Robinhood Review – Pros & Cons

An investor has multiple arenas that they can play on or multiple brokerage and service providers they can use.  With so many out there, it can make one’s decision on which one to choose extremely difficult.  This is similar to buying a laptop for blogging or even purchasing a car – there are so many, pros and cons for each one and then it comes to personal taste/goals.  With the continuous technology advancement – investing has become easier, cheaper and more intuitive than ever before with research tools that try to customize a stock or portfolio to your characteristics and long/short term goals.  We wanted to analyze an application/service providers for the readers, and that my friends is – Robinhood.

robinhood

Robinhood

Robinhood is a member of FINRA and SIPC, as well as having real–time quotes occurring on stock exchanges.  Currently they offer brokerage accounts but do not offer IRA-based accounts for investors.  Therefore, taxable accounts only at this time through their system/application!  Their application on Apple and/or Android is very intuitive and has a very seamless use process – a few of our co-workers are using them, and we cannot lie – the app has somewhat of a sexy appeal.  We really liked it, to be straight up honest.  Their company is approximately 2 years old and was discovered/created in the technology hole of Palo Alto, home of many other technology based companies.  We figured we had to learn more about this new app.  Below we will list out the pros-and cons of what I see with the application and service provider, whom uses APEX as their clearing of transactions.

PROS of Robinhood:

1.) $0 Commission – The obvious reason why individuals have been using this platform – NO cost at all to trade/transact with Robinhood.  Phenomenal if you ask us.  For the young investor who does not earn/have large cash flow to make big purchases, this is very intriguing.  Example – if you have $35 and want to buy one share of AT&T (T) or $28 and want to buy one share of KMI, boom – you can buy them and not worry about your expense fee on the transaction or expense ratio % when you make a trade. This is something that we always keep in mind with our brokerage, as $6.95 a trade on $1,000 is 0.695% fee essentially.  Here, 0% fee, a very big pro.

2.) Application Friendly – The application is sleek.  Bar none.  The technology based company really did well here, making it easy to flow through, make a transaction, review the highs/lows and ratios before making the trade.  Security over the app is high on this and makes use of finger print reader to access on the apple phone.  Further, it appears to be very, very easy to monitor the market, create watch lists, etc.

3.) Main Order Types – You have your main order types – Market, Limit, Stop-loss and Stop-Limit.  This can be a pro and a con depending on how complex of an investor you are.  We consider this a pro in here due to reducing the # of transactions to choose from, at the time being, without limiting the basic investing options offered by other brokerages.  This would be considered a pro for a basic/beginning dividend growth investor.

4.) Pays for Things – What do I (Lanny) mean by this?  Well if you’re an investor that typically transacts, lets say two times per month at $7.00 (rounded) each trade.  That’s $14/month for trading fees X 12 months = $168/year that Robinhood could save you.  Now I (Lanny) have now transacted 21 times this year through my brokerage service at $6.95 each time.  That is a cost to me of $146 (rounded) already!  Given that I still have 2+ months remaining, I appear to be on track to spending between $160-$200 in fees. Think of what you could spend or what typical monthly expenses you could cover with the extra cash?  You essentially could be a tablet for $300 and then trade for a year on robinhood and this would virtually pay for that device.  Does that make sense?  Or if you upgrade your phone for $200, using this App would pay for it.  It’s interesting when you view transaction fees from a different lens.

5). Allows Investors to Diversify Without Purchasing a Mutual Fund or ETF – This is an added benefit only available because of Pro #1.  Think of how many times you have found yourself in the situation where you have limited capital and want to purchase multiple stocks that are trading at a discount.  For example, if I (Bert) had $500 and suddenly saw a downturn in the market. I would be able to purchase all five stocks on my “Always Buy” list for $100 without having to incur excessive trading fees ($6.95 * 5 = $35.95 if I traded through a different broker).  If there were commissions, there is no way I would purchase all five stocks and would most likely opt for one. The $0 commission would allows investors to spread their money and diversify their portfolios through smaller purchases without being penalized.  now, an investor with a $1,000 can own a portfolio that is as diversified as an individual investor that has a $100,000 investor.

CONS of Robinhood:

1.) No Dividend Reinvestment Plan (DRIP) – As dividend investors, one would love to have the DRIP feature to not worry about reinvestment or waiting until cash piles up enough to purchase a whole share.  As of right now Robinhood does not have a DRIP feature and  therefore, if you earn $2.00 in dividends, it will sit in cash until you have capital to purchase a full share.

