Robinhood Markets was founded in 2013 as a financial services company. It has been a game changer in the industry as it combines commission-free trading with online platform. It provides services through website and mobile app. And by heavy advertising on the “free” and “democratization”, the company has managed to draw millions of customers. Let’s see what the fuss is all about this discount broker.

Products

  1. Stocks, Options, ADRs and ETFs: The company charges zero commission or fees for stocks, options, ETFs (exchange-traded funds), as well as ADRs (American Depositary Receipt).
  2. Robinhood Crypto: Bitcoin, Dogecoin, Ethereum and other cryptocurrencies are available 24/7.
  3. Cash management: Clients can earn interest on their uninvested cash.
  4. Robinhood Gold: Clients have access to investing tools and margin loans.

Strengths

In 2019 Robinhood has become the largest US-based online broker. And now Robinhood app is the most popular mobile trading app with over 6 million clients. Besides, Robinhood is quite popular among young investors as the majority of its customer base belongs to the “Millennial” demographic. The reasons why it is so well embraced include:

  • Simple and user-friendly app and website offer a streamlined investing experience. Therefore, it is rather easy for newcomers to learn how to make investments.
  • The trading here is commission-free and there’s no withdrawal or inactivity fee. It can lower the costs of investing. In turn, each dollar saved means a dollar increase in the investor’s returns.
  • There’s no account minimum, and account opening is easy and fast. Therefore, investors can get started right away.  A margin account requires a $2,000 minimum portfolio balance, but it’s regulatory minimum by the Financial Industry Regulatory Authority.
  • Cryptocurrencies could be traded in small quantities. Most other platforms for cryptocurrency trading require certain minimums to trade. In comparison, Robinhood gives cryptocurrency investors easier access to trading.
  • Clients all have immediate access to the cash deposited and funds after closing positions. Initiating a deposit will also increase the buying power of clients. Through Robinhood, clients can get their cash into the market efficiently.

Controversies

  • Payment for order flow: It means the compensation Robinhood receives from a third party through routing client orders. It is reported that almost half of the company’s revenue come from this source. As a result, for the most part clients may not get the best price.
  • Outages: In late February and early March 2020, Robinhood experienced systemwide outages that caused the users great financial losses as they couldn’t get access to the platform. Faced with many lawsuits, the company is using the customer agreement to absolve themselves of blame.
  • Security breach: Robinhood admitted to storing customer passwords in July 2019. A lot of clients were affected by the error, but the company claimed that there’s no evidence of abuse.
  • Suicide of Alexander E. Kearns: In June 2020, this university student committed suicide due to a $730,000 negative cash balance in his Robinhood margin trading account. He accused the company of allowing him to pile on risk in his suicide note.

At last, there’re always plaudits and controversies surrounding Robinhood Markets, making it hard for investors to decide whether it is suitable. But for people who are beginner investors and want to trade in small quantities or who are extremely cost-conscious, Robinhood is still a solid choice.

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