What Robinhood does and how you use it
Robinhood is a brokerage platform — a company that holds your money and executes trades (buys and sells) of stocks, options, cryptocurrencies, and other securities on your behalf. You open an account, deposit cash, and then place orders to buy or sell through the Robinhood app or website. Robinhood sends your order to the market, holds your securities in your account, and keeps a record of everything you own.
The platform is designed for individual investors who want to trade without paying a commission per trade. Robinhood makes money through other channels: payment for order flow (selling information about your trades to larger trading firms), margin lending (charging interest when you borrow to trade), and premium subscription features. You do not pay a per-trade fee, which is why the service appeals to people making frequent small trades.
The basic workflow is straightforward: sign up, verify your identity, link a bank account or deposit funds, then place buy or sell orders whenever you want. Robinhood executes the order at or near the current market price, and the security appears in your account within seconds to minutes. Selling works the same way in reverse — you choose what to sell, Robinhood sends the order, and the cash lands in your account.
Key Takeaways
- Robinhood is a brokerage that lets you buy and sell stocks, options, and cryptocurrencies without paying a commission per trade.
- You must verify your identity and link a bank account before you can trade, and Robinhood holds your cash and securities in your account.
- Orders execute in seconds to minutes at or near the current market price, and you can sell any security you own at any time during market hours.
- Robinhood offers margin accounts (borrowing to trade with leverage) and options trading, both of which carry higher risk and require additional approval.
- The platform charges no commission per trade but makes money through payment for order flow, margin interest, and premium subscription tiers.
Setting up your account and depositing money
To start, you read the Robinhood app or visit robinhood.com and tap "Sign Up." You enter your email, create a password, and provide your full name, date of birth, and Social Security number. Robinhood verifies this information against public records to confirm your identity — this is a legal requirement for all brokerages.
Next, you choose your account type. A standard cash account lets you buy and sell with money you have deposited. A margin account lets you borrow money from Robinhood to trade with more buying power than you have on hand — this is riskier and requires additional approval. Most new users start with a cash account.
You then link a bank account by providing your routing number and account number, or by connecting through your bank's website. Robinhood deposits a small amount (usually under $1) to verify the account is yours, and you confirm that deposit amount in the app. Once verified, you can transfer money from your bank to Robinhood, and it typically arrives within one to three business days.
How buying and selling actually works
Once you have cash in your Robinhood account, you can place a buy order. You search for a stock or security by ticker symbol (for example, AAPL for Apple), choose how many shares you want, and select your order type. A market order buys at the current price when ready. A limit order lets you set a price you are willing to pay, and the order only fills if the stock reaches that price or lower.
When you place a market order, Robinhood routes it to market makers and exchanges, which match your order with a seller. This happens in seconds. The shares appear in your account, and your cash balance drops by the amount you spent. You now own those shares and can see them listed under "Stocks" in the app, along with their current value.
Selling works the same way in reverse. You tap the security you own, choose "Sell," enter how many shares, pick your order type, and confirm. The order goes to the market, a buyer is found, and the cash lands in your account. If you sold at a profit, you owe taxes on the gain. If you sold at a loss, you may be able to deduct it. Robinhood tracks your cost basis (what you paid) and your sale price, and reports this to the IRS on Form 8949 at tax time.
Understanding order types and execution timing
Robinhood offers several order types that control when and at what price your trade executes. A market order buys or sells when ready at the best available price — usually within seconds, but the exact price may be slightly different from what you saw on screen. A limit order sets a price ceiling (for buys) or floor (for sells) and only executes if that price is available. Limit orders can take hours or days to fill, or may never fill if the price never reaches your limit.
During regular market hours (9:30 a.m. to 4 p.m. Eastern time, Monday through Friday), orders execute on major exchanges. Robinhood also offers extended-hours trading (4 p.m. to 8 p.m. and 7 a.m. to 9:30 a.m.), but prices are wider apart, fewer shares trade, and execution is less reliable. Most new traders stick to regular hours.
