Robinhood Review: The Free Trading Application

About two weeks ago, I downloaded a pretty new trading application called Robinhood and thought I would share my initial review with you today.

I’ve wanted to trade stocks for the longest time, but the fees that come with trading or going to a broker always got in my way. If you’re like me and you don’t have much money to trade, these fees can eat into your profits. Robinhood enticed me to sign up because of the fact that the application is free but also because a promotion allowed me to get a free stock with registering.

Is Robinhood worth downloading?

It’s been a long while since I’ve been excited about making any kind of money online. The Internet has become so overly saturated in almost every market and many companies are looking to sucker you in so they can make a quick profit, while you make nothing. Robinhood isn’t that company.

Upon signing up for the application, you attach Robinhood straight to your bank account. I ended up getting a free share in Fit Bit and ultimately ended up selling that stock. Robinhood notes there is a 1 in 1000 chance that you’ll pickup a big named stock like Apple. From the first stock I got along with 4 that I’ve now gotten for referrals, the best stock I received was valued at $10. Nothing big, but free money is free money. You do need to hold onto the stocks for 3 trading days before you can trade or sell your stock.

How does Robinhood make their money?

Much like a bank, Robinhood makes money (and is able to give out free stock) because they collect interest on money that you put into your account. As long as their customer acquisition costs are under their profits from interest, Robinhood will be a profitable business. Seeing that some users have over $100,000 in their account, you can easily see why Robinhood is able to offer free trades.

That doesn’t mean it’s perfect.

Day trading is something that you’re not able to do unless you have over $25,000 in your account. I think you can get up to 3 or 4 day trades in a 5 business day period, or you could be labeled as a pattern trader. That said, Robinhood can be used for swing trading and long term investments.

What about the interface?

The Robinhood interface is very basic and bare bones. Although I haven’t had the opportunity to dive into the Gold Membership, here’s what I will say:

I do NOT recommend using Robinhood to decide when you’re going to buy and sell a stock. Instead, compliment the Robinhood Application by using Market Watch and Barchart to get the information you need before trading.

Buying a stock with Robinhood is very easy.

With the basic membership (which is free), you get up to $1,000 you can use of Robinhood money, while you’re waiting for your money to transfer from your bank account to buy a stock. In short, you get the stock right away (with money from Robinhood) until the money transfers from your bank account. This is very cool, as it’s critical to get in at the right price points; Especially with swing trading.

Trading options is also another possibility within Robinhood.

You’ll have the ability to setup contracts. That said, I’m relatively new to the stock market so all I’ve really dabbled in is buying and selling shares.

How much money can you make with Robinhood?

The other question really could be, how much money can you lose? If you’re playing the stock market and you don’t know what you’re doing, it’s very well possible that you could end up losing (and not making money) with this application.

I’m not a financial adviser so I cannot offer financial advice. What I can say is that I’d definitely recommend reading books on how to trade stocks successfully then practicing in a simulation application before ever actually using real money.

Overall Rating:

Aside from the fact that you cannot day trade in Robinhood, unless you have over $25,000 in your account? If you’re looking to buy and sell stocks for the first time without any trading fees, this is probably going to be an application that’d be worth trying.

I give Robinhood a 4 out of 5 rating. The application is very basic and makes buying and selling stocks easy. Unfortunately, the application is also so basic that you’ll want to utilize Market Watch and Barchart before making any purchasing decisions.

You could make a lot of money with this application, but you could also lose a lot of money.

At the end of the day, Robinhood can be a great way to make money, but if you’re not sure about what you’re doing, you could also lose money. Would I replace my Roth to fund this application? Of course not. But I would use Robinhood to supplement my income through smart investing and through referring family and friends to the application for more free shares.

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