After its inception in 2013, Robinhood soon became a popular option to invest in equities and exchange-traded funds (ETFs). However, it is no longer considered the golden boy of millennial investing. Indeed, you could say that Robinhood is completely terrible.
This article will look into some reasons why you might not want to invest in Robinhood and why others are sceptical about it.
1. Free Trades Are Now Commonplace
Robinhood’s big selling point used to be its commission-free structure. The free trades came at a price in other ways (some of which we’ll explore shortly), but users figured that the monetary savings were worth the tradeoffs.
But Robinhood is no longer the only show in town. Since its arrival, several major brokers have followed suit and now also offer free trades. Today, you can get free trades with TD Ameritrade, Fidelity, Charles Schwab, E*TRADE, Interactive Brokers, and many more. It means you need to question whether some of Robinhood’s other major shortcomings are still acceptable. In practice, they are probably not.
2. Major Downtime Problems
2020 was one of the most remarkable years in market history. We saw a record-breaking selloff and recovery, moves of more than 10 percent on a single day, and new all-time highs by the end of the year.
We don’t want to go into a lesson on investing, so suffice to say that during periods of such extreme volatility, it’s vital that people can access their accounts. Positions can move quickly and investors need to be able to reliably secure profits or cut losses.
It’s not good, therefore, when a broker is inaccessible on some of the most volatile days of the last 50 years. But that’s what happened to Robinhood. Not once. Not twice. But three times.
Worse still, all the outages occurred in the space of one week in early March during the most unpredictable days of the COVID-19 crisis. It cost people millions of dollars in positions they could not close. And Robinhood’s response? A “goodwill” payment of $75. It is now facing multiple lawsuits over the issue.
Users can no longer maintain any reasonable faith in the service being available when they need it most. That alone is enough reason to switch broker.
3. Delayed Stock Quotes
If you read Robinhood’s FAQs or independent reviews of the service, you will see that the app has real-time quotes. That’s only half true. Yes, your orders will always be completed at the real-time price, but the charts and data you see on screen are often delayed. This will prevent you from getting in and out of trades in the most efficient manner.
There are a few factors at play. Most notably, Robinhood uses the same provider as sites like The Motley Fool, Seeking Alpha, and StockTwits for its quotes. It’s cheap, barebones, and limited to a handful of exchanges. Robinhood does this to save money.
If you have an account with another broker, open the same stock on both apps and you’ll see the differences for yourself.
4. A Poor Cryptocurrency Product
We’re not here to debate the merits of cryptocurrency as an investment class. But we do understand the appeal of being able to do your stock trading and crypto trading in the same place. On paper, that’s something that Robinhood offers; it launched its crypto trading service in 2018.
But the crypto platform has some shocking drawbacks. The drawbacks are so severe that we’d strongly urge all users to look elsewhere for your crypto needs.
- Coin withdrawals are not available. If you own Bitcoin, you cannot transfer it out of Robinhood to your own private wallet.
- Robinhood does not supply you with access to your wallet or your wallet address.
- You do not hold the private keys for your crypto assets. An oft-repeated (and accurate) piece of advice in the crypto world is that if you don’t have the private keys, you do not own the coins.
All three of these problems directly fly in the face of proper crypto security advice.
On a more simplistic level, Robinhood’s selection of crypto is also extremely limited. Only seven coins are available: Bitcoin, Bitcoin Cash, Bitcoin SV, Ethereum, Dogecoin, Ethereum Classic, and Litecoin.
5. Payment for Order Flow
Given the free trades, how does Robinhood make money? Sure, there’s Robinhood Gold, but the signup rate is nowhere near enough to warrant the multi-billion dollar valuation.
The answer is via a practice called payment for order flow. It means that instead of searching for the best price for a given stock, Robinhood is instead selling your data to high-frequency trading (HFT) firms for massive profit. The HFT firms add the data to their algorithms to better understand the flow of retail money. It is they who are Robinhood’s real customers.
A blog post on Seeking Alpha in 2018 revealed the truth after the author spent time studying Robinhood’s SEC filings:
E*TRADE makes $22 per $1,000,000 traded, which sounds like a small number until you realize they cleared $47,000,000 last quarter from this. But off an identical $1,000,000 in volume, Robinhood gets paid $260 from the same HFT firms. If Robinhood did as much trade volume as E*TRADE, they would theoretically be making close to $500 million per quarter in payments from HFT firms.
As the old saying goes: if you’re not paying for the product, you are the product.
