What Robinhood does and who it's for

Robinhood is a brokerage firm — a company that holds your money and executes trades (buys and sells) of stocks, options, cryptocurrencies, and other securities on your behalf. You open an account, deposit cash, and then use Robinhood's app or website to place orders. Robinhood sends those orders to market exchanges, the trades settle, and you own the securities or the cash from the sale.

Robinhood's main selling point is that it charges zero commission on stock and options trades. Traditional brokerages like Fidelity or Charles Schwab also offer commission-free trading now, but Robinhood built its reputation on being the first to eliminate that fee and on having a simple, mobile-first interface designed for people new to investing.

The platform is not a bank, a financial advisor, or a money manager. It is a self-directed trading tool — you decide what to buy and sell, and Robinhood executes the order. If you want someone to manage your money for you, or if you want personalized investment advice, Robinhood is not the right fit.

Key Takeaways

  • Robinhood holds your cash and securities in an account you control, and you place trades through their app or website with no commission per trade.
  • Your money is insured up to $250,000 per account type through SIPC (Securities Investor Protection Corporation), which protects against broker failure, not market losses.
  • Robinhood makes money from payment for order flow (selling information about your trades to market makers), margin interest on borrowed money, and premium subscription features.
  • Trades settle in one to two business days, meaning you cannot use the proceeds from a sale immediately to buy something else without triggering a margin call or violating the pattern day trader rule.
  • Robinhood offers margin accounts that let you borrow money to trade, but borrowing carries interest and risk of forced liquidation if your account value drops.

How you deposit money and place a trade

To start, you create a Robinhood account online or through the app. You provide your name, Social Security number, address, and employment information. Robinhood verifies your identity and runs a background check. This process usually takes a few minutes to a few hours.

Once approved, you link a bank account and transfer cash into Robinhood. The transfer takes one to three business days. After the cash arrives, you can search for a stock or other security by ticker symbol (for example, AAPL for Apple), see the current price, and place a buy order. Robinhood sends the order to an exchange, the order executes at or near the price you see, and the security appears in your account.

You can place orders during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays) or during extended hours (4 a.m. to 8 p.m. Eastern). Extended-hours trading has wider bid-ask spreads (the difference between what buyers will pay and what sellers ask), so prices are less predictable.

How Robinhood makes money without charging commissions

Payment for order flow is Robinhood's primary revenue source. When you place a trade, Robinhood does not send it to a public exchange immediately. Instead, it routes your order to a market maker — a firm that buys and sells securities constantly and profits from the bid-ask spread. The market maker pays Robinhood a small fee for the order, typically a fraction of a cent per share. That fee is invisible to you, but it adds up across millions of trades.

This practice is legal and common across the industry, but it creates a conflict of interest: Robinhood profits when you trade frequently, even if frequent trading hurts your returns. Robinhood also profits when your trades are routed to market makers who pay the highest fees, not necessarily the ones who give you the best price.

Margin interest is the second revenue stream. If you borrow money from Robinhood to trade (called a margin account), you pay interest on the borrowed amount. Interest rates vary but typically range from 5% to 12% annually, depending on how much you borrow.

Robinhood Gold is a paid subscription ($5 to $10 per month) that offers features like margin accounts, extended-hours trading, and research tools. Not all users need or want these features, so Gold is optional.

What happens after you place a trade

When you buy a stock, the trade executes almost instantly, but the settlement — the actual transfer of ownership and cash — takes one to two business days. During this time, you own the stock and can sell it, but you cannot withdraw the cash from a sale until settlement is complete.

If you try to use unsettled cash to buy something else, you trigger a margin call or violate the pattern day trader rule. The pattern day trader rule says that if you make more than three day trades (buying and selling the same security on the same day) in five business days, your account must have at least $25,000 in cash and securities. If your account falls below $25,000, you are restricted from day trading until you deposit more money.

This rule applies to all brokerages, not just Robinhood, and it is enforced by the Financial Industry Regulatory Authority (FINRA). It exists to protect inexperienced traders from losing money quickly through frequent trading.

Account protection and what happens if Robinhood fails

Robinhood is a member of the Securities Investor Protection Corporation (SIPC), a nonprofit that insures customer accounts if a brokerage fails. SIPC covers up to $250,000 per account type (cash account, margin account, IRA, and so on) per brokerage. The insurance covers the value of securities and cash in your account, not losses from bad trades or market downturns.

For example, if you have $50,000 in stocks in your Robinhood account and Robinhood goes bankrupt, SIPC will return your $50,000 worth of securities or cash. If you had $300,000 in stocks, SIPC covers only $250,000, and you lose the rest.

SIPC does not cover fraud by Robinhood itself, cryptocurrency held outside a segregated account, or losses from market movements. If Robinhood mishandles your money or commits fraud, you may have a separate legal claim, but SIPC insurance does not apply.

Margin accounts and borrowing to trade

A margin account lets you borrow money from Robinhood to buy securities. For example, if you have $10,000 in your account and you want to buy $20,000 worth of stock, you can borrow $10,000 from Robinhood and complete the purchase. You pay interest on the borrowed amount.

Margin accounts carry significant risk. If the value of your securities drops, Robinhood can issue a margin call — a demand that you deposit more cash or sell securities to bring your account back to the required level. If you do not respond quickly, Robinhood can liquidate your holdings without your permission to cover the debt. You can lose more than your initial investment.

Robinhood requires a minimum of $2,000 to open a margin account, but the actual borrowing limit depends on the value of your account and the types of securities you hold. Stocks typically allow you to borrow up to 50% of their value; options and cryptocurrencies have stricter limits.

Robinhood's limitations and what it does not offer

Robinhood does not offer mutual funds, bonds, or most exchange-traded funds (ETFs) without a commission. It also does not offer retirement accounts like traditional IRAs or 401(k)s, though it does offer Roth IRAs.

Robinhood's customer service is limited. You cannot call a phone number and speak to a person; support is available only through the app or website. For complex problems or disputes, this can be frustrating.

Robinhood also does not provide financial advice. The app shows research and news, but it does not tell you what to buy or sell. If you are new to investing and want guidance, you may need to use a different platform or hire a financial advisor separately.

Frequently Asked Questions

Can I lose more money than I deposited?

Yes, if you use a margin account and borrow money to trade. If your securities drop in value and you cannot cover the margin call, Robinhood liquidates your holdings and you can still owe money. With a cash account (no borrowing), you can lose only what you invested.

Is my money safe with Robinhood?

Your cash and securities are insured up to $250,000 per account type through SIPC if Robinhood fails. However, SIPC does not protect against market losses or fraud by Robinhood itself. Robinhood has faced regulatory fines and lawsuits, so research the company's history before deciding to use it.

Why does Robinhood show me different prices than other brokerages?

Robinhood routes orders to market makers who pay for order flow, which can result in slightly worse prices than you would get on a public exchange. The difference is usually small (a penny or two per share), but it adds up over time and many trades.

Can I day trade with Robinhood?

Yes, but only if your account has at least $25,000 in cash and securities. This is the pattern day trader rule enforced by FINRA, not a Robinhood rule. If your account falls below $25,000, you are restricted from day trading for 90 days.

What happens to my stocks if I delete the Robinhood app?

Your stocks remain in your account. Deleting the app does not close your account or sell your holdings. You can log back in anytime through the website or by reinstalling the app to see your positions and place trades.