By: Sara Walker

Have you been hearing about Robinhood lately? Have you heard about the ways you can either get rich or get broke by using it? Because we have. And it has prompted a lot of questions. What is the Robinhood app? How is it used? How does it help or hurt, financially? Should we try it out? Today we are going to answer some of these burning questions about the popular app. Perhaps it will inform you about whether or not to download and use.

What even is the Robinhood app?

Let’s start at the beginning. The Robinhood app is available for download. It markets itself by offering no fees when trading stocks and cryptocurrency. It launched four years ago and offers and easy to use and sharp design. It recently earned an Apple award as related to the user-ability. It is being marketed especially to young people because of its presentation, mobile functioning, and lack of fees associated with use. In just four years after its launch (launch in 2014) it had over four million users. Let me repeat: four million users. That is a lot of people!

Why is it so popular?

Aside from its slick presentation and marketing skills, the Robinhood app rose to popularity because of its recent expansion into cryptocurrencies, which people have been talking a lot about. I’m sure you’ve heard of Bitcoin. It also became so popular because of its zero cost associated with trading, which essentially assumes that other brokerage companies are taking advantage of investors. Whether or not that’s true is not for us to decide, but rather for you as the readers to identify what you believe.

Robinhood also launched Clearing by Robinhood, which has been quite popular. This allows it to operate within its own clear system, which essentially allows it to reduce service account fees. Again, this makes it very marketable to individuals looking to save costs.

How is Robinhood making money?

Robinhood users primarily utilize the app for trading purposes, however investors can utilize a live broker via phone and therefore Robinhood charges $10 per transaction. It also charges foreign stock transactions for anywhere from $35-50. It earns a very small amount on rebates in traded money. Half of its income comes from payment for order flow. Investors can also pay to opt into a Robinhood gold service that allows them, with the payment of a flat fee every month, to access additional money borrows from the brokerage. This is called buying on margin.

What do Gold members get?

Robinhood Gold members get premium benefits, which makes sense as they are paying a cost that other investors are not. Most online brokers have a standard margin agreement that says that investors pay interest only on money that they borrow. The minimum amount for the accounts of Gold members is $2,000.00. The more money available in your account that you put in, means that you can borrow more. Your margin will be about 50% of your balance. If your account is large enough that you have qualified for more than $50,000 of the margin, your interest rate will be about 5%. Finally, gold members have access to funds immediately, whereas other members wait several days to use funds transferred into your account.

What are some of its downfalls?

Unfortunately, Robinhood’s ability to capture long-term investors may be low as related to lack of price improvement opportunities. This is something that people who trade large amounts of stocks and shares are looking for from a broker. This allows the investor to buy significant amounts of stocks at lower prices or simply sell at higher prices. Price improvement is a priority for big investors.

Additionally, Robinhood does not offer retirement accounts and no mutual funds or bonds. This is a drawback for many people expecting to be able to have access to this type of investment. While younger generations of people are potentially not as interested, this is a reason that the Robinhood app is less used by older investors. Finally, the Robinhood app offers less customer support as compared to other online brokers.

How to get started?

As mentioned earlier, one of its most marketable features is the ease of use. Investing and trading historically has not been an easy process. It is stressful. The Robinhood app is attempting to decrease that stress by having a very user-friendly app. Users can sign up with an email and password in just a few minutes after downloading the app. They are required to input personal information such as contact information, Social Security number, and information about their personal banking accounts. The app then takes about an hour to approve users. After approval is received, individuals can transfer money into their accounts and get started trading!
All bank transfers for up to $1000.00 are instantly available to start using to buy and trade stocks. Anything larger will take several days to process. Automatic deposits can be arranged on a weekly, biweekly, monthly, or quarterly basis.

Stocks are categorized and made easy for individuals to identify to purchase or trade. For example, you can search companies owned by women or veterans, and then identify companies to invest your money in. This is a streamlined process. Stocks can also be pulled and compared on a side by side basis.

What will the future look like for Robinhood?

Robinhood recognizes that it isn’t a perfect app or online broker system. It identifies the need to make improvements. It is hoping to in the future offer the opportunity for dividends to be reinvested instead of being offered back as cash credited to accounts.  Look out for that soon.

Is Robinhood the next financial step for you?

We have offered a lot of information about Robinhood, the investment app that is now available to you. It may not be perfect but it is certainly helpful for people looking to invest without costs associated. This is its major draw. What do you think? Will you download and get started?