Robinhood is a brokerage for buying stocks and options, not a savings account or investment advisor
Robinhood lets you buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies through a mobile app or website. It charges no commission per trade — that is the main draw. But "no commission" does not mean free or risk-free. You still lose money if the investments themselves go down. Robinhood also does not tell you what to buy, manage your money for you, or insure your deposits the way a bank does.
The question "should I use Robinhood" really means: does this brokerage fit what you are trying to do with money right now? That depends on what you own, how often you trade, what you know about investing, and whether you have an emergency fund already. Robinhood works well for some people and poorly for others in the same situation.
Key Takeaways
- Robinhood charges no commission per trade, but you pay the full price of any losses if your investments decline in value.
- The app is designed for frequent trading and options, which most people should avoid unless they have money they can afford to lose completely.
- Your cash and stocks at Robinhood are insured up to $250,000 per account type through SIPC, the same as other brokerages, but that does not cover investment losses.
- If you want to buy and hold index funds or ETFs for decades, a traditional brokerage or a robo-advisor may cost less in the long run because of how Robinhood makes money on trades.
- Robinhood has had outages during market surges and removed the ability to buy certain stocks during the 2021 GameStop event, which affected some users' ability to trade when they wanted to.
When Robinhood can work: low-cost trading if you already know what you are doing
Robinhood makes sense if you are buying and holding a small number of stocks or ETFs and you want to avoid paying $5 to $10 per trade. If you plan to buy 10 shares of an index fund once a month for 30 years, the lack of commission saves you money compared to a brokerage that charges per trade.
The app is also straightforward to use. You link a bank account, transfer money, and buy within minutes. There is no paperwork or phone calls. If you already know which stocks or funds you want and you do not need research tools or a financial advisor, that simplicity has real value.
Robinhood also offers fractional shares — you can buy $50 worth of a $500 stock instead of having to buy a whole share. That lowers the barrier to entry if you have a small amount to invest.
When Robinhood is a poor fit: if you need advice, have an emergency fund gap, or want to trade options
Robinhood does not provide investment advice. If you are unsure what to buy or you want someone to help you build a plan, Robinhood will not do that. A robo-advisor like Vanguard Personal Advisor Services or Betterment will build a portfolio for you based on your goals and risk tolerance. A human financial advisor will do the same and answer questions. Robinhood will not.
If you do not have three to six months of expenses in a savings account, do not use Robinhood or any brokerage. Stock prices fall. If you need that money in six months and the market drops 20 percent, you lose money. Robinhood is for money you will not need for years.
Options trading on Robinhood is particularly risky. Options let you bet on whether a stock price will go up or down by a certain date. Most options expire worthless. Robinhood makes it easy and cheap to buy options, which encourages people to trade them frequently. If you do not understand options fully — including that you can lose more than you invested — do not trade them on Robinhood or anywhere else.
How Robinhood makes money, and why it matters to you
Robinhood does not charge commission, but it makes money in other ways. The main one is payment for order flow. When you place a trade, Robinhood sells information about your order to larger trading firms. Those firms execute your trade, and they pay Robinhood for the right to do so. This is legal, but it means your trade may not happen at the exact price you see on screen — it may be slightly worse.
Robinhood also makes money from cash sitting in your account. If you have $5,000 in Robinhood and you are not invested, Robinhood lends that cash to other traders and keeps the interest. You earn nothing.
For a buy-and-hold investor, these costs are small. For someone trading frequently, they add up. If you are trading options or day-trading stocks, the small price differences on each trade compound into real money lost over time.
Robinhood's track record with outages and trading restrictions
In January 2021, during a surge in trading volume around GameStop stock, Robinhood became unable to handle the traffic and went down repeatedly. Users could not place trades when they wanted to. The same week, Robinhood also restricted the ability to buy certain stocks, citing risk management. Users who wanted to buy were blocked. This raised questions about whether Robinhood can handle market stress.
Robinhood has had other outages since then, though less dramatic. If you are trading during a market event and Robinhood goes down, you cannot trade. Larger brokerages have also had outages, but they are less common. This is a real risk to consider if timing matters to you.
How Robinhood compares to other brokerages on cost and features
| Brokerage | Commission per trade | Fractional shares | Investment advice | Research tools |
|---|---|---|---|---|
| Robinhood | $0 | Yes | No | Basic |
| Fidelity | $0 | Yes | Yes (for accounts over $25,000) | Extensive |
| Charles Schwab | $0 | Yes | Yes (for accounts over $25,000) | Extensive |
| Vanguard | $0 | Yes | Yes (for accounts over $50,000) | Extensive |
| Betterment (robo-advisor) | $0 | N/A | Yes (automated) | Moderate |
Most major brokerages now charge zero commission, just like Robinhood. The difference is in what else they offer. Fidelity and Charles Schwab have far more research tools and offer human advice if your account is large enough. Betterment and other robo-advisors build and manage a portfolio for you automatically. Robinhood's advantage — no commission — is no longer unique.
If you are buying a few index funds and holding them, Fidelity or Vanguard will cost you the same and give you more tools and support. If you want someone to manage your money, a robo-advisor is cheaper than a human advisor and better than Robinhood.
Questions to ask yourself before opening an account
Before you decide, answer these questions honestly:
- Do I have three to six months of expenses in a savings account? If no, do not invest yet.
- Do I know which specific stocks or funds I want to buy? If no, you need advice or a robo-advisor, not Robinhood.
- Do I plan to hold these investments for at least five years? If no, the stock market is not the right place for this money.
- Am I interested in trading options or day-trading? If yes, understand that most people lose money doing this, and Robinhood makes it easy to lose quickly.
- Do I need research tools, news, or analysis to make decisions? If yes, Fidelity or Charles Schwab offer more.
If you answered yes to questions 1 through 3 and no to 4 and 5, Robinhood can work. If you answered differently, look at other options first.
Frequently Asked Questions
Is my money safe at Robinhood?
Your cash and stocks are insured up to $250,000 per account type through SIPC, the same as any other brokerage. That means if Robinhood fails, you get your money back. But SIPC does not insure against investment losses — if you buy a stock for $1,000 and it drops to $500, that loss is yours, not Robinhood's fault.
Can I transfer my stocks out of Robinhood if I change my mind?
Yes. You can transfer stocks to another brokerage through a process called an ACAT transfer. It usually takes three to five business days. You may pay a transfer fee ($0 to $75 depending on the brokerage), but you can move your investments out anytime.
Does Robinhood report my trades to the IRS?
Yes. Robinhood sends a 1099 form to the IRS and to you at the end of the year showing your gains and losses. You have to report this on your tax return. If you trade frequently, your tax bill can be complicated.
What happens if I lose money on Robinhood?
The loss is yours. Robinhood does not refund investment losses. If you buy a stock for $100 and sell it for $50, you lost $50. You can use that loss to offset other gains on your taxes, but Robinhood will not give you the money back.
Can I use Robinhood if I am under 18?
No. Robinhood requires you to be at least 18 years old. Some brokerages offer custodial accounts for minors, but Robinhood does not.