Statista analysis indicates that an increasing number of Americans participate in online trading and investing services. A report published by Alexander Kunst in January 2020 reveals that almost 12.30% of respondents between the ages of 18 – 29 have used trading services over the past 12 months [2018 data]. This forms part of a broader trend which accelerated in 2019, and hit all-time highs in 2020, owing to global lockdowns, and the rampant popularity of retail trading services like those offered through Robinhood.
In the days of old, institutional brokerages, fund managers, investment analysts, and financial advisors cajoled traders and investors with specific stock options that they were promoting. Nowadays, the self-service mindset prevails. Thanks to powerful stock trading platforms with real-time pricing, rapid execution of trades, and a functional set of algorithmic stock screening tools, retail traders are able to bypass traditional channels with the go-it-alone option. Robinhood certainly warrants a closer look, as this trading platform is one of the leading service providers in the industry.
The company’s mission – its raison d’être – is stated as follows:
‘to democratize finance for all. We believe that everyone should have access to the financial markets, so we’ve built Robinhood from the ground up to make investing friendly, approachable, and understandable for newcomers and experts alike.’
Their marketing initiatives revolve around the concepts of ‘commission-free investing’, ‘unlimited commission-free trade in stocks, ETFs and options’, ‘Trade in Real Time’, ‘Get free stock’ and the option to, ‘Earn 0.30% APY on your own invested cash’, among others. These are bold claims which need to be put the test before you register, deposit and trade with Robinhood. Day trading experts have thoroughly scrutinized Robinhood’s trading platform from top to bottom.
There are certainly merits to registering with Robinhood, but there are several shortcomings which need to be highlighted for a more balanced assessment of this hugely popular platform. A good place to begin is Investing Basics with Robinhood. The resource-rich library of trading information features a wealth of data to help make informed trading decisions. The all-encompassing body of knowledge covers a broad range of topics such as:
- Picking an investment
- How to start investing for as little as $1
- What’s the purpose of a diversified portfolio?
- I’m in my 20s – how should I approach investing?
- Three charts that help explain this your stock market volatility
- The stock market has been super volatile – how can I make sense of it?
Wide Range of Trading Resources to Implement
As a new trader, these types of didactic materials are extraordinarily helpful. They provide easy-to-understand explanations of complex trading material. From a trader’s perspective, these ‘insider insights’ have the effect of fast-tracking the learning curve so that you can get started with day trading and investing activity at Robinhood.
The fee schedule is worth exploring further. Robinhood makes some pretty bold claims about its low-cost fee structure. For detailed insights, it’s best to pull up the support content and run a rudimentary search for ‘Fees’. Robin Hood claims that they don’t charge foreign transaction fees, there are no inactive account fees, there are no in-network ATM fees, and there are no maintenance fees. They also don’t charge card replacement fees and there are no transfer fees when moving money between banks and your brokerage account.
However, deeper investigation reveals a PDF file known as ‘Robinhood Financial Fee Schedule’. this details the complete fee schedule, including gold pricing mechanism, and cash management fees. For example, for US listed stocks an over-the-counter securities and options there is a $0 commission for Robinhood, however there is a $75 fee for outgoing transfers, and ACATS have a $20 charge for domestic overnight check delivery transfers.
In terms of regulatory trading fees, clients will be charged $22.10 per $1M of principal sells only. There is also a TAF charge of $0.000119 per share and $0.002 per contract for options. The fee will be no greater than $5.95. For services, there are fees on paper statements ($5) paper confirms ($2), domestic overnight mail ($20, and) international overnight mail ($50).
Gold pricing comes with hefty fees, and there are legacy pricing options for various account sizes. For example, at the low end of the spectrum, account sizes valued at $2000 – $3000 can have a cost per 30 days ranging between $6 and $10. This depends on the buying power and instant deposit you opt for. At the high end of the spectrum which is $50,000 +, the cost for 30 days can range between $10 and $200. It is important to assess your specific account size, your buying power and instant deposits, and the attendant costs thereof.
What about Robinhood and Penny Stocks Trading: The Make or Break Factor
From a day trader’s perspective, portfolios less than $25,000 are subject to specific restrictions. If you are the type of trader who prefers to open and close multiple trades during the month, you will find these limitations discouraging. Perhaps the biggest bugbear with Robinhood is the availability of really low cost stock options for everyday traders looking to capitalize off price movements. This naturally brings penny stocks into the reckoning. The SEC (Securities and Exchange Commission) defines penny stocks as tradable securities valued at under $5 per unit. Naturally, there are penny stocks on Robinhood, but they are only listed stocks, not OTC stocks or pink sheets.
As many stock trading aficionados know, the vast majority of penny stocks – low-cost stock options – are not necessarily listed on the New York Stock Exchange or the NASDAQ. A mix of reputable and dodgy options abounds OTC and as pink sheets. None of these is available to you at Robinhood. In a way, this serves as a protection mechanism since listed stocks with exchanges are subject to more stringent reporting requirements then OTC penny stocks and pink sheets which are not subject to those constraints. But, you miss out on a large chunk of the penny stocks market.
Another issue which may occur from time to time is timely trade executions. For low-cost options, such as Tier 2 stocks [$0.01 – $0.99 on exchanges] a delay in getting a real market price quotation can mean the difference between success and failure. It is absolutely imperative that stop losses and take profit orders hit as close to the set targets as possible. Unfortunately, our experience shows that Robinhood is not always on target, with trades executing well outside the defined parameters. This is definitely something that you want to take into consideration as a penny stocks trader. It is less significant in higher-priced equities if the order misses by a few cents.
There are notable penny stocks available on the Robinhood trading platform, such as NYSE: AMC, NASDAQ: AYTU, AMEX: UAVS, NASDAQ: WTRH, NASDAQ: WPRT, NASDAQ: CLSK, and NASDAQ: TTPH, among others. Fortunately, it’s relatively easy to get started with Robinhood, and they will even offer you a chance at winning a free stock when you register online.
The way you trade will determine the type of account that is best suited to you at Robinhood. If you’re the type of trader who needs telephone support, you won’t find it at this trading platform. And the app is less than perfect, given that it has repeatedly failed. This can certainly work against you as a mobile trader. Our biggest bugbear with the platform lies in its stock quote data updating schedule. This is not always a real-time quote, and that is a problem with penny stocks.