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Robinhood Review 2021: The App, Fees, Gold & Margin
Robinhood has made it easier than ever to start investing. With zero fees and an easy-to-use app, there is little stopping you from learning how to invest and growing wealth.
Founded in 2013 and doubling its number of users from 6 million in 2018 to 13 million just 2 years later, Robinhood has become an extremely popular online brokerage. While there are many other excellent brokerages, Robinhood is different.
It was 2019 when I started thinking about growing wealth. Maybe my 30th birthday had something to do with that? I have always saved money religiously every month, even in multiple accounts. But most of that money was sitting idle in a money-market account.
While I thought a money-market account was a dramatic improvement over a regular savings account, I felt like it could still do better. I mean, at best, a money-market account barely beats inflation. But more often than not, it even fails to do that.
I started reading guides on investing in stock and mutual funds. Some guides mentioned that you could expect an annual 10% return on mutual funds. At the time, I found it hard to believe as that was more than 5 times my money-market yield. But unless I would try, how would I ever truly find out?
So I was determined to find a way to invest $1,000. I started comparing brokerage options, and Robinhood was a clear winner for me. Here’s why:
Easy to use – at first glance, Robinhood appeared to be new and innovative. It showed the information I was looking for, and the overall look was appealing.
No fees – it’s hard to beat no fees, especially for new investors that are really wanting to learn. In the first month, I probably made over 200 trades. If I had to pay a fee each time, even of $1, I would have lost 20% of my total investment just on fees.
Top-rated app – Yes, app reviews go a long way for me. Especially when it comes to something important like money.
How to start investing with Robinhood
While I was first reading about investing in the stock market, one name kept arising: Robinhood. It was supposedly free and easy to use, so it seemed like a perfect fit for a newbie like me.
To start investing with Robinhood, you need the following:
A bank account – this will link to Robinhood to deposit and withdraw money.
A driver’s license – this is required to validate your identity as required by the IRS.
An email address – this will be used for your login.
Additionally, Robinhood has the following requirements:
Must be 18 years or older.
You must have a valid social security number (not a TIN).
Have a legal U.S. address.
Be a U.S. citizen, U.S. permanent resident, or have a valid U.S. visa.
Accessing Robinhood
You can either use the Robinhood app or the website, whichever you prefer. I personally use both, although I find myself using the app 90% of the time. I find it very easy to use, intuitive, and straightforward.
Once your account is created, approved, and funded, you’re ready to start investing.
Claim your free referral share
If you use a referral code to sign up, both you and the referrer will receive a free share of a random company! Keep this in mind before you sign up, as you can’t claim it once your account is created.
If you don’t have a referral code, please use our referral link to get a chance at free Apple, Visa, Microsoft, and other smaller company shares.
What is Robinhood Gold?
When you start using Robinhood, one thing you’ll be introduced to is Robinhood gold. Robinhood Gold costs $5/month, and it is entirely optional. I have personally used it, but I’m not using it anymore as I currently do not need it.
Here’s what you get when you get with the $5/month Robinhood Gold subscription:
A higher limit of instant deposits – When you deposit money into your Robinhood account, you’ll get access to $1,000 of instant deposits. This means that even while the money takes a few days to transfer to Robinhood, it will be instantly available. With Robinhood Gold, that limit is lifted to $5,000.
More in-depth information about certain stocks – While this extra information is nice, I personally prefer researching the company myself. This includes looking at a 5-year performance, what the company does, relevant companies, earnings, and so forth.
Access to margin – Margin, in simple terms, is a loan that you can use to invest. This is risky, though, as a positive return is never guaranteed. So be careful and do your research before you decide to do this.
Is Robinhood Gold worth it?
That depends. Sure, the $5 fee is minimal if you’re investing $10,000, $50,000, or more. But when you’re just starting with a few hundred dollars, $60/year can be substantial.
Get Robinhood gold if:
You want access to margin.
You want a higher instant-deposit limit.