2.) No retirement accounts – As dividend and regular investors, one would love to have this feature to bring all accounts to Robinhood.  Essentially, if you were to use this and wanted an retirement account – you’ll have to have multiple brokerages being used.  Right now, we each have 3 at the moment – 1 for work – 1 old ROTH and our current Individual/Roth accounts through the same brokerage and it’s not that much fun (Yes, the two of us have the same layout).   Checking multiple sources can become burdensome and time consuming, which can come at a premium for some of us as we balance a full-time job, blogging, and life!

3.) Limited Trade options – As discussed in the pro section above – you do not have the ability to trade options, foreign domiciled securities or mutual funds.  I (Lanny) do own one ETF and not being able to invest into a fund could turn people off.

Robinhood Target Audience

We would say the target audience for Robinhood can be clear cut and can fit into this arena/genre of individuals:

1.) Young/Technology Based individuals – Individuals who want everything on an Application on their phone, Robinhood could be of high usage for you.  This is huge because you cannot access the application from a web address.

2.) Individuals with limited capital but want to be a part of investing – This is easy with $0 trades. If a stock is $5, then that’s all you’ll need to own a share, not $11.95 with the fee in there.  I (Lanny) think of my mom here, where it’s hard for her to save money, and we have to save a lot to make the fee pallatable.  Here, she could essentially save $35 and buy the one share of AT&T (T) stock as discussed above, adding to her dividend income.  It’s interesting and may be used for her.  For me (Bert), I think of myself and Lanny in college.  My interest in stocks began much earlier than our website and I was trading (although, not dividend stocks), way before Lanny convinced that dividend growth investing is the way to go.  In college, resources are at a premium and having an apps like Robinhood would have allowed me to begin investing at a much younger age.   Imagine what our projected annual dividend income would be now if we started investing as teenagers!  Our annual dividend goals would hopefully be much higher, that’s for sure.

3.) Individuals who Transact Frequently on the Buy Side – This could pay for devices, as individuals could save $100’s of dollars a year.  Think new phone/tablet, etc. as discussed above.

Overall, we think if you are a combination of wanting a pure individual brokerage account, want technology to be a main part of your accounts and do not mind not having a retirement account with the trade off of $0 fees, this investing platform would be for you. However, as of right now, neither of us are going to open an account with them simply because our main brokerage platform has both – Individual and Retirement.  If this changes though, we would strongly consider opening a trading account through Robinhood!

What does everyone else think of this system?  Do you use it?  Anyone have any other reactions to using them or pros/cons to add?  Always curious here and we thank you again for coming by to read our post!

-Dividend Diplomats

Photo Credit: www.robinhood.com

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42 thoughts on “Robinhood Review – Pros & Cons

  1. I utilize it and enjoy it’s simplicity. As far as another con, it takes quite a bit of time (3 business days) for transfers to or from bank to be processed. Hopefully this gets sped up down the line. So far I have started investing there with 5 different tickers. Yesterday I believe with the latest update they just started a feature called “Cards” that gives you notifications and news that may be useful. The design is slick and easy to use. Stocks you own are shown in red or green depending upon how they are performing. Stocks that you own are also shown in bold type because there is not yet an option to create different watch lists, so they are all bundled together. I will keep on tinkering with it because it suits some of my needs right now and you can’t beat the price and savings.

    • DivSharks,

      Thank you – it’s good to know how long it transfers and that you do use the app.

      What does the CARDS feature do?? How long have you used it? And – do you use it with another service that you use, i.e. do you have 2 brokerage providers?

      -Lanny

      • Lanny,

        I use Robinhood as well, and am impressed by the cards feature.

        It usually summarizes economic news, like new housing starts, earnings of larger/higher-profile companies, and news that on a general basis can move the mark.

        You can thumb through them until you have no cards left, and either move on or restart the process if you saw something that you wanted to investigate further.

        Clicking on one of the cards will usually take you out to a Reuters or Yahoo webpage that is external to the app itself.

      • Lanny,

        As Coley stated, the cards are usually links to other stock monitoring/news sites. I have seen the app give about 10 cards per day. The cards are also where it shows how your portfolio has changed and usually gives an update multiple times per day.

        DivShark pointed out a good con and thats the delay in funds transfer. Robinhood has just recently introduces its premium account service (Robinhood Gold) that allows you to transfer $1,000 dollars instantly at a starting subscription of $6 per month. It also allows trading during the after hours markets and leverage trading (depending on the level of your subscription)

        -Trevor

        • Trevor –

          Yep – I did read about Robinhood Gold – other benefits include buying on margin. I love their concept, but know that for me, the retirement accounts would be very beneficial to have; in order to have one brokerage in house. Great point out though, that’s for sure.

