Robinhood is a commission free stock and option trading platform. Like platforms such as TD Amertirade, Fidelity and others, Robinhood allows investors to buy and sell stocks, options, ETFs and cryptocurrencies. Unlike those other platforms, Robinhood's stock, option and other trades are commission free. That's a significant saving for active traders. See the chart below for their current pricing.
Account Creation & Funding
The process for creating a Robinhood stock trading account is inline with similar platforms. To start, visit their website (robinhood.com) and input the required information - name, address, social security number, date of birth, and so on. They also require an initial deposit to open your account. We opened ours with $100.
The account creation and approval process is very fast. I received an email with an account approval immediately after submitting my information. A nice bonus, my deposit was available as well. While some platforms require a waiting period to use your funds, Robinhood allows instant deposits up to $1000. That means immediate access to your money to buy stocks, options, ETFs or cryptocurrency.
For those looking to trade options, you can get access to Robinhood's option trading by applying after creating your account. It's a 5 minute process with 5-6 questions. If you're interested in trading on margin, Robinhood provides a Gold level account. There's a monthly fee of $5 and a 5% APR on any margin levels above $1000. I'll look at converting my account to Gold soon. I'll provide updates as I go through that process.
Robinhood's stock trading dashboard is very basic (see screenshot below). It's understandable given that it's a new company and their primary service is free. With that said, I'll embarrassingly admit that it took us a while to figure out how to buy or sell a stock. I eventually clicked on the search function at the top of the page and wahla!
To test the rest of the features I decided to buy a stock. I used Robinhood's Top 100 feature to see the most popular stocks, which we assume is among Robinhood stock and option traders. I bought 12 shares of Aurora Cannabis (the top of the list) in the after-market. The process was incredibly easy. I've added a screenshot of the completed transaction below.
Robinhood is a brokerage that places trades for its users. There is almost no risk associated with using their platform. The biggest risk is execution time and price availability.
Robinhood makes money in 3 ways:
- Robinhood Gold, its margin trading service, which starts at $5 a month
- Interest from customer cash and stocks, much like a bank collects interest on cash deposits
- Rebates from market makers and trading venues
The last bullet is the most interesting. I'm not saying Robinhood does this, but they may have an incentive to route your trade to the market maker that provides the highest rebate. That may not necessarily be the best price or the fastest trade. If you're concerned about a couple of seconds or a few pennies, you're a more advanced trader than most Robinhood users. For the rest of us, the platform is sufficient to trade stocks and options.
Is Robinhood a good platform for stocks and options?
Robinhood's stock and option trading platform provides the bare minimums needed to trade. For those that have used larger, more sophisticated platforms, Robinhood may be a refreshing experience.
In my very simple opinion, Robinhood is not as intuitive as I'd like, but it certainly provides a level of trading simplicity at a price that is attractive. It's perfect for everyone from beginners to advanced investors. Those that are looking for more research, information and charts, Robinhood is probably not for you. However, you can always use an account on the larger platform to conduct your research and then trade on Robinhood. It depends on how motivated you are to save on commissions.
As with all of our posts, this is not intended to provide any financial advice or solicit investments. This is only our opinion of the platform, services provided and potential risks we see. For more information please see our services page.
Managing your investments is never easy. It's difficult to navigate the options and ensure you’ve invested your money in the best possible places. What to Invest in Today (WIT), is intended to provide clear, straightforward explanations of the platforms I explore. I started investing in stocks after graduating college in the early 2000s. From there, I progressed into bonds, options and, eventually, alternative investments. Along the way, I earned a master’s degree in Economics from Johns Hopkins University and an MBA from UVA's Darden School of Business. This blog is a way to share my experience researching new investments and tracking performance of past investments. Join me and, of course, share your experiences as well. Feel free to connect with me on LinkedIn - www.linkedin.com/in/bcarruth
I was recently approved for an upgrade to options trading on the Robinhood stock and option trading platform. To upgrade your account, click on the link to request the ability to trade options. The platform will walk you through a series of questions to determine your knowledge level and risk tolerance. Your answers will determine if you are upgraded or not. So, if you have a low risk tolerance and/or you don't what you're doing, Robinhood will not approve your upgrade.
If you're sure option trading is for you, then get your upgrade and get started! Simply search for the stock and click "Trade Options" to open the trading window. See screenshot below.
As you can see, the trading window provides options for buying or selling calls or puts. The expiration date is selected from the drop down. In this screenshot, I've created a call spread by buying the $8 strike and selling the $9 strike for the same expiration. I was able to create call spreads, put spreads, calendar spreads, iron condors and more using the platform. It's easy to use and, of course, free to trade. Enjoy!
In response to Robinhood's $0 commission model, most of the major players have followed suit. Through those platforms you'll get access to additional research and enhanced trading software. The value Robinhood provided has been somewhat diminished by these larger firms.