Thursday, November 24, 2016

Robinhood: Commission Free Stock Trades

Last week I wrote about Loyal3, which is one commission-free stock broker.  This week I am writing about another, Robinhood. 

What is Robinhood?

Robinhood is a smart-phone based stock brokerage.  All transactions are done via phone app.  In order to use Robinhood, users can register on the website but then must download either the Android or Apple version of the Robinhood app.  No trades can be conducted via the website.  

How Do You Use Robinhood?

Once the app is installed on your phone, you can enter your banking information and transfer money to your Robinhood account.   A feature known as "Robinhood Instant", if activated, gives you immediate access to up to $1,000 that is en route from your bank account.  It also gives you instant access to money made via selling shares.  

To purchase shares of stock, simply search for the ticker symbol or company name on the app. Tell the app how many shares you want to purchase and whether you want a market order (meaning you'll pay whatever the going price is at the time the trade is made) or a limit order (meaning you tell the app how much you are willing to pay per share and if the stock is at or below that price, the shares will be purchased.  Selling shares works the same way--you tell the app how many shares to sell, and whether you want to sell for the market price, or whether you only want to sell if a certain price is reached. 

How Much Does Robinhood Cost?

Robinhood does not charge for stock trades involving US stocks, so you can buy one share or a hundred without worrying about trading fees.  Robinhood does have fees for transferring your account to another broker, for buying foreign stocks (even Canadian) and for paper statements or confirmations. 

Robinhood also offers  a service called Robinhood Gold that allows you to buy stocks with borrowed money, allows you to trade after hours (without it, orders placed after the market closes are executed first thing in the morning) and gives you instant access to larger deposits.   The cost of Robinhood Gold increases as the size of your account increases.  

What Can You Not Do With Robinhood?

As with most things, a lower price means a lower level of service.  Some things you can do with a full service broker that you cannot do with Robinhood include:
  • You cannot buy or sell options 
  • You cannot short sell stocks
  • Robinhood's terms of service indicate that limits are in place to make the platform unsuitable for day trading
  • They do not guarantee instant execution of trades
  • They do not offer any research on companies or any investment advice
  • They do not currently offer retirement accounts
  • There is no website access; all trades must be accomplished on a smartphone or tablet app

Have I Used Robinhood?

I'm a Baby Boomer, not a Millenial.  I do not own a smartphone and don't particularly want the bill that comes with one.  I have a "blackberry" style phone which, to me, is easier to text on that a smartphone.  I have wanted to try Robinhood for some time but have been unable to do so because I lacked a smartphone.  However, my husband recently needed a new phone so we got him a smartphone (which he hates).  

I was able to register online and download the app with no trouble.  Getting all the needed information into the app was a bit of a pain---he has a small cheap smartphone and typing errors were common.  However once it was set up and money was in the account, trading was easy.  I put in market orders for two shares of AT&T and one share of Lending Club.  Those executed at the opening price the next day (I placed the orders after hours). 

Once that was done, I entered an order to sell the Lending Club stock if the price increased by 10% and to buy another share if it decreased by 10%.  So far those orders haven't executed and from what I can see on financial websites, those prices haven't been reached.  

How Does Robinhood Compare to Loyal3?

Robinhood offers far more choices and far greater flexibility than Loyal3 does.  It allows you to trade any US listed stock at no charge and to have control over the price you pay or receive.  

The only advantage of Loyal3 (assuming you are willing to trade via app rather than website) is that Loyal3 sells fractional shares, and therefore allows you to invest as little as $10 per company, no matter what the price of the shares.  While the lack of commissions makes it feasible to buy only one share of a company on Robinhood, the cost of those shares means that $50 is likely to only buy you part of one company, rather than part of five.  

Investors who want to buy stock in a variety of companies for a small amount of money may find they prefer Loyal3.  If you have several stocks on their list that you want to own, if those stocks are not very volatile and you want to invest as little as $10 per purchase, you may be happier with Loyal3 than with Robinhood. The fact that Loyal3 limits your choice of stock can be an advantage (limiting your choices generally makes decisions easier) or a disadvantage (if you want a stock not on their list). 

If you want to invest in volatile stocks and want some say over the purchase price, or at the least want to be able to push a button and buy "now" (realizing that "now" will have some lag), then Robinhood will better meet your needs. 

Have you used Robinhood or Loyal3?  What do you think?

If you want to try Robinhood, use this link and both you and I will get a free share of stock. 



  1. I love my smartphone, but I don't think I want to have access to my investments on it (much less have that be the only way I could access it.) Maybe that's more secure since it's only through the app, but argh, I make so many typing mistakes. I trade so rarely, I'll stick to Vanguard.

  2. Nice write up. Loyal3 is an excellent vehicle for investors to implement a dollar cost averaging program and invest in the blue chip companies listed on their platform. I'd suggest staying away from the other companies that can be invested in there.