Robinhood App Trading Guide (Everything You Need to Know)
This RobinHood App Trading Guide will answer a question that we get asked all the time: How does Robinhood work? Robinhood is a free, US-based stock trading app that allows 100% commission-free stock, options, cryptocurrency and ETF trades. This guide will teach you everything you need to know about Robinhood so you can trade effectively.
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The biggest reason why RobinHood is so popular is because of its commission-free nature. In short, they donโt charge any trading fees and they have $0 account minimums. Which raises the question, how does Robinhood make money?
Weโre going to answer this question and more in the coming sections. By the end of this guide, youโll know exactly how Robinhood works and how to start trading.
In 2019 the RobinHood app managed to become the largest US-based online stockbroker, surpassing E-TRADE. Up until this year, E-TRADE was the largest broker-dealer in terms of the number of customers. Today, Robinhood is the most popular mobile trading app, with more than 6 million customers.
First, letโs start by answering the first basic question, what is Robinhood?
What is Robinhood?
Robinhood is a broker-dealer app that allows users to trade stocks, options, and ETFs with zero commission fees. You can also buy and sell cryptocurrencies on Robinhood App. Robinhood allows users to trade cryptos like Bitcoin, Ethereum and Litecoin.
Because Robinhood doesnโt charge any trading commissions, itโs much easier for novice traders to learn how to make money. The second advantage you have is that there is no minimum deposit requirement to get started trading with Robinhood App.
You can start investing with Robinhood App with any amount of money.
The downside is, they donโt offer any tax-sheltered accounts like the IRAs or other types of retirement accounts. Another drawback of Robinhood is that right now they donโt offer automated trading features.
You can trade the following instruments on the RobinHood App:
- Stocks
- ETFs
- REITs
- Options
- Cryptocurrencies
RobinHood was the first brokerage account to introduce $0 commission trading. Normally, when you start trading stocks, a stockbroker will charge you between $5 and $15 to buy stocks. When you want to take profits and sell, the stockbroker will charge you another fee. This isnโt the case with Robinhood.
The Robinhood App also allows its users margin trading through Robinhood Gold, their premium account tier. Their commission-free model and a wide variety of tradable instruments made this app experience meteoric growth in 2021.
Letโs now answer another question that many new aspiring traders have:
Is Robinhood safe?
Is Robinhood Legit?
Is Robinhood legit? Is the Robinhood App safe? These are legitimate concerns that any individual investing in the stock market can have.
You can trade with peace of mind because your money on RobinHood is protected by the Securities Investor Protection Corporation (SIPC) up to $500k for securities and up to $250k for cash claims.
Additionally, Robinhood is also regulated by the Financial Industry Regulatory Authority (FINRA), which makes Robinhood safer to use. So, in terms of security, the investorโs money is very well protected.
Because Robinhood is a securities broker, it needs to be regulated by the financial regulatory authorities in the USA, namely the Securities and Exchange Commission (SEC). On top of being regulated by the SEC, Robinhood also has other safety procedures to protect your hard-earned money and your private data.
Even though opening an account with Robinhood is different from the traditional stock brokerage account, they are still required by law to collect certain information from their clients. This includes trading activities and tax information. To file information tax forms you need to give them your Social Security Number (SSN).
But the app doesnโt come without its dangers.
Trading on the go and being an inexperienced trader can be a recipe for disaster. This is really the only danger the RobinHood App poses. This is because it boasts itself as being the most loved investing app by millennials. And, we know many Millennials are still missing the financial literacy to become a successful stock trader.
The good news is the app itself is straightforward and easy to use, even for new stock traders.
Next, weโre going to give you a basic idea of how Robinhood works.
See below:
How Does Robinhood Work?
RobinHood works the same way as any other online stock and options broker. You follow the same standard process:
- First, you submit your application form to open an account with Robinhood.
- Secondly, you transfer your funds to the RobinHood account.
- As soon as the money hits your Robinhood account, you can start buying and selling stocks, options, ETFs and cryptocurrencies.
If you arenโt familiar with the sleek Robinhood interface, you should know that they offer different ways to buy stocks. In the next section, weโll show you an example of how to buy and sell stocks on Robinhood from the convenience of your smartphone.
Using an investing app can be intimidating and scary, but itโs actually pretty easy
Buying and selling stocks on RobinHood up is as simple as following these 7 steps:
- Load up the RobinHood App.
- Search for your favorite stock, ETF or cryptocurrency.
- Tap the โTradeโ button.
- The next page will give you the option to buy or sell. Tap the โBuyโ button.
- Select your Order Type from the upper right order and the number of shares you want to buy.
- Confirm your order.
- Swipe Up to submit the order.
Pro Tip โ To be as efficient as possible, you can create a watchlist for quick access to your favorite stocks.
Donโt forget to read our guide where we broke down the general principles and the best way to pick stocks for day trading: Best Day Trading Stocks with Mountains of Cash.
Letโs now talk about something more controversial, which is how does Robinhood make money?
See below:
How Does Robinhood Make Money?
Can a stock broker make money without charging a commission and offering stock trading for free?
It appears that RobinHood managed to be appealing to investors and still earn revenue from various sources of income. Moving forward, weโre going to outline how RobinHood can afford to offer you commission-free trading and still make money as a company.
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The way Robinhood makes money is actually very transparent. All the sources of revenue are listed on their website. RobinHood App doesnโt charge a trading fee like its competitors E*TRADE or TD Ameritrade. But Robinhood generates its profits from the following streams of income:
- Premium accounts. Robinhood Gold is a premium feature that allows margin trading and other benefits. RobinHood Gold starts at $5 per month.
- Margin Interest. Like any other stockbroker, RobinHood earns interest from customer cash, the same way banks collect interest on cash deposits.
- They charge $10 for any transaction made through a phone call.
