What Is Robinhood?

By J.R. Duren
HighYa Staff
Published on: Feb 23, 2018

Robinhood is an investment app that offers free trading of stocks, options, margin calls and cryptocurrency.

The app is unique in that it doesn’t charge its customers a fee for making stock purchases and its user platform allows you to buy a variety of investment types.

While many financial apps have launched over the past five years offering low-fee management of big investment vehicles called ETFs, very few have emerged that provide a free platform for trading stocks.

Robinhood launched in 2013 under the direction of Baiju Prafulkumar Bhatt and Vlad Tenev, a pair of Stanford grads who worked in software and investing before starting Robinhood.

Their app has become quite the popular platform and a valuable one, too. In March 2017, TechCrunch ran an article noting that Robinhood had been valued at more than $1 billion.

The main draw is that it’s a free platform but, just because it’s free doesn’t mean it’s a good fit for you.

We downloaded the app, made our initial deposit of $10 and bought one share of Fitbit (FIT) to get a sense of how the app works, what it offers and how it could benefit you.

Robinhood’s Main Features

Signing up for Robinhood requires two main things: connecting to a bank account and making a $10 deposit. You’ll also be asked to set up a PIN number you use to log in.

You’ll be offered the chance to activate two-step authentication, which means logging in requires your PIN and a text message or a code generated by an authentication app like Google Authenticator.

In our opinion, it’s worth it to activate two-step authentication because it provides an extra level of security.


Once you’ve got all this set-up, you can start trading. Robinhood’s home page is called “Portfolio” and includes an overview of your investment performance, a trio of crypto charts (Bitcoin, Ethereum, Litecoin), the stocks you own and a watchlist of stocks you can customize.

Purchasing stock is as simple as using the app’s search bar to find a stock you want, then tapping “Buy.” The app allows you to buy stock from U.S. companies and ETFs but doesn’t allow purchases of preferred stock, mutual funds, and several other securities.

Robinhood allows you to deposit up to $50,000 a day into your account, although only $1,000 of it will be instantly available. The rest takes three to four days to appear on your account.

You can increase the instantly-available amount if you sign up for Robinhood’s paid service, Gold, which we’ll talk about in a few minutes.

When you make your purchase of a stock, Robinhood executes of the trade at the end of the day.

If for some reason the price of the stock goes up 5% between the time you place your order and the time of the buy, the trade will be rejected and won’t go through until the price goes down inside that 5% limit.


Whereas stock purchases consist of buying a share or shares of a company, an option is a little different.

An option is a stock trade agreed to in the present and sold in the future. It has four components:

  • Strike price
  • Deadline
  • Premium
  • Stock amount

Let’s say you’ve been watching a stock – ABC – for a few months and you think the price will go up to $10 in the next few days even though it’s selling at $2 today.

You’re so confident, in fact, you’d be willing to pay $5 a share for ABC today to get paid $10 a share in a few weeks.

So, you open an option and negotiate with a seller to settle on a strike price of $5, a premium of $1 per share and a 30-day deadline. You buy 50 shares.

When those 30 days are up, it’s time to pay the seller the strike price and premium for the shares you bought: $300. If the price of the stock is at $10, then you make $4 a share because you only paid $6 (strike price and premium) per share.

This is an example of a “call option.” A put option is the opposite idea. Instead of betting that the stock goes up, you bet that it goes down.

Robinhood’s fine print says that they typically sell options in chunks of 100 shares. Also, they remind you that options trading is risky.

You need to approach it with care and some understanding of how they work, which is why Robinhood has to approve you for options trading in order for you to do it.

Like stock trades, Robinhood’s option trading is free.

Margins With Robinhood Gold

Whereas options entail a paper stock transaction that doesn’t actually happen until you exercise the option, buying on the margin is paying a fraction of a stock price up front to buy shares in the hopes that prices will go up and you can sell your stocks, pay back the original margin and make a profit.

So, let’s say you want to buy ABC on the margin. The current price is $2 and you want to buy 1,000 shares. Acorns will ask you to pay $1,000 up front, so you do. You now own $2,000 of shares that you paid $1,000 for. Remember, though, you owe Robinhood $1,00 and that will be paid either through the stock price going up or out of your bank account or portfolio.

You also have a maintenance margin of $1,000. If anytime the value of your margin shares drops below that, you could be forced to pay up when Robinhood “calls” your margin.

