Robinhood App Review – The Real Cost of “Free Trades”

robinhood app review

Robinhood App Review

UPDATE 10/24/2016:  Since this review was published Robinhood App has taken steps to improve user experience (UX), and add features.  As is common when many new brokers, new features are consistently being released as they are developed.  Some of the important features include Robinhood Gold, which offers margin and leverage for more buying power.  While this does improve usability, the lack of Level 2 data and mobile only app still make this platform difficult for day trading.

5/12/2016: In this broker review, we’re going to discuss the popular trading app called “Robinhood”.  Keep in mind that mobile apps change frequently some between the time we wrote this review and you are reading it there may be some changes on the Robinhood App interface.  I get emails asking for a good Robinhood App Review several times a week.  Robinhood App has gained the attention of part-time traders and investors for it’s “Free Trades” commission structure.  It’s sure does sound appealing!  Anyone who has been in the market understands commissions are an expensive part of the business.  Robinhood states on their website “Our mission is to democratize access to the financial markets”.



For those who aren’t familiar with how commissions work, commissions are payments to your broker for the purchase or sale of stock.  Generally speaking, commissions make up the bulk of a brokers profits.  Brokers also profit from the interest collected on cash they are holding and from the interest gained from lending traders money on Margin.  Commission fees generally range from $3.95-19.99 per trade.  An active trader that places 10 orders in 1 day could be looking at anywhere from $39.50 to $199.90 in daily commissions.  Clearly, these add up over time and eat into your profits.  We highly suggest traders check out Suretrader (see our Suretrader Review here) or Interactive Brokers (see our Interactive Brokers review here) before deciding on a broker.


The Pros of Robinhood’s Free Trades Offer

  1. Free Trades, zero commissions


If you are trading at a firm like Ameritrade or E*Trade, you could easily be paying $10-15/trade.  That means it’s not unlikely for an active trader to generate $200 in commissions each day.  Just think, $200/day is $52k/year.  And that is going straight to the broker!  This makes any reduction in commissions an appealing offer.  When Robinhood first started advertising their Free Trades commission structure I immediately thought, “what’s the catch?”.  Robinhood, as advertised, charges $0.00 commission on buys and sells.  In their Fees Section they note that traders still have to pay the FINRA and SEC fees on the sell orders.  These generally amount to less than 50 cents per trade, so it’s very marginal.  The biggest advantage to Robinhood is the Free Trades.  That’s their selling point, but it’s the only selling point.


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The True Cost of Robinhood App Free Trades Offer

  1. No Leverage means Cash Balance Margin Only
  2. Mobile App Only Trading means No Hot Keys or 1 Click Orders
  3. No Level 2 or Time & Sales means No Reading Market Sentiment
  4. No Short Selling


Robinhood is lacking several critical features for day trading.  They don’t offer a Level 2 or Time & Sales window.  That means you can’t scalp momentum trade breakouts by watching the big sellers thin out, or jump in long because you saw that 100k share bidder pop up.  A day trader cannot actively trade the markets without Level 2 or Time & Sales.  It’s like a carpenter trying to build a house without an electric drill.  Sure, you could do it, but it would only make you slower, less competent, and less effective.  So it doesn’t make any sense.  Secondly, Robinhood currently doesn’t allow leverage.  Trading on leverage is a controversial topic.  It’s trading on borrowed money.

In 2016 I took a $1k trading account, and aggressively using leverage, I grew that account to over $8,600.00 in less than 1 month.  That wouldn’t have been possible with Robinhood for 2 reasons.  The first reason is that they don’t allow Leverage, and the 2nd reason is the Pattern Day Trader (PDT) Rule.  This means you can’t actively trade on margin unless you have a $25k min balance.  You can actively trade with a cash account, but you have to wait 3 days for each trade to settle, which effectively makes it so you can only daytrade 2-3 times/week.  Lastly, Robinhood doesn’t allow short selling.  This means you can’t short stocks, profit as they go lower, and then buy back shares at a lower price.


Start Day Trading with $500 at Suretrader



Robinhood Review – Not suitable for Active Traders & Passive Traders don’t need it

When you put together this list of cons, you find yourself with an incomplete broker.  It seems they made the decision to go with zero commissions at the sacrifice of features that have been standard on every broker for many years.  While mobile apps are extremely popular right now, trading from a mobile app is a horrible user experience.  Robinhood, in all fairness, has done a great job with user experience, but from a practicality standpoint, it still fails to offer the speed necessary to be a day trader.  If you want to day trade, Robinhood is not the solution. In my opinion, Robinhood App is only suitable for part-time traders and investors who make fewer than 3-5 trades per week.

Part-time traders are often going to be working professionals who want to take a few trades on the side.  Perhaps a doctor who wants to add to his $CELG position, an accountant who wants to add to his $VRX short, or a banker who wants to add Warren Buffett’s latest stock choice.  These individuals all have one thing in common.  They are not day traders.  They are taking positions and planning to hold them for several days at a minimum.

As a result, they don’t need Level 2, Time & Sales, or Hot Keys.  They also probably won’t worry about not being able to short stocks or trade with leverage.  So they may not take issue with the lack of those features.  But of course on the other hand, since they are only trading 3-5 times per week, commissions were never that big of an issue for them.  And this is the reason Robinhood  App fails to catch my interest.  This is only desirable for people who feel they could use it to save $50-75/week, and that has never been enough money for me to justify changing brokers, and I doubt it would be enough for the working professionals who would be the best fit for Robinhood.  In short, it’s not suitable for active traders, and passive traders don’t need it.

Most passive traders or investors will happily continue using Ameritrade (See our TDAmeritrade Review Here) or E*Trade for the convenience of online bill pay, credit and debit cards linked to the account, and an advanced desktop platform should they decide to dabble in active trading strategies.  For those individuals, the extra commissions with full services brokers is worth the cost.


To read about our suggestions for the Top 3 Online Stock Brokers, check out this blog post.


Screen shots of Robinhood


Reviews by Warrior Trading




  • Paul McGrade

    June 21, 2016 at 8:46 am

    I have been using Robinhood for nearly three months now. I was also attracted to the zero commission structure they have. At first, I felt that having to wait 3 days for funds to settle was a pain but then I looked at it in a positive light. It forces you not to go all in but spread your capital across a weeks worth of trading. Since then though, I have upgraded my Robinhood account to Robinhood Instant. This allows you to have instant access to your trading capital without having to wait the 3 days for funds to settle. You’re still limited by the PDT rule but overall I think Robinhood is a good tool for those with small accounts. Probably one of the worst factors since I have used Robinhood is technical issues. Twice I have been in a trade where I was unable to get out of it because the app was experiencing technical difficulties. Very dangerous for short term trading! Overall, I think Robinhood could be really great for swing trading and could potentially be good for a little part time day trading but then again, they didn’t design to app to be used by day traders.

  • Ross Cameron

    June 21, 2016 at 8:57 am

    Hey Paul! Thanks for the comment. Good feedback!! Keep up the hard work trading 🙂

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