no asset allocation analysis, internal rate of return, or way to estimate the tax impact of a planned trade. There is no trading journal.

To perform any kind of portfolio analysis, you'll have to import your transactions into another program or website.

Education

1.8

Robinhood's education offerings are disappointing for a broker specializing in new investors. There's a "Learn" page that has a list of articles, displayed in chronological order from most recent to oldest, but it is not organized by topic. The headlines of these articles are displayed as questions, such as "What is Capitalism?" or "What is Inventory?"﻿﻿ There are no videos or webinars available, but the daily Robinhood Snacks three-minute podcast gives some market information. A page devoted to explaining market volatility was appropriately added in April 2020.

Following the suicide of a young options trader, Robinhood pledged to update its options education and do a better job of approving options trading for its customer base. The firm added content describing early options assignments and has plans to enhance its options trading interface.

Robinhood learn page.

Customer Service

0.3

All customer service is done via the app or the website.

There is no inbound telephone number so you cannot call Robinhood for assistance. If you work your way through an extensive menu designed to narrow down your support issue, you can enter your own phone number for a callback.

You can place a trade through a live broker for $10, but they are not there to offer help otherwise.

Security

3.5

Robinhood's technical security is up to standards, but it is missing a key piece of insurance.

Mobile app users can log in with biometric (face or fingerprint) recognition or a custom pin.

Robinhood encourages users to enable two-factor authentication.

New logins from unrecognized devices also need to be verified with a six digit code that is sent via text message or email in case two-factor authentication is not enabled.

Robinhood carries no excess Securities Investor Protection Corporation (SIPC) insurance.

Through calendar 2019, there were no significant data breaches reported by the Identity Theft Research Center. ﻿ ﻿

Our Verdict

If you're brand new to investing and have a small balance to start with, Robinhood could be the place to help you get used to the idea of trading. The extremely simple app and website are not at all intimidating and provide a smooth on-ramp to the investing experience, especially for those exploring stocks and ETFs. While it's true that you pay no commissions at Robinhood, its order routing practices are opaque and potentially troubling. Robinhood also has a habit of announcing new products and services every few months, but getting them into production and available to all clients takes a long, long time.

If you're a trader or an active investor who uses charts, screeners, and analyst research, you're better off signing up for a broker that has those amenities. Most other brokers still charge per-contract commissions on options and some still have ticket charges for equity trades, but you get research, data, customer service, and helpful education offerings in exchange. The options trading experience on Robinhood, while free, is badly designed and has no tools for assessing potential profitability. Even if you are a new investor only interested in buying and holding stocks, there are many zero-fee brokers to choose from now. They may not all have the flashy marketing that backs up Robinhood, but they have a lot more meat to their platform and much more transparent business models.