Now, for an example. ABC’s price skyrockets to $10 a share. You sell the 1,000 shares for $10,000. You take home $8,000 after you subtract the $1,000 you owe Robinhood and your original $1,000 payment. This is the upside to margin trading.

The downside? ABC’s shares drop to $1 a share, Robinhood makes a margin call on your stock. You sell your shares for $1,000. Normally, you’d break even but, since you owe Robinhood $1,000, you lose.

Because margin trading is risky business, you have to sign up to use the service and Robinhood has to approve your application.

There is a monthly fee for the service that’s based on how much Robinhood Gold you borrow. “Gold” is the term for the margin they’re willing to give you. The higher the margin amount you can access, the higher your monthly fee.

Robinhood’s margin FAQ page shows a screenshot in which $2,000 of extra buying power is $10 a month, $2,500 is $14 a month and $3,000 at $15 a month.

Other things to note:

  • You have to have at least $2,000 in your portfolio
  • You get extended trading hours (9 a.m. EST to 6 p.m. EST)
  • Cryptocurrency is not eligible for margin trading

Robinhood Crypto

The final feature of the app is cryptocurrency purchases. At the time of publishing, the feature was not active yet but was set to launch later in the month.

Like stock and options trading, crypto purchases are fee-free, which is a big deal in the crypto world and provides a cheaper alternative than popular crypto wallet Coinbase, who charges 1.49% for each transaction.

At the time of publishing, Robinhood Crypto was scheduled to be available in the following states: California, Massachusetts, Missouri, Montana, and New Hampshire.

How Robinhood Compares to Other Investment Apps

Robinhood separates itself from investment apps we’ve reviewed because it’s completely fee-free for non-margin trading.

Here’s a list of fees you’ll pay for other sites:

  • Betterment: 0.25% for Digital accounts, 0.40% for Premium (min. balance $100,000)
  • WealthFront: 0.25% for all balances

Another factor that makes Robinhood a great choice is that the three sites we mentioned above limit your investing to ETF’s, which are big collections of all kinds of little investments.

They don’t give you the opportunity to invest in individual stocks, options, margins or crypto like Robinhood does.

What Users Say About Robinhood

Robinhood had more than 47,000 reviews at the time of publishing with an average star rating of 4.6. More than 43,000 of those reviews are four or five stars.

The app gets equally good scores in the iTunes store, where it gets 4.8 stars from more than 190,000 reviews.

Our Final Thoughts About Robinhood: Pros and Cons

Robinhood, based on our research, offers a rare combination of high consumer ratings, no fees, and a great user interface.

Our personal experience with the app was excellent and mirrors the opinions of the hundreds of thousands of consumers who use Robinhood.

It’s hard for us to point out the downsides to the app because it’s so well-rounded. We’d say the only drawback could be the fact that it makes options trading easily accessible despite the potential for considerable losses. However, they claim that their approval process makes options available only to investors with in-app trading experience.

Investing in stocks, ETF’s, options and margin trading is easy with this app, but remember that investment of any kind carries with it risk. In our research of various investment products, we’ve come across two excellent pieces of advice.

First, never invest money you can’t afford to lose. Don’t use your money to buy stock when you need it to pay bills.

Second, the past performance of a stock is not an indicator of future performance. Just because a stock has had an incredible past few months doesn’t mean the success will continue.

» For Further Reading: How to Find a Financial Advisor You Can Really Trust

Read Robinhood Customer Reviews and Complaints

Write a Review
Average Customer Rating: 2.0
Rating Snapshot:
5 star: 0 4 star: 0 3 star: 0 2 star: 1 1 star:  0
Bottom Line: 0% would recommend it to a friend
  • Not great

    • By James R.,
    • Texas,
    • Jul 2, 2019
    • Verified Reviewer

    I am a newer day trader that like many was attracted to Robinhood for its no commission trading platform. Unfortunately, Robinhood has 1 day, 5 min charting only and not 1 day, 1 minute. Also, if you are trying to day trade, if you put a limit buy or limit sell on the web platform you will not be bought in until the asking price is the limit price, unlike most trading platforms that trade as soon as there is a buyer available at the limit you set. There are no real charting for those of us that are technical although they do have a few indicators available on the web platform. The few good things about Robinhood are for longer-term investors who are buying at asking price and holding...just remember that if you try to sell at the top you might not sell before it goes down again so its best to sell at slightly bellow your projected target.


    Help others find the most helpful reviews

    Was this review helpful?

    yes no

Showing 1-1 of 1

Write a Review for Robinhood!


Write a Review