          -Lanny

  2. This looks like a great idea for my little brother. He just received $1500 from a mutual fund and $0 commissions would work out well since he is only 16 years old. Like you guys, I like the retirement and taxable accounts all in one place and I usually buy $2000 worth of stock on each purchase so the $7 fee is quite low percent wise. Either way, this could be an option in the future when I might not have as much to invest.

    Thanks for the review!!

    • ADD,

      I thought that an individual with lower amount of capital to use could definitely benefit huge from this. I like my DRIP option and partial shares option with my brokerage provider – something Robinhood currently can’t do.

      Appreciate input as always ADD!

      -Lanny

      • Lack of DRIP feature is a non-issue since the $0 commission fees mean when you have enough dividend income stockpiled you can just buy more shares if you want, for free.

        However, the real problems are lack of derivative trades, lack of access to commodity, futures, and ForEx markets, not to mention extremely steep equities trades on overseas exchanges ($50?!). In addition, simple research tools that are commonly available in other trading apps seem to be lacking even after 3 years of updates since Robinhood’s debut.

        I wish them the best and I’m happy for small traders, but can’t endorse it…yet. I look forward to the day they become a full-featured broker!

  3. I’ve been around a while and have used “free” brokers in the past. It’s remarkable to me that there are investors willing to take a crack at this again by starting yet another one.

    If you invest in dividend reinvestment plans directly through a company or agent, you cost can actually be less than zero. This is because the plans don’t charge fees and can sometimes provide a discount price to the shares.

    Given your investing style of buying and holding companies, this is the better way to go if fees are important to you.

    • SFI,

      Thanks for coming by. Discounts to shares eh? Can you give me a few examples if you go directly through the company? Would love to know some names!

      Fees are interesting. Essentially the opportunity to use the fees saved to end up paying off device in use or just to merely buy more shares. Ah… the battle.

      -Lanny

      • I think the previous comm-enter is referring to a transfer agent, like Computershare or American Stock Transfer.

        Some companies will entice you by giving you a 5%-15% discount on new shares if they are purchased through the reinvestment of dividends. Vanguard or Buckeye in the energy sector come to mind through AST.

  4. Diplomats,

    Cool review!

    I can think of a few more cons, though:

    No physical branches. No ACAT (in or out). Limited customer service (relative to other major brokerages). No desktop platform. Not at least having a phone number I can call to talk about a substantial chunk of my money is an automatic pass, in my book.

    It’s not really for me, but this might make sense for some people that prefer to conduct their business via apps/mobile and who don’t mind the drawbacks in exchange for the lack of fees. After trying out a cheaper brokerage service earlier in the year, I have renewed belief in that the few extra bucks I pay at some of the more established guys is worth the money. Just my $0.02.

    Cheers!

    • Jason,

      Thanks for coming by boss! I heard about limited customer service as well. Love the $0.02 and that’s why I believe I’m still with my service provider and feel the commission expense is worth it for the time being. Only when it becomes full serviceable, hands-on and all-media friendly, would make sense to me. Right now, looks like this could be for the investor trying to buy the must fundamental stock on a no-fee based end to get going. It’s interesting, nonetheless!

      -Lanny

      • When I had an issue downloading my transaction confirmations or account statements, it automatically created a Gmail with the problem in the subject line that would go to Robinhood customer service. They had the problem fixed within 48 hours.

        It’s not the be all, end all, but for a free service, I thought that was a nice turnaround.

  5. I really like Robinhood. I’ve been using it for a year and haven’t had a single problem with it. My account is worth about $2k and I own 29 different dividend stocks. It’s great to be able to diversify with a small account. I am taking a few more risks in my Robinhood account but I think it is a great app for an amateur DGI.
    I do have the advantage of having a PCRA option in my 401k at work though. That is where I have the majority of my investments. My purchases in that account are never less than $1k. I think every 401k should offer a brokerage account option.

  6. I recently started an account with Robinhood, so I could get more comfortable with trading and begin with a small amount of money. I think it is a great way for amateurs like me to become more skilled without fees. Thanks for the article!

      • Lanny, I started my account with $100. Because I know little to nothing about stocks/trading, I felt that if I lost it, I could replace that investment from my entertainment fund. I don’t put any pressure on myself while I learn about the app and the idea of trading. With more wisdom, I can create greater wealth. I bought IPDN in the $1 per stock range, and TR in the $30 range.

