It is hard to pinpoint the year where everyone had smartphones, but it is easy to spot when people started using them to trade stocks.
In 2006, a year before the iPhone was released, only the cutting-edge business-people and high-effort tech consumers were using anything close to a smartphone.
But sometime between then and now, the smartphone went from being a sign of prestige to totally mundane.
And once everyone had one, suddenly the world was connected in a way it never had been before. Business moved faster. The economy boomed. And everyone had to keep up or lose money.
In 2013 the Robinhood app launched. Stockbrokers had been offering online trading and trading apps for a while by this time, but none had really taken off. Robinhood was the first trading app to not just make it big, but to get huge, with downloads in the millions. But just why is that? What does it do?
Today, we are going to take a look at Robinhood to analyse just what makes the biggest stock trading app in the world the biggest stock trading app in the world. We will answer the question: Is it any good?
Table of Contents:
At a Glance, Pros and Cons
What Problems Does Robinhood Solve? 🤔️
This is the first question to ask when you are thinking of investing anything into anything. Should you spend time on that app? Should you invest in that stock? Should you buy that appliance?
Only if it solves you a problem. Only if it yields you a benefit. So, what does Robinhood do for you?
Robinhood is a stock trading app for your phone. That means as long as you have one hand free, you can trade stocks, as well as crypto and stock options should you be interested in those markets. It also means that you can use it to track stocks, read up on the market trends, and search other analytics.
It also has a huge online community of users who discuss the very trading you will want to do. While other stock trading apps have come and gone since its initial release, Robinhood has remained the most popular on the market. This is because of two things: Its resources and its usability.
Robinhood’s Resources 🗃️
Let’s be honest: There are tons of trading apps out there. They all provide you with the ability to trade. But having the ability to trade is like having legs: Just because you have legs, that does not mean you can do a backflip. And just because you have the ability to trade, that does not mean you can make money.
What Robinhood gives you is the resources to trade intelligently. These are by no means the deepest resources in the world. They are not well sorted and looking through them to find things that are truly insightful will require some insight of your own. But believe it or not, this is its own advantage.
Imagine a highly curated database of information. Whether by editors or other users, this database offers you specially selected articles from the sea of information on the stock market. Now imagine that every article advises you to buy the same stock. Invest in the same company in the same amount.
Before long you will start to think that these articles are no more than glorified pieces of marketing. And not long after that, you will be right. People would follow these articles and inflate certain stocks.
Robinhood’s resources are not just good because of the immense depth and breadth of the information that they offer you. These resources benefit from the platform itself being neutral in their creation.
This has two sides to it: On the one hand it makes the platform a bit overwhelming for beginners. Lacking any clear starting point besides articles that announce themselves as a good starting point, someone who has never traded stocks before will look at all this information and be left baffled.
But at the same time, it means that more advanced traders will not feel like a certain agenda is being shoved down their throats. There will still be a lot to sort through, but it rewards having knowledge.
The second thing that has kept Robinhood going is its usability. Usability means two things in this case: First is the user experience offered by its interface, while the second is its fees (or rather, lack thereof).
If you look at Robinhood’s interface, you will probably see it as lacking. This is true. It puts a hard limit on the amount of information it presents to you at any given time. The most it will ever show you is either from the stock tracking that you tell it to do, or the articles you look up on your own.
In short, Robinhood goes out of your way to avoid overwhelming you. In the process, it can underwhelm you, or worse leave you lost. Some beginners will find this helpful, but it has an issue in that those beginners will not know that they are being helped. They will just see it as directionless.
But what it lacks in information, Robinhood’s interfaces makes up for in ease of use. There is no moment where the screen darkens, save for one button that it indicates for you to press with a bright red arrow. No page is so dense with tutorials or app-critical information that you skim it.
It is not all good for its interface to be so sparse, but it is not all bad either.
So, let’s concern ourselves for a moment over money. While trading on the phone and the huge community attract new users, the lack of commission fees is what attracts veteran traders.
Robinhood’s Commission Fees 💰️
Anyone who has used a stock trading app before is familiar with the many ways that fees can be used to extract value from you. Some apps will have fees for making trades, fees for opening an account, fees for adding money, fees for withdrawing money, fees for activity, and even fees for inactivity as well!
Does Robinhood have commission fees? No. It does not. Or rather, it does not have commission fees on the purchase of stocks. It also does not have any account opening, closing, activity, or inactivity fees.