You want additional research on companies (though I find the information very limited).
Don’t get Robinhood gold if:
You’re investing a small amount of money.
You plan to buy and forget (if you buy 10 shares of company X and plan on holding them for the next 5-10 years or longer, paying $5/month for Robinhood Gold is pointless).
What is Robinhood Margin?
Investopedia does a wonderful job at explaining margin in depth. In a nutshell, margin works like a loan. The brokerage lends you money, which you in turn use to invest with. Like any loan, though, you owe the money back with interest.
Since you will be using this money to invest in shares, those shares will act as collateral. So it’s actually quite easy to get access to margin. But, that doesn’t mean that you should use margin by any means. Investing involves risk, and investing with money that isn’t yours is even riskier!
Robinhood margin interest rates
Robinhood margin is only available if you have Robinhood Gold, the $5 monthly subscription. This $5 subscription includes access to $1,000 of margin, interest-free. If you want more margin than that, you’ll have to pay interest.
Just recently, on December 21st of 2020, Robinhood actually cut their margin interest rates in half, from 5% to 2.5%. These are very competitive rates that you aren’t likely to find elsewhere. For example, Fidelity’s margin interest rates start at 8.3% for accounts $24,999 or less and gradually reduce to 4% for accounts $1M+.
The Robinhood app: simple and straightforward
As a self-employed designer, I pay special attention to user experience and user interface. I must say that the Robinhood app is very well thought out and easy to use. Even for an investing newbie like I was, I understood everything clearly with one exception: option trading.
Options trading is something I personally have stayed far away from, as it includes contracts that force you to buy or sell stock at a certain price. I highly recommend learning about options trading before you commit to an order.
But aside from options trading, the app works great. I have maybe had one or two hiccups in the year I’ve used Robinhood, but then again, most software has an occasional server issue.
Robinhood made it extremely easy to buy and sell shares. Dividends are automatically reinvested, and year-end statements are easily available for download.
All-in-all, I rate the app an easy 5 stars.
Buying shares on the Robinhood
Buying shares is very easy and straightforward. If you know what company, ETF or Index fund you want to invest in, great! Just type in the name and you’ll be looking at the listing. Here you can buy shares at the current price, or you can use a conditional order.
Conditional orders allow you to buy shares when it reaches a certain price, like with a limit order.
For example: Tesla is currently trading at $695.17 per share. You’d like to invest $1,000 in Tesla, but not at the current price. In this case, you could place a limit order for $600. If Tesla falls to $600, you’ll buy $1,000 worth of shares automatically. Keep in mind that this will place a hold on your $1,000 in the meanwhile. Meaning, you won’t be able to withdraw the $1,000 or invest it.
Selling shares on the Robinhood
Selling stock is as easy as buying. You can either put in a sell order that goes into effect straight away, or you can choose other options, like a stop-loss order.
A stop-loss order is great to minimize your potential loss.
For example: Let’s say you want to invest $500 in the company Wish, trading at $20 per share. But since Wish is a new IPO, the price could be extremely volatile. In this case, a stop-loss order could be a good move to limit your loss. You could set a stop-loss order at $18. So if Wish goes down $2, or 10%, you would automatically sell part or all of your shares, limiting your loss to 10%.
What can you invest in on Robinhood?
Robinhood allows you to invest in the following 3 ways:
Buying shares of individual companies
Buying shares of ETF or index funds
Buying cryptocurrency
More about each one below.
1. Buying shares of individual companies
This is a straightforward and popular choice among new investors. Buying individual stock allows you to see great gains in a short period of time potentially, but the opposite is true as well. Thus, it’s considered aggressive investing – while that also depends on the company as well.
Companies like Coca-Cola or McDonald’s, for example, aren’t very volatile. They are hugely successful companies, but they rarely present news that creates high volatility.
Other companies, like Tesla, for example, have soared roughly 670% in 2020 alone.
