Robinhood is a stock brokerage that allows you to sign up, deposit money and start buying and selling stocks. It is by far the easiest platform to learn on because of its focus on simplicity. So what’s a broker? Why invest using Robinhood over other brokers? Is it really that easy to use? Do I need a lot of money to start? I know… I know…there are tons of questions when it comes to learning about investing and sometimes it can be overwhelming. After you read the rest of this article though, I guarantee, it will not seem so crazy and confusing.
So What’s a Brokerage?
Well to keep these rather simple, a Brokerage is a company that coordinates trade transactions of shares of stock between buyers and sellers. So for example, if you are a member of a brokerage and you want to buy 5 shares of stock in company ABC, you would login to your brokerage and look up the ticker symbol. Let’s say its ABC, In order to buy 5 shares of ABC, someone else needs to be willing to sell you 5 shares. A brokerage company makes that happen. It matches buyers and sellers and ensures the transaction occurs quickly and for the fair price of the market. They then generally take a commission for this transaction.
Some big names out there for brokerage firms are Fidelity, TDAmeritrade, E-Trade, and Charles Schwab. These names have been around for decades. Recent newcomers are WeBull, and Robinhood which focus more on using smartphone apps to make trading
Why Invest Using Robinhood Over Other Brokers?
Anyone that has been investing for more than a few days has probably heard of the big names I mentioned above. In fact most of you have parents that probably have accounts in at least one of those companies. I actually have a TDAmeritrade account myself but am slowly moving over to Robinhood for most of my trading and it’s all due to one simple reason…ZERO COMMISSIONS.
Like I said earlier, all the big brokerage accounts use commissions to make money. They let you make the trades using their platform for the low cost of a commission, generally between $5.95 – $9.95 per trade. Robinhood; however, charges $0 commissions which really adds up…
Let’s do some simple math. Let’s say you have $1000 to invest. You go on your brokerage account and decide to be responsible and invest your money into 4 different companies in different sectors (ie Financial, Tech, Healthcare, and Retail.) This is a good idea after all because diversifying your portfolio is something you’ve been taught is important. I will probably eventually write another article on the importance of this concept but for now we’ll assume you put $250 into each of the 4 companies you chose. That means you made 4 trades. Assuming an average of about $6.95 commission, you will have spent $27.80 in commissions. Now Let’s assume after six months, you want to move your money from 2 of the companies into 2 new companies that you think have brighter futures. You have to sell your first shares and then buy the new shares in the new company so that’s another 4 trade transactions…another $27.80 for a grand total of $55.60. That may not seem like a lot but from your original investment of $1000, Let’s say in six months time you made 8% from your stocks performing. 8% of $1000 is $80 so now you have $1080 in your account but you need to subtract your commissions so actually you only have $1024.40. What!!?? Those commissions ate up 5.56% of your investment!
Now let’s say you invested only $500 and invested into 4 different stocks again but this time you waited a year to make the same adjustments to your account. Your portfolio did really well and actually made 10% Wow! That’s $550. Not bad…but you made those 4 trades for $55.60 so actually your account is now worth $494.40 and you lost money!!! Commissions are sneaky like that.
Obviously the less you invest, the more of a percentage that these commissions will eat away at your profit potential. Zero commissions sounds pretty good now. In the first scenario at the end of the year, the account will be worth $1080 instead of $1024.40 and the second scenario will be worth $550 instead of $494.40 since there will be no money robbed in commissions.
But is Robinhood Still Easy To Use?
Zero commissions make a huge difference but do they come with a cost? There has to be a catch! Well, honestly not really. In fact Robinhood is the easiest platform I’ve found so far to use. I was actually listening to a podcast that featured one of founders Baiju Bhatt who discussed how their vision of the app based brokerage was completely based on the consumer experience. They wanted to flip the conventional brokerage on its head and offer zero commissions.
So how can they offer what all of these other behemoth brokerages can’t? The simple answer is overhead! Major brokerages have headquarters and branches in brick in mortar buildings all across the United States or other countries while Robinhood’s business is focused around the use of an app on Android and Apple devices which frees up a lot of capital. Also, they hope that you will upgrade to Robinhood Gold which is a service for advanced users. By no means is it a required service for beginner investors. In fact, I still use the basic membership and never have any issues.
Do I need a lot of money to start?
Since Robinhood offers zero commissions, there is literally no minimum amount to make it worth opening an account and getting started. In fact once you join and get your account approved, you are gifted a free random stock ranging in value from $2.50 – $200. This is a great way to invest with little money. The only downside is that you need to meet the following criteria:
- Be 18 years or older;
- Have a valid Social Security Number (not a Taxpayer Identification Number);
- Have a legal U.S. residential address within the 50 states or Puerto Rico; and
- Be a U.S. citizen, U.S. permanent resident, or have a valid U.S. visa*.
Investing With Robinhood Really is That Easy
So, there you have it. Investing with Robinhood really is as easy as it sounds. Zero commissions can’t be beat! If you want to get started, just click the link below. Start your journey with Robinhood today and we will both get a free share of stock. There really is no downside but if you have any questions or comments, I’d love you to leave them below!
Now let’s get started!