6. Robinhood Gold
And speaking of Robinhood Gold… For those who don’t know, Robinhood Gold is a subscription service that introduces a few extra features for $5 per month. With this, you get:
- Margin investing.
- Access to professional research, such as Morningstar reports.
- Level II market data.
- Larger instant deposits (rather than waiting for money to clear).
Sounds reasonable. But here’s the catch—any broker worth its salt will make all of that stuff available for free on its respective platform. It really isn’t worth $5 per month. Robinhood Gold just feels like a way to eke more cash out of inexperienced investors who think that by subscribing they will become better traders.
They won’t.
7. Poor Customer Service
Robinhood’s customer support is notoriously bad. Users complain of waiting weeks for an answer in the app’s Help section, lengthy queues to speak to someone on the phone, no responses to emails, and a general lack of urgency in responding to important issues.
In ordinary circumstances, poor customer service might be forgivable in a free app. However, when large sums of money are involved, clients deserve better. Given the company’s value, we’re sure that they could hire a few extra reps easily enough.
8. Lack of Account Types
Robinhood only offers standard, individual investing accounts. You cannot open a joint account, trust account, custodial account, Individual Retirement Account (IRA), or any other type of tax-efficient savings account. Therefore, it’s not a good option if you’re investing for long-term goals, for a child, or as a couple.
Read Also: How Does Forex Differ From Stocks?
Ideally, you should always max out your savings in non-taxable accounts before using taxable products.
9. Lack of Investment Types
Robinhood only lets you invest in four types of assets: US exchange-listed stocks and ETFs, options contracts for US exchange-listed Stocks and ETFs, cryptocurrencies, and American Depository Receipts (ADRs) for 250 global companies.
It might sound like a lot, but you’re missing out on access to many other types of investments, including over-the-counter equities, foreign stocks, mutual funds, bonds, fixed-income assets, and Forex.
Perhaps most concerning is the lack of bonds. Spreading your investment across multiple asset categories is one of the best ways to reduce risk to your portfolio, but at the very least you should hold a mix of equities and bonds.
10. Unimpressive Watchlist Features
A watchlist is a customizable list of stocks that you want to keep an eye on. They are an essential part of planning your investments; they let you quickly see whether specific parameters have been hit, and consequently, whether it’s a good time to buy your desired asset.
Most brokerages’ watchlists are feature-rich. For example, you can create multiple lists for different stocks, opportunities, or ideas. Normally, you can also sort your watchlist in various ways such as by price, volume, bid price, and other key indicators.
Robinhood doesn’t offer any of those features. You can’t even sort your list alphabetically (though at least you can reorder your list manually). The lack of watchlist features makes the app unsuitable for serious stock research.
Remember: if you don’t research stocks thoroughly before purchasing, you’re not investing. You’re gambling.
What App is Better Than Robinhood?
Robinhood experienced criticism from its users in early 2021 as a result of the GameStop scandal (which began on Benzinga Live). This prompted many people to explore for alternatives.
We’ve produced a list of the top Robinhood rivals that are now accepting new members.
1. Interactive Brokers
If you’re a frequent trader who loves Robinhood’s cost-saving structure but who also needs more in the way of research tools and functionality, chances are, you’ll love Interactive Brokers.
Interactive Brokers offers some of the lowest trading fees on the market. Most users can expect to pay $0.005 per share when buying and selling, which is significantly lower than most other brokerage firms.
Unlike Robinhood, Interactive Brokers has been designed with the frequent, professional trader in mind with fees for inactivity and a per-share fee, Interactive Brokers isn’t the brokerage platform for traders who are looking to dip their toes into investing. However, if you’ve been day trading on Robinhood and you’re looking to take your career to the next level with better research and analysis tools, Interactive Brokers may have what you need to up your game.
- Fees: $1, max. 1% of trade value. Free for US clients choosing IBKR Lite plan.
- Minimum investment: $100
2. Webull
Webull caters to intermediate and experienced self-directed investors and traders. Short-term and active traders can save a considerable amount on commissions compared to other online brokers. The Webull platform’s intuitive features and design could be considered advanced for novice traders, but you can still learn the platform.
Webull offers a series of trading courses and a trading simulator or demo trading account with real-time data and advanced charting capabilities for U.S.-listed stocks. These features can suit beginning traders who want to learn more about the market and develop a trading plan.