- They can also assist in purchasing a foreign stock for around $35 โ $50.
- Payment for order flow. This is a common practice in this industry.
Again, There are no RobinHood hidden fees! Now, you can argue that selling order flow to high-frequency trading (HFT) can result in a delayed fill on your order. Your order to buy stocks might be passed on to these HFT firms before routing to the actual exchange. This, in turn, can lead to a worse fill on your order, thus it is seen as a hidden cost in trade execution.
But, everyone in this business is most likely to sell your order to these HFT firms before passing it on the exchange. So, there is no escaping this practice. You have to get used to it and accept it as a way of doing business.
If you want to learn how high-frequency trading works, check out our HFT guide HERE.
Since weโre followed by a wide variety of traders, letโs touch on another topic that weโre sure some of you will appreciate. Namely, weโre going to give you a quick guide on how to trade options on Robinhood.
Before that, letโs talk about your trading strategy. It doesnโt matter what platform you choose to use, you need a trading strategy that works.
See below:
How to Trade Options on Robinhood
Before you buy and sell options on RobinHood make sure options trading is unlocked on your Robinhood account. Depending on your level of experience youโre given a Level 2 designation if youโre a novice trader and a Level 3 designation if you know how to execute more complex options strategies.
With a Level 2 designation you can execute the following options trades:
- Buying Call and Puts. Learn how to buy Put and Call options by following the step-by-step guide on How to Trade Stock Options for Beginners.
- Covered Calls. Become a smart options trader with this covered call strategy.
- Cash Covered Puts.
Opening an options trade on RobinHood is as easy as following these three simple steps:
- Tap the magnifying glass and search for your favorite stock you want to trade options on.
- Tap Trade in the bottom right corner of the stockโs Detail page.
- Tap Trade Options.
(Click on the picture to enlarge)
Please check out the different options trading strategies in our Options Investing Strategies Guide.
Robinhood Trading App FAQ
How does Robinhood Taxes Work?
All users have to pay taxes on Robinhood stocks if the dividend income is over $10 or if you sell stocks for a profit within a filling year. As per the IRS guidelines, all the profits made from the selling of stocks are subject to short-term capital gain tax (stocks owned less than 1 year) at your ordinary tax rate and to long-term capital gain tax (stocks owned for more than 1 year) at either 0%, 15% or 20%.
Robinhood tax documents are available under the Account icon (bottom right corner) โ> Navigate to Statements & History โ> Tax Documents.
Who owns Robinhood App?
Robinhood Markets is a fintech company co-founded by Vladimir Tenev and Baiju Bhatt with its headquarters in Menlo Park, California. Founded in 2013, Robinhood was the first FINRA-regulated broker-dealer to offer a commission-free trading model to US stock traders.
Is Robinhood App available in Europe?
NO! Unfortunately, Robinhood trading App is not available for EU residents due to regulatory restrictions. The commission-free trading model popularized by Robinhood is not allowed in the EU.
Is Robinhood Trading App available in Canada?
NO! The US stock trading app Robinhood is not available to Canadian residents. The best alternative to Robinhood that Canadian traders have is Wealthsimple Trade, which allows them to buy and sell stocks with no commission on major Canadian and US stock exchanges.
Is Robinhood Trading App available in India?
No! Commission-free investing via the popular trading app Robinhood is not available to residents of India. The best investing app in India is Winvesta which features over 3,000 US stocks and ETFs.
What are Other Alternative Trading Apps like Robinhood?
The top 3 best Robinhood App alternatives you should use are Webull, E*TRADE and Acorns. These are low-cost trading apps that promote commission-free trading on US stock exchanges.
Final Words โ How to Make Money on RobinHood
For a certain type of stock traders, the RobinHood App can be the best stock trading app. However, just because the barrier to open a RobinHood account is so low, you still need to do your own research if you donโt want to end up losing your hard-earned money. Before you hit the buy button follow our guide on how does Robinhood work?ย
While we have already given you some reason why is RobinHood legit, this doesnโt guarantee that youโll always make money. But you know that your funds are secured and you trade stocks through a reliable trading platform.
If you have no issue with how does Robinhood make money? and you like the convenience of trading through your smartphone go ahead and take your free stock trades today.
Thank you for reading!
Feel free to leave any comments below, we do read them all and will respond.
If you would like to sign up with Robinhood to get a free stock, go here!
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I would like more information on stocks and how I can make money on the Robin hood appโฆ.I am very new to this and im confused. Thank you.
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The information was clear and concise on what to expect from this product. You explained in detail how the trading process worked along with risk. I appreciate that in this industry.
Thank you so much!
I would personally like to more about this and how it works what do I do etc. just reading everything else and trying to apply it is quite confusing. Any help would be great so I have a better understand of this. Also yes I did sign up for this last night but still confused as to how this whole process goes
Hi sir i need someone to talk to me on phone so that i understand properly about this app and how much to invest and and also how do i withdraw my money thanks
We arenโt part of Robinhood. If you need to withdraw your money you will have to contact Robinhood. There should be contact info in their app or online.
Iโm new to robbinhood donโt understand what to do I understand 3 days per week but only 3 times u can sell per week donโt understand how u do day trade u buy 1 stock and sell it the same day or u can buy the day before and sell the next day what is the right way I need help to understand
https://tradingstrategyguides.com/webull-day-trading/
https://tradingstrategyguides.com/ohl-strategy-for-day-trading/
https://tradingstrategyguides.com/day-trading-for-beginners/
https://tradingstrategyguides.com/day-trading-rules-under-25k/
https://tradingstrategyguides.com/single-stock-trading/
https://tradingstrategyguides.com/day-trading-penny-stocks/
Here are a couple articles to get you going on learning how to day trade. There are also links throughout the articles for more information.
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