Free stock trading with the Robinhood App

I have been trading stocks for about 15 years. I have paid roughly $3,000 in brokerage fees, commissions and annual account management fees that stock brokerages (even the online-only ones) charge. I have always hated these fees. As someone who invests primarily in low-fee index funds for the long term, the $7.95-$14.95 brokerage commissions have basically kept me from buying individual stocks in recent years. Until I discovered the Robinhood App.

Just like every other industry, a technology company has burst onto the scene and disrupted the old way of doing things. Robinhood is a mobile app that offers no fee (really, none at all), self-managed stock investing. Especially for younger investors, Robinhood has become an extremely popular way to trade stocks without going through the traditional brokerages or advisors. Let’s break down what we know about Robinhood and help you decide if it is right for you.

What is Robinhood?

The Robinhood app is a free mobile application that allows investors to buy stocks and ETFs without paying annual fees, commissions or any type of brokerage fees. You download the app, fund your account and can buy and sell securities on most of the major exchanges. You are never charged any fees and can withdraw your money at any time (there are some slight waiting periods for deposits and withdrawals).

How does Robinhood make money?

You would think that a company like Robinhood would struggle to stay in business with a model like theirs. However, they have a couple things going for them. Unlike traditional brokerages, they do not have the overhead of a large staff, offices, marketing campaigns, etc. As a technology company instead of a bank, they are much leaner than the traditional giants in this space. Robinhood makes their money by earning interest on the unused cash deposits in their users’ accounts. With over 2 million users, a very large portion of those users will have idle funds sitting in their account that are not tied up in stocks or ETFs. Robinhood is able to take that cash and earn interest while it is not being used. This is what allows them to continue to offer trades with no fees.

Robinhood offers free stock?

One of the coolest benefits of using Robinhood is their sign-up bonus. If you are referred by a friend, you will receive a free stock just for signing up. The value of that stock can be between $2.50 and $200.00 and is chosen at random based on the most popular stocks on the Robinhood app. The majority of people that sign up will receive a stock valued between $2.50 and $20.00, but some can receive shares of Apple, Ford, Sprint or other large companies. To sign up and receive a free share of stock, click here.

Is Robinhood legit? Is it safe?

The Robinhood app uses state-of-the-art, bank level security to keep your personal information and funds protected. They have over 2 million users and are well-funded by venture capital firms. The company itself is valued at over $1 billion, so chances are, they aren’t going anywhere and your money will not disappear. They are also members of FINRA and SIPC, which means that your funds are protected up to $500,000 if anything happens. If you want to learn more about their security and encryption, you can check out their FINRA broker check.

Pros and Cons of using Robinhood

Pros

• No fees – This one is pretty self-explanatory. You don’t pay any fees for anything with the Robinhood app, ever.
• Easy to use mobile app – The app has a very clean, simple user interface that is very intuitive. You can figure it out almost instantly and it is one of the most user-friendly apps that I have ever seen in the finance industry.
• Pre-market and after-hours trading – You can trade in the pre-market hours and after-hours on the major exchanges, which not all brokerages and apps offer.
• Real-time market data – Where some brokerage sites will have stock data delayed by up to 20 minutes, Robinhood has a real-time feed of prices and fluctuations. This is very convenient and can become almost addicting as you watch your stocks throughout the day.
• No minimums – You can deposit as little as you want to get started, so even if you are just signing up for the free stock bonus, you don’t have to start your account with a large deposit.
• Fast trades – Another difference between the Robinhood app and alternative platforms is that you can trade almost instantly. With a couple taps and a swipe, you can place orders and they are executed on the spot (during trading hours).
• Notifications – The app will notify you of important information on your securities. These notifications include earnings announcements, dividends, or alerts when a stock you own or watch rises or falls by a certain percentage.

Cons

• Limited trading options – The Robinhood app does not offer all of the options for trading that other brokerages have available. You cannot invest in mutual funds, IPOs, preferred stock, or a few other types of securities.
• No margin trading – You do not have the ability to short a stock, trade options or futures, etc. Your trades are limited to buying securities with the funds that you have available in your account. This limits a lot of the trading tactics that seasoned investors leverage frequently.
• Delayed access to funds – Unless you are a Robinhood Gold subscriber, you do not always have immediate access to your deposits or funds that have cleared from a sale. This waiting period can be a number of days and can delay your ability to trade quickly.
• Only individual taxable accounts – You cannot use Robinhood to manage a 401k, IRA, Roth IRA or tax-deferred college savings plan. The only account type that they offer is an individual taxable account.
• Limited tools and education – Robinhood is good at one thing: allowing you to trade stocks and ETFs without fees. They do not offer research, guidance, insights or tools to guide your investing, so you’ll have to look elsewhere to do the bulk of your research.

How to sign up for the Robinhood app

Signing up for Robinhood is an extremely easy process. Go to this link and click “Get your free stock.” You will need to enter some basic personal information, verify your identity, fund your account and you are ready to trade. You will see your free stock show up in your account as soon as you are signed up.

Overall, Robinhood is a great alternative for those who want to trade stocks without all of the overhead and fees associated with large, traditional brokerages. While it is somewhat limited in it’s features, it is a great way for investors to get their capital working for them without sacrificing too much of it in commissions. As with anything, make sure you do your research before investing and make sure you know what you are buying before you make trades.