Robinhood Brokerage Review – What is Robinhood?
Robinhood’s main purpose is to break down barriers to entry in the stock market. In other words, they believe the markets should be accessible to everyone. And the way they’re doing this is through the absence of minimum deposits and commission fees. This is a breath of fresh air not only for beginner stock traders and investors, but veterans on Wall Street seeking cost savings as well.
Imagine paying up to $10 per trade. Unfortunately, this is something most traders don’t have to imagine – it’s an accepted reality. And commission fees can be even more costly for someone implementing a highly active approach, such as day or swing trading. We’re talking 5-10+ trades per day for some serious day traders out there.
If we break this down by the numbers, things can get shocking to say the least. Let’s say the commission fee for your standard broker is $10 (this is average for “discount” brokers) and you’re an active day trader making 5 trades per day (very realistic). And don’t forget that commission fees are charged on both the buy and the sell. So that’s $100 per day = $26,000 per year = A Full Year’s Salary For Some People!
Paying Up to $10 Per Trade is Costly, But $100-200 is Insanity:
You wouldn’t believe what some brokerages are charging you for: some high-end ones like Merrill Lynch are considered “full service” because they provide personal advice, retirement strategy, and tax tips, among other things. But here’s the kicker – they’ll charge you $100-200 per trade for their services. And the compensation they receive is not at all based on the performance of your portfolio; your portfolio can go down 50% or up 50% – all that matters to their bottom line is how often you trade.
The more you trade, the more they make, which can result in them advising you to trade more often than you really need to. Now, I’m not necessarily saying this happens often, but the incentive undeniably exists.
Robinhood started with the idea that a technology-driven brokerage could operate with significantly less overhead. We cut out the fat that makes other brokerages costly — hundreds of storefront locations and manual account management. ~ Robinhood.com
For traders and investors just looking to make their own trades on an Apple or Android device, Robinhood is a huge cost-saver. You won’t receive any frills, such as personal investment advice or extravagant trading tools (that you probably wouldn’t use anyway). Just a cost-friendly way to buy and sell the stocks of your choice. With online trading systems offered by brokerage firms becoming the norm, broker-assisted trades over the phone or in-person (that rightfully required a charge years ago) are rapidly becoming a thing of the past.
How Does Robinhood Stay Afloat Without Charging Commission Fees?
Robinhood makes money off interest accrued from customers’ uninvested cash balances. This is standard practice for all brokerages. They also plan on collecting interest from customers who choose to upgrade to margin accounts, which is currently still in beta testing. As mentioned earlier, Robinhood has cut out the fat that has driven classic brokers to charge such exorbitant fees.
Excessive touch-points: multiple storefront locations, manual account management, expensive advertisements, etc. have all been erased. The technology-driven business structure has resulted in increased efficiency that will ultimately protect their bottom-line. Subsequently, self-directed, mobile-based trades can be made for free by account holders at any time during market hours.
Comparing Robinhood Side-By-Side With Other Popular Online Brokerages:
It’s hard to compare because there’s really no comparison – what other broker offers $0 commissions? You may not receive the accompanying financial advice or investment tools that many of the other brokers provide – but you can find most of those “perks” for free elsewhere. At the very least, it couldn’t hurt to have a Robinhood account on the side in order to save on commissions, while also having another brokerage account that you use for the tools and analysis. Take advantage of your resources.
That example I explained above regarding a day trader who makes 5-10 trades per day was no joke. Commissions can and will add up to thousands of dollars if you’re not careful. You may have never realized just how expensive it was, but think about all of the things you could do with the savings. $26,000 (or even a fraction of that) is no small chunk of change. Robinhood is changing the entire landscape of how brokerages operate, and is willing to take you along on that ride.
Robinhood Instant – Am I Dreaming or is This Reality?
Not only has Robinhood already done away with commissions and minimum deposits (as if that wasn’t enough), but now they’re rejecting settlement periods and bank transfers. This is absolutely incredible for the average trader or investor.
As you probably know, transferring funds from your bank account to your brokerage account can usually take days to complete. Robinhood is eliminating the waiting game. Bank transfers of up to $1,000 are now instantly available to invest. In addition to that, the three-day settlement period that takes effect after you sell a stock is being kicked to the curb. Waiting three days to reinvest, especially for an active trader with a small portfolio, can be a hinderance. And of course, this upgrade to Robinhood Instant is completely free.
The Wrap-Up: Robinhood is at the Forefront of Trading and Inspiring a New Generation of Investors
Robinhood’s goals are simple and focused: make the markets accessible to everyone, don’t overwhelm newcomers, and empower the new generation of traders and investors to take control of their financial future. They’re truly disrupting an industry that historically attempts to suppress the “little guy”, confuse them with hidden fees, and leave them at a severe disadvantage.
There are no minimum deposits – you can get started at your own pace. There are no coommissions – nothing to eat into your profits. And with the roll out of Robinhood Instant, settlement periods and bank transfer delays will fall by the wayside – receive instant access to your money to increase your buying power.
Are you currently paying $10+ per trade with your current broker? Please leave any questions or comments regarding Robinhood below.
Written by Matt Thomas (@MattThomasEST)