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There's a common question going around these days about the Robinhood App: What are Robinhood fees?
Touted as a commission-free trading platform that empowers people to invest in the U.S. financial system, Robinhood trading gives people easy access to the markets via their fintech mobile app, which supports investment in the following assets:
- U.S. Exchange-Listed Stocks and ETFs
- Options Contracts for U.S. Exchange-Listed Stocks and ETFs
- Cryptocurrencies, including Bitcoin and Ethereum
- ADRs for over 250 Globally Listed Companies
But with no commission fess and no Robinhood ETF fees, there is much speculation over how Robinhood generates revenue.
If you've been considering Robinhood for your investing, keep reading. If you want to get started investing on your own, this might be the platform to do it…
How Does Robinhood Work?
One of the great advantages to the Robinhood App is its accessibility to novice investors and traders. Robinhood is great for anyone who is curious about trading but not yet familiar. It gives people the ability to do everything right from their smartphone and have total control over their investment choices. To get started:
- Users quickly sign up through the Robinhood App, providing their contact information, Social Security number, and how the investor will fund their account. Customers receive notice within an hour of their approval.
- Once approved, users transfer funds to their Robinhood account.
- After funds are deposited, users can begin investing.
Robinhood makes verification easy for customers who bank at a major institution, allowing them to use instant verification rather than report a bunch of micro-transfers. Customers can also set up automatic deposits on a weekly, bi-weekly, monthly, or quarterly basis.
More experienced traders may find Robinhood a bit lackluster. It doesn't support mutual funds and bonds and only has one account option: an individual taxable account or brokerage account. This gives you lots of flexibility to withdraw anytime but isn't so great if you're planning for retirement. Additionally, it offers limited research capabilities, which may be a bit risky for investors who are unfamiliar with trading and have limited financial literacy.
No-Frills Interface for Novice Traders
Robinhood is all about simple, streamlined trading that doesn't get overcomplicated. There are no Robinhood app fees. It's easy to understand for users new to trading, or who want to learn. The con is that there are limited trading options available.
Investors who know exactly what they want and just need quick trades can set up watch lists for favorite stocks and trade with just the click of a button. You can also easily search for specific stocks by their ticker symbols.
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Robinhood also has a collections feature, which organizes stocks by sector. This allows you to quickly sort through the industries you're most interested in.
For easy navigation, there is a bar at the bottom of the app to see watch lists, account details, transaction history, and values.
Sounds ideal, but is there a catch? Let's take a look at what Robinhood offers and how it makes its money…
Is the Robinhood App Safe?
With so much accessibility, it's easy to see why people may question the safety of the Robinhood App. But there are regulations that it is required to comply with, including the following:
- Money is protected by the Securities Investor Protection Corporation (SIPC) for up to $500k on securities and $250k on cash claims.
- It is regulated by the Financial Industry Regulatory Authority (FINRA), which oversees U.S. broker-dealers.
- As a securities broker, Robinhood is regulated by the U.S. Securities and Exchange Commission (SEC), which oversees activity on Robinhood.
Robinhood Fees Breakdown
While Robinhood does truly offer commission-free trading, it isn't a fee-free platform. Some people even feel that there are Robinhood hidden fees that make it more expensive than advertised.
None of Robinhood's fees are actually hidden, as its website offers a fee breakdown. But it is important to understand the impact on these fees for your specific type of account. The following section will help you decipher which fees may apply, and if Robinhood's service is the right fit for you.
Robinhood Trading Fees
There aren't Robinhood fees charged to open, maintain, or transfer funds, but because they are regulated, there are fees charged to Robinhood, which in turn get passed to customers. These fees include:
Regulatory Transaction Fee
A fee charge by the SEC to FINRA to supervise securities markets and its associated professionals: $22.10 per $1,000,000 of principal (sells only), rounded to the nearest penny.
Trading Activity Fee
Covers costs associated with FINRA supervising and regulating brokerage firms: $0.000119 per share (equity sells) and $0.002 per share (options sells), rounded up to the nearest penny and no greater than $5.95.
American Depository Receipt Fees
Foreign stocks that are traded on American exchanges are subject to American Depositary Receipts (ADRs), or certificates, which may charge certain custodial fees: range from $0.01-$0.03 per share.
Robinhood Gold Fees
Robinhood Gold is a product aimed at offering large deposits, more professional research, level II market data, and Investing on Margin for an additional Robinhood fee of $5 per month up to $1,000 margin.
If investors exceed the $1,000 margin, there is a 5% interest rate charged. There are additional fees for Legacy Pricing based on account size, starting at $2,000 up to $50,000.
There is a 5% APR for borrowing that exceeds $50,000.
Robinhood Transfer Fees
One of the primary ways Robinhood generates revenue is through its outgoing Automated Customer Account Transfer Service, or ACATS fee, of $75. This applies to the transfer of a customer account from one broker-dealer to another.
Domestic ($25) and international ($50) wire transfer fees also apply, in addition to domestic overnight check delivery ($20).
Some Robinhood fees cover basic services such as statements and mail:
Paper statements: $5
Paper confirm: $2
Domestic overnight mail: $20
International overnight mail: $50
Options trading is another Robinhood product, but how do you trade options with Robinhood? With options, a customer can interact with stocks, but you don't have to trade them. You have control over the shares of stocks, but you don't have to actually own them.
One of the benefits of using this feature is there are no Robinhood options fees. Some of its fintech competitors who offer options trading have fees, making Robinhood an attractive platform for options traders.
Is Robinhood Right for You?
Investing with Robinhood is certainly targeted toward a younger core audience of novice investors. For the tech savvy 20-something investors, it's a great way to get the basics without Robinhood brokerage fees, ETF fees, options trading fees, or commissions.
But it's probably not the best choice for all your investing needs. You'll definitely want to set up your own retirement account or continue contributing to one you already have through your employer. These offer tax advantages that a brokerage account doesn't.
The bottom line is that Robinhood fees can be considered minimal compared to some other platforms, but it does have fees that can impact your investments. If you are okay with the way Robinhood generates revenue, it may be a good segue into the world of stocks, options, and basic Robinhood day trading to put investing directly under your own control.
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