What you actually earn money from on Robinhood

Robinhood is a brokerage platform where you buy and sell stocks, options, cryptocurrencies, and other securities. You make money the same way you would at any other brokerage: when the value of what you own goes up and you sell it, or when you hold dividend-paying stocks. Robinhood itself does not pay you to use the app — the money comes from the market value of your investments changing.

The platform charges no commission on stock and options trades, which is why it became popular. But that does not mean trading is free. You still pay the bid-ask spread (the difference between what buyers will pay and what sellers ask), and you can lose money if prices fall. Robinhood also makes money by lending out shares you hold and by offering a paid subscription called Robinhood Gold, which gives you margin (borrowed money to invest with) and other features.

Key Takeaways

  • You make money on Robinhood by buying securities at a lower price and selling them higher, or by holding dividend-paying stocks that distribute cash to shareholders.
  • Robinhood charges no commission per trade, but you still pay the spread between bid and ask prices, and losses are real if prices fall.
  • Options trading and margin trading (borrowing to invest) carry much higher risk than buying and holding stocks, and most new traders lose money on them.
  • Day trading (buying and selling the same security within one day) requires at least $25,000 in your account under federal rules, and most day traders lose money.
  • Dividends and long-term capital gains (holding for over a year) are taxed more favorably than short-term gains, which matters when you file taxes.

Buying stocks and holding for growth

The most straightforward way to make money on Robinhood is to buy shares of companies you believe will increase in value over time, then sell them when they do. You can search for a stock ticker (like AAPL for Apple), see the current price, and buy as many shares as you can afford. Robinhood lets you buy fractional shares, so you can invest $50 in a $300 stock by owning a fraction of one share.

When you sell those shares for more than you paid, the difference is your profit. If you hold the stock for more than one year before selling, the profit is taxed as a long-term capital gain, which has lower tax rates than short-term gains. If you sell within a year, it is taxed as ordinary income. Keep track of your purchase price and sale price — you will need both when you file taxes.

Collecting dividends from stocks you own

Some companies pay dividends: regular cash payments to shareholders, usually quarterly. If you own 100 shares of a stock that pays a $0.50 quarterly dividend, you receive $50 every three months, whether or not the stock price changes. Robinhood deposits dividends directly into your account, and you can reinvest them by buying more shares or leave the cash there.

Dividend income is taxable in the year you receive it. may have access to dividends (from U.S. companies held for at least 60 days around the ex-dividend date) are taxed at the long-term capital gains rate, which is lower than ordinary income tax. Robinhood will report your dividends on a 1099 form at tax time, so you do not have to hunt for the information yourself.

Options trading and the risks involved

Options are contracts that give you the right to buy or sell a stock at a set price by a certain date. They can amplify gains — a small move in the stock price can produce a large percentage gain in the option. But they can also wipe out your entire investment quickly. Most options expire worthless, and most new options traders lose money.

Robinhood requires you to request options trading permission, and the platform will ask about your experience and investment goals. Even if approved, starting with options is risky. A $500 options trade can easily become $0 in days. If you are new to investing, learn how stocks work first. Options are a tool for experienced traders who understand the math and can afford to lose the money they put in.

Day trading and the $25,000 rule

Day trading means buying and selling the same security on the same day to profit from short-term price swings. The U.S. Securities and Exchange Commission (SEC) requires that accounts used for day trading hold at least $25,000 in cash and securities. If your account falls below $25,000, you cannot day trade until you deposit more money.

Day trading is extremely difficult. You pay the bid-ask spread on every trade, and most day traders lose money after accounting for those costs and taxes. Robinhood makes it easy to place trades quickly, which can work against you — the easier it is to trade, the more likely you are to overtrade and rack up losses. If you are considering day trading, paper trade (practice with fake money) for several months first to see if you can actually profit.

Margin trading and borrowed money

Robinhood Gold (the paid subscription) lets you use margin: borrowed money to invest with. If you have $5,000 in your account, margin might let you invest $10,000 by borrowing $5,000 from Robinhood. This amplifies both gains and losses. A 10% gain on $10,000 is $1,000, but a 10% loss is also $1,000 — and you still owe the $5,000 you borrowed plus interest.

Robinhood charges interest on margin balances, and if your account value falls too far, the platform will force you to sell positions to cover the loan. This is called a margin call. Most new investors should not use margin. It is a tool for experienced traders who understand leverage and can afford to lose more than they invested.

Understanding taxes on your trades

Every time you sell a security for a profit, that profit is taxable income. Robinhood does not withhold taxes — you owe them when you file your return. The tax rate depends on how long you held the investment. Long-term capital gains (held over one year) are taxed at 0%, 15%, or 20% depending on your income. Short-term gains (held one year or less) are taxed as ordinary income, which can be much higher.

Robinhood provides a tax document called a 1099 form that lists your sales, dividends, and interest. Download it and give it to your tax preparer or use it to file yourself. If you made many trades, the 1099 can be long. Keep your own records of purchases and sales so you can verify the numbers. Losses can offset gains, so if you lost money on some trades, that can reduce your tax bill.

Frequently Asked Questions

Can I make money on Robinhood without buying stocks?

You can earn interest on cash held in your Robinhood account if you have Robinhood Gold, but the rate is typically low. You could also sell covered calls (options contracts) on stocks you own, which generates income but limits your upside if the stock rises sharply. For most people, buying stocks or dividend-paying companies is simpler.

What is the minimum amount I need to start investing on Robinhood?

There is no minimum deposit to open an account. You can start with $1 and buy fractional shares. However, if you want to day trade, you need at least $25,000 in your account under SEC rules. For most investors, starting small and adding money over time is a reasonable approach.

How long does it take to make money on Robinhood?

That depends entirely on the market and your choices. Some people profit in days; others lose money in days. Most successful investors hold stocks for years. The longer your time horizon, the more likely you are to come out ahead, because short-term price swings matter less over time.

Do I pay taxes on money I make on Robinhood?

Yes. Profits from selling stocks, dividends, and interest are all taxable. Robinhood reports this to the IRS on a 1099 form. You owe taxes even if you do not withdraw the money from your account. Keep records of what you bought, what you sold, and when, so you can calculate your gains and losses accurately.

What happens if I lose money on Robinhood?

Losses reduce your taxable gains. If you lost $2,000 and gained $1,000, you owe taxes only on the net $1,000 gain. You can also deduct up to $3,000 in net losses against other income in a single year, and carry forward any remaining losses to future years.