What Robinhood Does Well and Where It Falls Short
Robinhood works best if you want commission-free stock and options trading with a simple interface, but it has real limitations for long-term investors
Robinhood is a brokerage app that lets you buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies without paying per-trade commissions. The app is designed to be straightforward — you open an account, fund it, and trade from your phone. Whether it is right for you depends on what you plan to trade, how often you trade, and what research tools and account features matter to you.
The app does not charge commission fees, which means you keep more of what you invest. It also does not require a minimum account balance to start trading individual stocks. For someone making occasional trades in common stocks or ETFs, this can mean real savings compared to brokerages that charge per trade or require $2,500 or more to open an account.
But Robinhood has significant gaps. It offers no fractional shares (you must buy whole shares), limited research tools, no tax-loss harvesting features, and a history of outages during high-volume trading days. The app also restricts options trading based on your account type and experience level, and it does not offer retirement accounts like IRAs or 401(k)s.
Key Takeaways
- Robinhood charges no commission on stock, ETF, and options trades, which saves money compared to brokerages that charge per trade.
- The app has no minimum account balance requirement and works well for simple buy-and-hold trades in common stocks and ETFs.
- Robinhood does not offer retirement accounts, fractional shares, or advanced research tools, which limits its usefulness for long-term investing.
- The platform has experienced outages during busy market days, which can prevent you from trading when you need to.
- Options trading is restricted based on your account type and experience, and margin accounts charge interest on borrowed money.
Commission-free trading and low barriers to entry
Robinhood's main draw is that it charges zero commission on stock and ETF trades. Many other brokerages also offer commission-free trading now, but Robinhood was one of the first to do so, and it remains competitive on cost. You pay no fee to buy or sell, which means every dollar you invest goes into the stock itself rather than paying a middleman.
There is no minimum balance to open an account or to start trading individual stocks. Some brokerages require $500, $1,000, or even $2,500 in your account before you can trade. Robinhood lets you open an account with any amount and buy a single share of a company if you want. This makes it accessible to people starting out with small amounts of money.
The app also offers options trading without commission, which appeals to experienced traders. Options are contracts that let you bet on whether a stock price will go up or down, and they typically carry higher fees at traditional brokerages. Robinhood charges no commission, though you still pay the bid-ask spread (the difference between what buyers and sellers are willing to pay).
What Robinhood does not offer
Robinhood does not support retirement accounts. If you want to open an IRA, Roth IRA, or SEP-IRA, you cannot do it through Robinhood. You also cannot set up a 401(k) through the app — those are employer-sponsored plans anyway, but if you are self-employed and want a Solo 401(k), Robinhood is not an option. This is a major limitation for anyone building retirement savings, since IRAs offer tax advantages that regular brokerage accounts do not.
The app does not offer fractional shares, which means you cannot buy a portion of an expensive stock. If a stock costs $500 per share and you have $300 to invest, you cannot buy it on Robinhood. You can only buy whole shares. Some competing brokerages let you buy fractional shares, which gives you more flexibility with smaller amounts of money.
Robinhood also lacks advanced research tools. The app shows you basic price charts and news headlines, but it does not include analyst ratings, earnings estimates, or detailed financial statements. If you want to research a company thoroughly before buying, you will need to use another website or app alongside Robinhood.
Platform reliability and trading restrictions
Robinhood has experienced multiple outages during high-volume trading days, most notably in March 2020 when markets were volatile and the app went down for hours. If you cannot access the app when you need to trade, you cannot execute your trades. This is a real risk with any app-based broker, but Robinhood's track record has been worse than some competitors.
The platform also restricts options trading based on your account type. You must have a margin account (which lets you borrow money to trade) to trade options, and Robinhood limits what options strategies you can use depending on your experience level and account balance. If you want to trade options, you will need to meet these requirements and understand the risks.
Margin accounts charge interest on borrowed money. If you use margin to buy stocks or options, Robinhood charges you interest on the borrowed amount. The interest rate varies but is typically competitive with other brokerages. However, if you borrow money and the market moves against you, you can lose more than you invested.
How Robinhood compares to other brokerages
Most major brokerages now offer commission-free trading, so Robinhood is no longer unique on that front. Fidelity, Charles Schwab, E-Trade, and TD Ameritrade all charge zero commission on stocks and ETFs. The differences come down to features, research tools, and account types.
Fidelity and Charles Schwab offer retirement accounts, fractional shares, and more research tools than Robinhood. They also have better track records for platform reliability. However, they have more complex interfaces and may feel overwhelming if you are new to investing. E-Trade and TD Ameritrade fall somewhere in the middle — they offer more features than Robinhood but are still relatively beginner-friendly.
If you want the simplest possible interface and plan to make occasional trades in common stocks, Robinhood is competitive. If you want to build a retirement account, need fractional shares, or want advanced research tools, another brokerage will serve you better.
Robinhood's business model and how it makes money
Robinhood does not charge commission, but it makes money in other ways. The primary source is payment for order flow, which means Robinhood sells information about your trades to market makers and other financial firms. When you place a trade, Robinhood routes your order to these firms, which pay Robinhood for the opportunity to fill it. This is legal, but it means Robinhood has an incentive to encourage you to trade frequently.
Robinhood also makes money from margin interest (when you borrow money to trade), from premium subscription features, and from cryptocurrency trading. Understanding this business model matters because it explains why the app is designed to be engaging and easy to trade on — Robinhood profits when you trade more, not when you make money.
Who Robinhood is and is not right for
Robinhood works well if you are a beginner who wants to buy and hold a small number of stocks or ETFs, have a small amount of money to start with, and do not need retirement accounts or advanced research tools. The simple interface and zero commission make it a low-friction way to start investing.
Robinhood is not a good fit if you want to build a retirement account, need fractional shares to invest small amounts in expensive stocks, want detailed research and analysis tools, or plan to trade frequently. It is also not ideal if you need a brokerage you can rely on during volatile market days, since outages have been a problem in the past.
If you are an experienced options trader, Robinhood can work, but you should understand the margin requirements and interest charges. If you are a day trader or scalper (someone who makes many trades per day), the app's outage history and lack of advanced tools make it a risky choice.
Frequently Asked Questions
Does Robinhood have a minimum account balance?
No. You can open a Robinhood account and start trading with any amount of money. There is no minimum balance requirement to open an account or to buy individual stocks. Some account features, like options trading, do require a margin account, which may have different requirements.
Can I open a retirement account on Robinhood?
No. Robinhood does not offer IRAs, Roth IRAs, or other retirement accounts. If retirement savings are part of your plan, you will need to use a different brokerage like Fidelity, Charles Schwab, or E-Trade.
Why does Robinhood charge no commission?
Robinhood makes money through payment for order flow, which means it sells information about your trades to market makers. It also charges margin interest and offers premium features. Commission-free trading is now standard across most brokerages, so Robinhood is no longer unique on this front.
What happens if Robinhood goes down during a market crash?
If the app is unavailable, you cannot trade through Robinhood until it comes back online. Robinhood has experienced outages during high-volume trading days in the past. If platform reliability is important to you, research the brokerage's uptime history or choose a competitor with a better track record.
Can I buy fractional shares on Robinhood?
No. Robinhood only allows you to buy whole shares. If you want to invest in an expensive stock with a small amount of money, you will need to use a brokerage that offers fractional shares, such as Fidelity or Charles Schwab.