  7. Lanny,
    Got a question for you, can you transfer accounts into or out of Robinhood? I think you cannot, which is one reason I have kept up my Loyal3. Loyal3 allows me to transfer my holdings out into another account (though I have to sell fractional shares). With Robinhood that is not possible, and as a small time beginner it is important that at some point soon I pool all my resources in one place to make growth as constant as possible.
    Thoughts?
    – Gremlin

  8. I’ve never asked Robinhood but I believe the account is a regular brokerage account and you would be able to transfer your account to a new broker. The transfer would be initiated by your new broker I believe.
    I have 29 different tickers in my account, with anywhere from 1 to 5 shares of each ticker.

  9. Hey, Dividend Diplomats,

    As a member of the demographic that would likely find a lot of interest in an app like this, I was hoping to pick your brains and receive some perspective. I recently joined Acorns to help save money. I deposit weekly into the fund because it is commission-free for the time that I remain a student. I am not sure that I will continue my account with Acorns once my commission-free status is removed, but it has been great in helping me get money out of my hands and into income-generating vehicles.

    Essentially, I wanted to see if you had an opinion on whether Robinhood or Acorns would be a better app to have for the purposes of saving money. I have a traditional brokerage account that I use for my traditional stock investing, but having the weekly draw of funds from my checking account and having that money deposited into a fund really helps with the psychology of saving. I really look forward to hearing your thoughts!

    Also, with no trade commissions, do you think that this feature will turn a lot of ‘investors’ into ‘traders?’ I could see this being the case if the transactions happen in real-time.

    Have a great day!

    Best,

    Jim

  10. Great article, but I much prefer Ustocktrade.

    They have instant settlement so I don’t have to wait 3 business days unlike other services and they have a great Web Platform, for when I’m not in the App.

    You should definitely check them out.

  11. While the idea and platform is excellent, when you sell a stock they hold funds for three full days before you can use them to trade again. Most brokerages allow instant trading after you sell a position. While I may save 5 or 10 bucks per position, waiting for three business days to be able to reinvest my money can cost hundreds or more.
    I’ll stick with optionshouse

  12. Anyone using Robinhood is being ripped off!! They are actually very expensive. What you don’t understand is they are trading against you. They are supplying their own wide bid/ask quotes.. not REAL market quotes. When you buy – you pay too much.. they take the other side – and immediately close the trade at a risk free profit against you. Same thing on the sell side. They are principal traders – not agency traders. You are paying MORE than a commissioned brokerage!!
    Hey millennials – there is no free lunch.. in your quest for free – you’re being screwed!

    • How do they rip you off with limit orders? I’ve not used them yet and would use another source for a live market price. I’d also type use a limit order. Not seeing how you can lose with a limit order. I get what you’re saying for those dumb enough to use a market order.

      • I’m by far dumb enough, but for me isn’t it a bad option? I want to diversify my portfolio and buy a share of a water ETF every payday (biweekly). Out of the question of course with my $7.00 brokerage. I’m probably getting worse prices with my long term transfer agent account but have no complaints; a couple of water utilities there but I’m not interested.

  13. I was thinking of opening an account so I emailed them a few questions. It took several days before I got a response. Ameritrade responds no later than the next day or immediately when I call. I

  14. Today, 4/12/16, I conclusively decided to close my account after trading Robin for a month. Zero trading cost is fantastic unless trade and app executions are lousy. I have filed three complaints with FINRA.

    Condensed details, if you care to know, are…

    Robin would never fill, nor partially fill even a single share, my limit price trades of USO unless there was a whole penny “improvement” in my limit price. By example (and there are many days, many price limits), let’s say I had a limit price to sell USO at 9.87. Using ThinkorSwim, I would monitor executed trades down to the hundredth. Over and over, USO could have a sale at 9.87 and up to 9.879, yet Robin wouldn’t produce a single share sale for my account.

    Then on 4/11/16 with 3 full minutes to go before stock market open at 9:30 AM ET, I could not get Robin to cancel my limit sale of USO at 10.19. I repeatedly hit Robin’s cancel order button during the 3 premarket minutes. Market opened and my order filled at 10.19 as USO traded above 10.19.

    Then on 4/12/16, I had USO sale limits of 10.41 and 10.52. USO climbed way above those price limits and Robin didn’t execute. I eventually canceled both orders and sold a single market order of 2427 shares that executed at $10.55. Sure, I got a better price execution due to Robin’s failure, but the far bigger issue is absolutely reliable execution of limit price orders.

