Robinhood lets you buy stocks, ETFs, options, and cryptocurrencies from your phone, but each type works differently and carries different risks

Robinhood is a brokerage platform — a place to buy and sell investments. What you can purchase depends on your account type and what you want to own. Stocks are shares of individual companies. ETFs are bundles of many stocks or bonds in a single fund. Options are contracts that let you bet on whether a stock price will go up or down. Cryptocurrencies are digital assets like Bitcoin and Ethereum. Each has different costs, different rules about when you can sell, and different ways to lose money.

The platform does not charge commission on most trades, which is why many people use it. But "no commission" does not mean "no cost" — you still pay the bid-ask spread (the difference between what buyers will pay and what sellers ask), and some investments carry their own fees or risks that can wipe out your money entirely.

Key Takeaways

  • Stocks let you own a piece of a company, but individual stock prices move unpredictably and you can lose your entire investment.
  • ETFs spread your money across many holdings at once, which reduces the risk that any single investment will destroy your account.
  • Options are contracts that expire on a set date and can lose all their value in days, even if the underlying stock moves in your predicted direction.
  • Robinhood requires a minimum account balance to trade options or use margin, and you must wait for cash to settle before you can use it again.
  • Cryptocurrencies on Robinhood are volatile and can swing 20 percent or more in a single day, and you cannot transfer them to another wallet.

Stocks: Owning a piece of a single company

When you buy a stock on Robinhood, you own a fractional share of that company. You can buy as little as one dollar's worth of most stocks, even if a single share costs hundreds of dollars. The price moves during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays), and you can sell whenever the market is open.

The risk is total: if the company fails, your money is gone. If you buy a stock at $50 and it drops to $10, you have lost 80 percent of what you put in. Robinhood does not protect you from this loss. You also pay the bid-ask spread when you buy and again when you sell, which can be a few cents per share on popular stocks and much wider on less-traded ones.

Stocks work best if you plan to hold for months or years and can tolerate watching your balance swing up and down. If you need the money in weeks or days, the risk of catching a bad day is high.

ETFs: Spreading money across many investments at once

An ETF (exchange-traded fund) is a basket of stocks or bonds bundled into a single ticker. When you buy one share of an S&P 500 ETF, you own a tiny piece of 500 large companies at once. Popular ETFs on Robinhood include SPY (tracks the S&P 500), QQQ (tracks tech-heavy Nasdaq stocks), and VTI (tracks the entire U.S. stock market). You can buy fractional shares starting at one dollar.

ETFs reduce the damage from any single company failing or falling. If one of the 500 companies in SPY drops 50 percent, your SPY holding drops only a fraction of a percent. ETFs also charge an expense ratio — a yearly fee taken from your account — but most popular ones charge less than 0.1 percent per year, which is nearly invisible.

The trade-off is that ETFs move more slowly than individual stocks. If you buy an ETF tracking the entire market, you will not see 50 percent gains in a month. But you also will not see 50 percent losses from a single bad bet. For most people starting out, ETFs are safer than individual stocks.

Options: Betting on price direction with an expiration date

An option is a contract that gives you the right to buy or sell a stock at a set price on or before a set date. A call option bets the stock price will go up. A put option bets it will go down. Options expire on a specific Friday, and after that date they are worthless.

Options are leveraged, meaning a small move in the stock can create a large move in the option price. If you buy a call option for $2 and the stock moves $1 in your direction, the option might be worth $5. But if the stock moves $1 against you, the option might be worth $0.50 or nothing. Options can lose 100 percent of their value even if the stock moves in your predicted direction — if the stock goes up $0.50 but you needed it to go up $2 before the expiration date, your option expires worthless.

Robinhood requires you to apply for options trading and meet a minimum account balance (usually $2,000). You must also pass a brief questionnaire about your investing experience. Options are the highest-risk product on the platform and can wipe out your account in days.

Cryptocurrencies: Digital assets with extreme price swings

Robinhood lets you buy Bitcoin, Ethereum, Dogecoin, and dozens of other cryptocurrencies. You can start with as little as one dollar. The price updates 24 hours a day, seven days a week, and can swing 20 percent or more in a single day.

When you buy crypto on Robinhood, you own it on Robinhood's platform, but you cannot transfer it to another wallet or exchange. You can only sell it back to Robinhood. This means you are betting on both the price of the cryptocurrency and Robinhood's ability to stay solvent and honor your sale request.

Cryptocurrencies have no earnings, no cash flow, and no intrinsic value — their price is determined entirely by what other people will pay. This makes them far more volatile than stocks. Many people have lost their entire investment in crypto. Robinhood does not insure crypto holdings the way it insures cash and stocks (up to $250,000 per account type through SIPC).

Account types and what each one lets you trade

Robinhood offers different account types, and each one has different trading rules. A standard individual account lets you buy stocks, ETFs, and crypto with no minimum balance. To trade options, you must have at least $2,000 in the account and be approved for options trading. To use margin (borrowed money), you must have at least $2,000 and be approved for margin.

Robinhood also offers a retirement account (IRA), which has different rules. You can buy stocks, ETFs, and crypto in an IRA, but you cannot trade options. You also cannot withdraw money before age 59½ without paying a penalty, except in specific circumstances. The advantage is that gains in an IRA are not taxed until you withdraw the money (or never, in a Roth IRA).

Settlement rules: When your money is actually available to trade again

When you sell a stock or ETF, the cash does not appear in your account immediately. It takes two business days to settle. During those two days, you cannot withdraw the money or use it to buy something else. If you sell on a Friday, the cash settles on Tuesday (skipping the weekend).

Robinhood offers Instant Deposits for new accounts, which lets you use unsettled cash to buy more investments right away. But if you sell and immediately buy again with unsettled cash, you can trigger a "good-faith violation" if you do this more than three times in five business days. After three violations, Robinhood will restrict your account for 90 days, and you will not be able to trade until the restriction lifts.

Cryptocurrencies settle instantly, so you can buy and sell crypto as many times as you want without hitting settlement limits. Options also settle on the next business day, but the rules are more complex if you are holding options into expiration.

Frequently Asked Questions

Can I lose more money than I put in on Robinhood?

With stocks, ETFs, and crypto, no — the worst case is losing 100 percent of what you invested. With options, you can also lose 100 percent. With margin (borrowed money), yes — you can lose more than your account balance and owe Robinhood money. Most beginners should not use margin.

Does Robinhood insure my money if the company goes out of business?

Cash and stocks are insured up to $250,000 per account type through SIPC (Securities Investor Protection Corporation). Cryptocurrencies are not insured. If Robinhood fails, you would recover cash and stocks up to the limit, but crypto holdings might be lost entirely.

What is the bid-ask spread and why does it matter?

The bid-ask spread is the difference between what buyers will pay (bid) and what sellers ask (ask). When you buy, you pay the ask price. When you sell, you get the bid price. On popular stocks, this might be a penny. On less-traded stocks or crypto, it can be much wider, and you lose that spread on both the buy and the sell.

Can I buy fractional shares of everything on Robinhood?

Yes, you can buy fractional shares of stocks and ETFs starting at one dollar. Cryptocurrencies are also sold in fractions. Options and margin accounts have different rules, but for basic stock and ETF investing, fractional shares are available on almost everything.

What should I buy if I am just starting out?

Most financial advisors recommend starting with a low-cost ETF that tracks a broad market index, like SPY or VTI. These give you exposure to hundreds of companies at once, charge very low fees, and move more predictably than individual stocks. Once you understand how the market works, you can add individual stocks or other investments.