Here are the two fees Robinhood has on its transactions:
- Robinhood has a fee of £.00013 per share when selling shares. That means for every share you sell, regardless of value, they will take one ten-thousandth of a pound from you.
- Robinhood also has a fee of 1.25% on any purchase you make of cryptocurrency.
The reason for the first fee is that most people are going to make their money on Robinhood from day trading. That means every day, most of Robinhood’s active user base will be selling stocks.
They do not need to charge commission fees if they can reliably provide a space for a huge number of people to sell and charge a tiny amount for that service. It also discourages bots and penny stocks.
The reason for the second fee is that cryptocurrency is massively different from stock trading. Since lots of crypto that gets bought never gets sold, they charge a normal commission fee on that one purchase.
So, Robinhood lets you not only trade stocks on your phone, but it also lets you easily navigate a huge database of data on a platform that is not biassed in favour of any of it (though the data itself may be biassed). It has a below average user interface that creates an above average experience and few fees.
Add all that together, and an important question remains…
Is Robinhood Good for Making Money? 💸️
The short answer is “yes”, but a simple yes is not enough to motivate anyone. If we told you Robinhood was a sure pathway to making money with no downsides, then you would be wise to be sceptical.
Is Robinhood good for making money?
To answer that question, let’s break it down into its logical components: What does Robinhood do to make you money? How much money does it let you make? And perhaps most importantly, does Robinhood let you make more money than other trading apps?
What Does Robinhood Do to Make You Money?
The answer to this question is an awkward in-between answer. This is because Robinhood does not do as much as some apps to make you money, but it does more than the most advanced apps.
Let’s explain how that works. To begin with, Robinhood does not have tools for investing your money. They have tools for buying stocks in a number of different ways. But they do not do anything like guide you through an investment process or set up a specific kind of account on your behalf.
There are brokers and apps that will do that. Mostly, this means helping users invest to make retirement accounts, or set up college funds for their kids or grandkids. Robinhood does not make you money that way. Robinhood is focused on making money through buying stocks cheap and selling them expensive.
To facilitate this, Robinhood has its aforementioned articles, analytics, and tracking tools. These appeal to both beginners and advanced users alike, though they favour advanced users. The reason why is that they don’t directly contribute to your money making ability. They don’t point to a stock and say, “Buy it”.
How Much Money Does Robinhood Let You Make?
Robinhood is meant as a day trading app. How much does a day trader make? Well, the average is £110,000 (or around that amount). But that is a bit ambitious. Anyone who tells you they made that much off of Robinhood is either an extremely hard worker or knows something you don’t.
The lower end of a day trader’s salary is £70,000. This is more reasonable to benchmark.
70,000 divided by the 52 weeks in the year is 1346 (rounded). 1346 divided by the seven days in a week is 192, and then 192 divided by an eight-hour workday is 24. That means you would need to make £24 an hour on Robinhood to make the low end of a day trader’s salary from Wall Street.
How plausible is this? Well, here is where we mention Robinhood’s worst feature: Its day trading limit. You can only make three trades a day on Robinhood if your account has less than £25,000 tied up in it.
That means you would have to make £192 over three trades. This is not impossible, and you can make less than that and still be pretty comfortable. But that three trade limit is a harsh restriction.
Given that Robinhood reported its users’ average revenue is barely more than £100 for an entire year, you would have to be an exceptional trader to make nearly £200 in one day with three trades.
Does Robinhood Let You Make More Money Than Other Trading Apps?
Despite all that doomsaying about your chances of making a decent living on Robinhood, not all hope is lost. Other apps do not even report their users’ average revenue. Robinhood also does not charge you for making that revenue, which most apps do in one way or another.
While most people making barely more than £100 a year on Robinhood, that number would not even be that high were people not making a good amount of money. Remember that the £100 number includes people who barely trade, or trade and do not sell their holdings, or simply don’t withdraw them.
It does not look great, but it is not a scam either, as it is highly transparent.
* eToro disclaimer: Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.
** Pepperstone disclaimer: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.6% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Stock trading apps are generally meant for people who are starting from knowing nothing about stocks and have ambitions about making a living through the trade. In this respect, Robinhood is highly appealing. It is not without its flaws, however, and you should keep them in mind before you use it.
Most of its flaws do not impact your money-making experience, save for the arbitrary limitation on day trades. It is an app that is well above average, especially given its lack of commission fees.
Get Robinhood if you are a new trader that wants a dense knowledgebase to learn from, a huge community to interact with, and an easy interface for trading that is highly customisable.