    Anyway, thought my experience might be of interest to you.

    • I don’t think it makes a lot of sense for you to use Robinhood for a $25K trade to save $7-$10. It’s definitely better for a small investor like myself, especially with that market price you got.

      • I am stunned of your perspective that a $25K trade should be executed somewhere where I get charged $7 to $10. Robinhood makes no statement that its ability to make trades “just as good as the next guy” is negatively impacted by the size of a trade. Plus, I trade USO which trades over 48 MILLION shares A DAY over the last 3 months which means my typical trade of 1200 shares is .0025 PERCENT of daily volume. There should be zero problems with my size of trade. Robinhood promotes “Robinhood is able to access all US equity exchanges and many other venues, including IEX.” And Robinhood promotes “In certain Internet forums, a minority have wondered if Robinhood marks up orders intentionally to make money on the bid-ask spread. We want to reassure the community that we do not mark up orders to make money. In fact, this behavior is strictly prohibited. The SEC’s Regulation NMS requires that brokerages guarantee the NBBO (National Best Bid and Offer).” The focus of your comment completely misses the mark that Robinhood factually failed me on simple limit orders. I’ll now pass on assuming Dividend Diplomats is unbiased in its view of Robinhood.

  15. I just opened an account with Robinhood for 2K. I’ll use another broker, on-line website like Barchart for charts. I may trade only 50% of the account. Keep 50% in cash. If a stock is moving up, I’ll buy more stock. Yes, I’ll us limit orders and when I’m in the market, set a stop. I don’t think they have trailing moving stops. I’m thinking in terms of 10 share lots per stock trade. If the stock is moving up, I’ll buy more or get out if its trading sideways. Yes, I’m willing to wait to trade again. It will give me time to regroup and not cross the line from investing to gambling which Jesse Livermore did after he made 5 million in the 1929 crash. He crossed the line, divorced his wife and put a bullet in his head. So much for making a killing!

    • Are DIG and DUG available on Robinhood? They are not on Ustocktrade but overall happy with U. They don’t have trailing stops either.

  16. Wow… what a great post! I am sure there are many people who are faced with the same problems I recently had. I couldn’t find I am sure at least once in your life you had to fill out a form. I use a simple service http://goo.gl/6qCZBr for forms filling. It definitely makes my life easier!

  17. I’ve thus far had a great experience in Robinhood. As a small investor I would not be able to trade individual stocks at all without them. However, in 6 months I was able to accumulate a 2k portfolio in many cases buying a single share at a time. If wanted to trade through a regular brokerage account I would have had to save for 3-4 months just to open a single position. I don’t think I would have the discipline to do that, not do I think that would even be a wise investment. However, in the next few years, I’m expecting to shed nearly 3k in monthly expenses in childcare and student loan costs. I’m also expecting to make a significant jump in household income. So my question is at what point does it make sense to switch to a more traditional broker? And would it make sense to transfer holdings under one umbrella or use some sort of hybrid?

    • Seeding –

      Yep, sounds like you are right up their alley then! Great question and here are my comments:
      1.) Need a retirement account? Then something to consider moving.
      2.) If not – keep this going and you can always transfer it into another firm – they will gladly take your funds : )
      3.) Keep investing – that’s the biggest benefit/move you are doing!! I love that you are thinking about it. Ask us more questions, please!!!!
      4.) Do you love dividends? haha

      -Lanny

  18. @ Dividend Seedling – Glad you made some cash and hopped on the bull while you had the chance. Anyone getting serious about investing should just bypass Robinhood. They are now going the Freemium route and charging monthly fees for access to standard services like limited extended hours, high rate margin accounts and deposits without delays.

    If you have a sizable stake in a stock and get an alert saying that an exec was arrested or some other piece of news you can get out of the stock in a brokerage with fully extended hours. Inversely, if you notice that commodity prices jumped up late on Sunday night you can get in on correlated industries early and give yourself an edge. What you can potentially gain/lose without fully extended hours outweighs the benefits of low-cost free trades if you are a value/growth investor.

    RH is still cheap and a good app for investing pocket change but it’s not worth it for your retirement account. There is also no guarantee that the fees will remain that low in the future. I’d pick a well established discount broker that has basic research available and extended hours at a minimum for anything over $5000.

    • Larry –

      Great points all around. can’t predict if/when Robinhood will change their structure. Who knows – maybe they will add retirement services? I agree, if you want a robust service provider that can house everything under one roof – savings, investing, retirement accounts, etc.. can consider elsewhere. Thanks for writing Larry!

      -Lanny

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