- Fees: $0; Sells only – $0.000008 * Total $ Trade Amount (Min $0.01)
- Minimum investment: $5
3. TradeStation
TradeStation offers commission-free stock and options trading coupled with a technically advanced but easy-to-use trading platform. TradeStation beats Robinhood in the number of investable classes it offers. In addition to stocks and options, TradeStation users can trade futures, mutual funds, bonds and even cryptocurrency.
TradeStation has 2 offerings, TS GO and TS Select. We rate TS GO among the best as an exclusively mobile-only platform. Furthermore, TradeStation offers a plethora of educational materials to make users better and smarter investors.
- Fees: $0; $5 per executed order for non-U.S. residents
- Minimum investment: $0
4. Moomoo
Moomoo is an intuitive investment and trading platform with pro-grade, easy-to-use tools, data, and insights. Offering a pro-level trading experience for those of all levels of expertise. You can reach out to the customer support team during the trading day via phone or email. For those who want the DIY approach, you can review the FAQs in the Help Center at any time.
There is also a large of educational tools, research options and a community with more than 20 million users across the globe.
- Fees: $0
- Minimum investment: $0
5. Public.com
Public offers a social network where you can own fractional shares of stocks and ETFs, follow others and share ideas inside a community of investors. Public makes the stock market relatable and inclusive so it’s easy to collaborate as you build your confidence when you just start out with investing. Public offers stocks and options. You can buy stock with any amount of money, commission-free. You can own small portions of stock (fractional shares) with as little as $5. You can own ETFs by the slice as well, without commission fees.
The bottom line: You can choose how you want to invest. Build a portfolio on your own terms by investing in fractional shares of stock or buy full shares.
- Fees: $0 commissions on stocks
- Minimum investment: $0
Consider opening an account with a Robinhood alternative if you’re looking for any of the following features Robinhood lacks:
Analytics and Tools
The best online brokerages want their traders to succeed, so they often offer a large library of trading resources and educational tools to help newcomers make profitable trades. Robinhood’s straightforward and simple platform comes at a price — it lacks a large number of trading analysis tools.
Robinhood allows you to create watchlists and view real-time market data but offers very little in the way of trading education, which is an interesting choice considering that Robinhood’s target audience is young investors, many of whom are eager to learn.
Candlestick Charting Options
Though Robinhood’s interface focuses on clean design and aesthetics, its candlestick charting options are difficult to view on mobile. Robinhood uses the standard green and red candle scheme similar to other brokers, but shadows are difficult to see on Robinhood’s white mobile background. Additionally, you cannot adjust candle periods to minutes or hours like on most other platforms.
Tax-Efficient Accounts
If you want to save for retirement or open an Individual Retirement Account (IRA), start saving with a different broker. Robinhood offers only individual taxable accounts, and you cannot open an IRA or solo 401(k) through Robinhood.
Mutual Fund Purchasing Options
You cannot purchase mutual funds through Robinhood’s platform.
- What to Look For
If you enjoy Robinhood’s basic functionality but are looking for a little more substance from your brokerage platform, consider looking for the following features:
Low Trading Fees
Though it’s hard to beat Robinhood’s $0 trades, there are a number of brokerages that allow you to buy and sell stocks, bonds, and ETFs for less than $7 a trade. Some brokerages also allow you to invest in mutual funds or index funds with no commission.
An Easy-To-Understand Platform
The best brokerage account in the world is useless if you can’t operate it. Before you commit to a broker, check out a few YouTube tutorials detailing how to use the app or online trading platform to make sure that you’re comfortable with its format. The best investing apps don’t limit functionality to their mobile platform; they offer complete desktop services in an easy-to-understand mobile format.
IRA Compatibility
If you’re looking to purchase stocks for long-term holding, you’ll want to minimize your tax liability by opening a traditional or Roth IRA instead of a taxable brokerage account like the ones that Robinhood offers as its only account type.
Automated Investing
Are you the type of investor who knows you want to save for retirement but isn’t sure where you should be putting your money? Robo-advisors offer low fees and commissions and are an inexpensive way to begin saving for retirement, your first home purchase, a child’s college fund or any other future financial goal.
Final Words
Few applications can entirely replicate Robinhood’s free framework for simple stock trading; if you’re want to get serious about your trading, you’ll want to choose a more developed broker that provides market news, data, and research tools so you can continue to make smart trades.
These benefits normally come at a cost in the form of commissions and fees, so do your research before selecting an account and brokerage business. If you’re solely interested in low-cost investing, using a robo-advisor or automated trading platform can be a simple and cost-effective method to learn about several savings choices.