Robinhood Review: From Discounted Robo Advisors to discounted Brokerages
Before we proceed with our RobinHood Review, we believe it would be fair to say the Robo advisory industry is hotting up with investments flowing in from everywhere.Millenials who choose Robo Advisors over regular and Discount brokers do it because of lower costs and accessibility. However, it is not uncommon to see Individuals who would prefer to pick up stock and Specific sector ETF based on their research ideas, but well to see the least aren’t prepared to pay the regular or discount broker the $5 to $10 per trade minimum.Moreover, why not? You pay the Robo Advisory a percentage which ranges from 0.39% to 0.89% if you were to manage your money should it not be free from brokerages?The Entire brokerage Industry needed disruption.They had it in the form of free stock trading through Robin Hood.
Set up as Robinhood Financial, LLC, the company offers commission free stock trading through its APP, which is available both for Android and the iPhone. There is no Minimum deposit required to join.you can sign up on the portal as well as the APP.unlike the trading which for now you are restricted to App only.RobinHood App offers you access to over 5000 Stocks and ETF’s free of charge. RobinHoods Universe is way bigger than any major competitor out there. But their service is restricted to stock and ETFs only; One cannot trade warrants, OTC securities, options, and futures as of now. Having said that the Robinhood team is consistently trying to expand their coverage.They also have another service called RobinHood Instant, the subscribers to this service have access to their funds as soon as the sell order is executed. No waiting for three days for settlement. Providing such services has costs associated with it. This leads us to an important part of the Robinhood review.
How does RobinHood make any Money?
RobinHood is another player in the brokerage market which focuses on discounted margin trading for its revenue. In lay man’s terms, it intends to charge interest to its customer base for margin funding; The lending rate stands at around 3.15% which is still lower to traditional brokerages. That’s not all it also expects to earn interest on deposits that are not yet invested by customers. Mostly cash at the bank will make interest too. This kind of revenue model is not new. Currently, we see Zerodha In India and WiseBanyan follow a similar structure.The latter offering a Robo Advisory instead of buying stocks directly. Though the sustainability of such a model can be debatable. Users will find confidence from the fact that Robinhood is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). These memberships provide protection to its securities customers up to $500,000 (including $250,000 for claims for cash).
What do Users say about the service?
Our Robinhood Review won’t be complete without actually focusing on what the consensus say about its services. So far the services have been well received by most, with most average users delighted with the amount of brokerage they have saved so far. Some estimates put the cost saving to its clients to be more than $25 million, not bad for a firm which is still new compared to industry standards.The APP itself is beautifully designed, free from Ads and bloatware. The funding process is hassle free and pretty streamlined, within 5 minutes of signing up you can fund your account. The APP is quite easy to use and fast enough to execute trades without much lag.The app accepts limit, stop limit and market orders.Enough to keep the average Investor happy. Having said that, it has seen its fair share of critics too.Most critics pointing to the fact that it has no Dividend reinvestment policy.Instead, you get the dividends credited to your bank account. Moreover, some users have also reported their inability to day trade properly. Although the view is not unanimous, some users have reported their account being flagged for pattern day trading (PDT). Something a day trader wouldn’t like to see, but it might not be a restriction from Robinhood side but compliance requirements for accounts under a certain size. Overall the reception has been relatively positive, and the company continues to gain traction in the domestic as well as the international market. The Robinhood APP service is already in US & Australia, and there are ongoing talks for a China launch soon.
Robinhood Review: Summary
We would recommend Robinhood APP services to anybody who is looking to cut down on commission charges or even to an infrequent trader. We believe it is important for readers to know that you get what you signed up for..In the case of RobinHood do not expect premium tools or research support or recommendations. There won’t be any wealth manager telling you what to and what not to do. What you can look forward to though is the amount of transaction & brokerage fee you would save in a calendar year compared to your current broker.