2. Buying shares of ETFs/index funds
ETFs and index funds are usually safer bets when it comes to investing. Rather than a share of a single company, an ETF or index fund typically tracks multiple companies’ value. The most popular example of an index fund is the S&P 500. The S&P 500 tracks the performance of around 500 of the top companies in the United States.
Various ETFs track different things, like the top 20, 100, 500 companies. They can even be sector-based, like energy or even gaming.
By investing in ETFs and index funds, you will likely face less volatility as the fund typically tracks dozens or even hundreds of companies. If one company that the fund tracks has a bad year, it’s likely not to affect the overall fund very much.
3. Buying cryptocurrency
Cryptocurrency is a bit of an oddball for most individuals. Is it an investment? Is it an exchange of currency? However, the reality is that the value of cryptocurrency continuously changes. For example, Bitcoin recently hit a record high of $23,770.85, a 200% gain over the price on January 1st of 2020.
If you want to buy crypto, you’ll be happy to know that you can do so commission-free on Robinhood.
Additional options and settings on Robinhood
When you dig a bit through Robinhood’s settings, you’ll find that you can enable/disable the following options:
Options trading – Trading options is only something you should explore if you know the ins and outs. If you don’t want to trade options (or risk accidentally trading options), you can disable this setting.
Fractional shares – I started using Robinhood before it offered Fractional shares, and when it was released, you had to request access. I personally think fractional shares are great! It allows you to buy shares for a dollar amount rather than a share amount. In other words, you could buy $100 worth of Company A’s shares even if a single share of Company A costs $1,000.
Recurring investment – This goes hand in hand with fractional shares. It will allow you to, for example, invest $50/week in the S&P 500, Apple stock, or any stock you wish!
Summary: Should you try Robinhood?
My answer would be, most definitely. Since I have started investing, I have used Robinhood, Fidelity, and Chase. While I still use Fidelity, I only use it for mutual funds.
I enjoy using Robinhood. The app makes it a breeze to buy, sell, or look at your performance over time. And the fact that there are no fees (even on buying and selling cryptocurrency) makes it all more appealing.
I believe Robinhood is the go-to brokerage for the newbie, casual, and experienced investor alike.
Unless Robinhood implements hefty fees, which is very unlikely, I plan on using their service forever!
Don’t forget, if you plan on using Robinhood for the first time, use our referral link to get a free random share! The random share could be anywhere from $5 to $200+ in value.
We’ll get one too, which is an awesome way to say “Thank you” if you found this article useful 😊.
Want to keep reading? We recommend our guide on buying life insurance next. It’s a simple guide that explains life insurance in the simplest terms, so you can decide if it’s a good financial decision for you.
What do you think about Robinhood?
Let us know below!
2replies
Mohamed says:
I’m really disappointed of them. They make it easy to trade. True but when you loose or buy , you don’t ever get a problem. But when you win then they start lying. They did not play fair it this trading thing. They lost they credibility with me and I’m watching what will happened. I lost money because of them and fill like it is a scam .
I hear you Mohamed. It’s unfortunate that Robinhood decided to penalize the small trader in recent events.
While there are a few reasons Robinhood could have had to restrict people from buying GMC, GameStop and other Reddit driven stocks, none of them change the fact that many small investors lost money.
If you lost money because of their restrictions, you can always explore legal actions. There are some law suits out there against Robinhood that you could join for a small fee or for free.
I’m really disappointed of them. They make it easy to trade. True but when you loose or buy , you don’t ever get a problem. But when you win then they start lying. They did not play fair it this trading thing. They lost they credibility with me and I’m watching what will happened. I lost money because of them and fill like it is a scam .
I hear you Mohamed. It’s unfortunate that Robinhood decided to penalize the small trader in recent events.
While there are a few reasons Robinhood could have had to restrict people from buying GMC, GameStop and other Reddit driven stocks, none of them change the fact that many small investors lost money.
If you lost money because of their restrictions, you can always explore legal actions. There are some law suits out there against Robinhood that you could join for a small fee or for free.
I hope you recover your losses!