Robinhood is a brokerage app that lets you buy and sell stocks, options, cryptocurrencies, and other securities from your phone or computer

Robinhood is a company that holds your money and executes trades on your behalf. When you open an account, you deposit cash, and Robinhood keeps it in a brokerage account registered in your name. You then use their app or website to place orders to buy or sell investments. Robinhood sends those orders to exchanges — the actual marketplaces where securities trade — and settles the transaction, meaning it confirms the trade and updates your account balance.

The platform charges no commission on stock and options trades, which is why it became popular. You do not pay per trade. Robinhood makes money through other means: interest on uninvested cash in your account, premium subscription fees for advanced features, and payment for order flow (selling information about your trades to larger trading firms, a legal but controversial practice).

Key Takeaways

  • Robinhood holds your money in a brokerage account and executes buy and sell orders through stock exchanges.
  • There are no per-trade commissions, but you pay bid-ask spreads (the difference between what you pay to buy and what you receive to sell) and may pay subscription fees for premium features.
  • Your account is insured up to $500,000 through SIPC (Securities Investor Protection Corporation), which protects against brokerage failure, not investment losses.
  • Robinhood offers fractional shares, meaning you can buy a portion of an expensive stock rather than waiting to afford a full share.
  • The platform is designed for self-directed investing — you make all decisions about what to buy and sell, with no financial advice from Robinhood.

How you deposit money and place trades

To start, you link a bank account to Robinhood. You can transfer money in, and it typically arrives within one to three business days. Once the cash is in your Robinhood account, you can use it immediately to buy securities.

To place a trade, you search for a stock ticker (like AAPL for Apple) in the app, enter the number of shares or dollar amount you want to buy, and confirm the order. For stocks, orders placed during market hours (9:30 a.m. to 4 p.m. Eastern Time on weekdays) execute at or near the price you see on screen. Orders placed outside market hours go into a queue and execute when the market opens the next day, often at a different price.

When you sell, the same process applies: you select the security, enter the quantity, and confirm. The cash from the sale lands back in your Robinhood account within one to two business days (the settlement period), though Robinhood lets you spend it immediately.

What types of investments you can buy

Robinhood offers stocks (shares of public companies), options (contracts that give you the right to buy or sell a stock at a set price), exchange-traded funds or ETFs (baskets of stocks or bonds bundled into one security), and cryptocurrencies (digital currencies like Bitcoin and Ethereum). You can also buy fractional shares — portions of a single share — which means you can invest $50 in a stock that costs $300 per share.

The platform does not offer bonds, mutual funds, or commodities futures. If you want those, you would need a different brokerage. Robinhood also does not offer margin accounts (borrowing money to invest) to new users, though you can request one after meeting certain requirements.

Costs and fees you actually pay

Robinhood charges zero commission per trade, but you still pay costs. The main one is the bid-ask spread — the difference between what sellers want and what buyers will pay. When you buy a stock, you pay the asking price (slightly higher). When you sell, you receive the bid price (slightly lower). That gap is your cost, and it goes to market makers, not to Robinhood, though Robinhood benefits from the arrangement.

If you use Robinhood Gold (the premium subscription), you pay $5 per month for features like margin and extended-hours trading. You also pay interest if you borrow money through margin. Robinhood does not charge account maintenance fees or inactivity fees.

Cryptocurrency trades on Robinhood carry a spread that is typically wider than stock spreads, meaning your cost per trade is higher. Options trades also have spreads, and they can be unpredictable depending on how actively the option is traded.

How your money is protected if Robinhood fails

Your account is insured through SIPC (Securities Investor Protection Corporation), a nonprofit that protects brokerage customers if a brokerage goes bankrupt. SIPC covers up to $500,000 per account, with a $250,000 limit on cash. This protection covers the loss of securities or cash held at the brokerage — it does not cover investment losses (if you buy a stock and it drops 50 percent, SIPC does not reimburse you).

Robinhood also carries additional insurance beyond SIPC through Lloyd's of London, which covers up to an additional $149.5 million per customer for certain types of losses. In practice, Robinhood has never failed, and the company is well-capitalized, so this protection is a backstop rather than a likely scenario.

Cash held in your Robinhood account is swept into money market funds or held at partner banks. It is not earning interest unless you pay for Robinhood Gold, which offers a small yield on uninvested cash.

The difference between Robinhood and a financial advisor

Robinhood is a self-directed platform. You make all investment decisions. Robinhood does not recommend what to buy, does not manage your money, and does not provide personalized financial guidance. The app shows research, news, and charts, but these are informational only.

If you want someone to tell you what to buy and manage your portfolio, you need a financial advisor or a robo-advisor (an automated service that builds a portfolio based on your risk tolerance and goals). Robinhood is for people who want to make their own choices and execute their own trades.

Account types and tax reporting

Robinhood offers standard taxable brokerage accounts and individual retirement accounts (IRAs). A taxable account has no contribution limits, but you owe taxes on dividends and capital gains each year. An IRA has annual contribution limits (currently $7,000 for most people under 50) but offers tax advantages: a traditional IRA defers taxes until withdrawal, and a Roth IRA lets you withdraw money tax-free in retirement.

Robinhood sends you a 1099 tax form at the end of the year showing your gains, losses, and dividends. You report this on your tax return. If you trade frequently, you may owe estimated taxes throughout the year rather than waiting until April.

Robinhood also tracks your cost basis (what you paid for each security) and can calculate gains automatically, which simplifies tax reporting compared to managing spreadsheets yourself.

Frequently Asked Questions

Is Robinhood safe to use with my money?

Robinhood is a licensed brokerage regulated by the SEC and FINRA. Your account is insured through SIPC up to $500,000. The company has never lost customer funds due to failure. That said, like any brokerage, Robinhood has experienced outages and technical issues, and the app has faced criticism for its user interface encouraging frequent trading.

Can I lose more money than I deposit?

With stocks and ETFs, no — you can only lose what you invested. With options and margin, yes — you can lose more than your account balance. Options can expire worthless, wiping out your investment, and margin borrowing can force you to cover losses beyond your deposit. Avoid these until you understand the risks.

How long does it take to withdraw money?

Withdrawals to your linked bank account typically take one to three business days. The cash must settle from your trades first (one to two business days), so plan for three to five business days total from the time you request a withdrawal.

Does Robinhood report to the IRS?

Yes. Robinhood reports all taxable events (sales, dividends, interest) to the IRS on a 1099 form. You must report this income on your tax return. The IRS receives the same information Robinhood sends you, so underreporting is detected.

What happens if I buy a stock and it drops in value?

Nothing happens automatically. You own the shares, and you decide when or whether to sell. If you sell at a loss, you can deduct that loss against other gains on your taxes. If you hold, the loss is unrealized and does not affect your taxes until you sell.