When you place an order, you see the current bid (what buyers will pay) and ask (what sellers want). Market orders buy at the ask and sell at the bid, which is why you may pay slightly more than the price you saw. Limit orders let you avoid this by waiting for your price, but they may not fill at all.
Margin accounts and borrowing to trade
A margin account lets you borrow money from Robinhood to buy securities. If you have $5,000 in your account and open a margin account, Robinhood may let you buy up to $10,000 worth of stock (a 2:1 ratio). You own the full $10,000 in securities, but you owe Robinhood $5,000 plus interest. This is called leverage, and it amplifies both gains and losses.
If your $10,000 investment rises to $12,000, you have a $2,000 gain on your $5,000 deposit — a 40% return. But if it falls to $8,000, you have a $2,000 loss on your $5,000 deposit — a 40% loss. Worse, Robinhood charges interest on the borrowed $5,000 (rates vary but are typically 5% to 12% per year), so your losses grow if you hold the position long.
Robinhood also enforces a maintenance requirement: your account must stay above a certain equity level (usually 25% to 30% of the value of your securities). If it falls below that, Robinhood issues a margin call and forces you to deposit more cash or sell securities to bring your account back into compliance. If you do not respond, Robinhood sells your positions without your permission to cover the shortfall. Margin accounts are for experienced traders only.
Options trading and advanced features
Robinhood also offers options trading, which lets you buy or sell contracts that give you the right (but not the obligation) to buy or sell a stock at a set price by a set date. Options are more complex than stocks and carry higher risk. A call option is a bet that a stock will rise; a put option is a bet that it will fall. You can lose your entire investment in an options contract, and losses can exceed your initial cost if you sell options without owning the underlying stock.
To trade options on Robinhood, you must request options approval in your account settings. Robinhood assigns you a level (Level 1 through 4) based on your experience and account size. Level 1 lets you buy calls and puts. Higher levels let you sell options and use more complex strategies. Robinhood does not charge a commission on options trades, but the bid-ask spread (the difference between buying and selling prices) is often wider than for stocks, so you pay more in hidden costs.
Robinhood also offers cryptocurrency trading (Bitcoin, Ethereum, and others), fractional shares (buying a portion of an expensive stock), and dividend reinvestment. Each feature has its own rules and risks, and you can turn them on or off in your account settings.
How Robinhood makes money and what it costs you
Robinhood charges no commission per trade, which sounds free but is not quite. The company makes money through payment for order flow (PFOF). When you place a buy or sell order, Robinhood routes it to a market maker or trading firm, which pays Robinhood a small fee for the order. This fee comes out of the difference between the bid and ask prices, so you pay it indirectly through a slightly worse execution price than you might get elsewhere.
Robinhood also charges interest on margin balances (if you borrow to trade), subscription fees for premium tiers (Robinhood Gold adds margin and other features), and fees for certain services like wire transfers. Cryptocurrency trading on Robinhood includes a built-in markup on the price you see, so you pay more to buy and receive less when you sell compared to the actual market price.
For most buy-and-hold investors, these costs are small. For active traders placing dozens of trades per day, the bid-ask spreads and PFOF add up. It is worth comparing Robinhood's execution prices to other brokerages if you trade frequently.
Frequently Asked Questions
Can I lose more money than I deposit?
In a cash account, no — you can only lose what you invested. In a margin account, yes — if you borrow to trade and your positions fall sharply, you can owe Robinhood more than your account is worth. Options trading also carries this risk, especially if you sell options without owning the underlying security.
What happens to my money if Robinhood goes out of business?
Your cash and securities are protected by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account ($250,000 in cash). This covers losses from Robinhood's failure, not from your own trading losses. Your securities are held in your name, not Robinhood's, so they are yours regardless of what happens to the company.
How long does it take to withdraw money from Robinhood?
Cash withdrawals to your linked bank account typically take one to three business days. If you need to sell securities first, that takes seconds to minutes, and then the cash withdrawal takes another one to three days. Wire transfers are faster (same day or next day) but Robinhood charges a fee.
Can I trade on weekends or after market hours?
Robinhood offers extended-hours trading from 7 a.m. to 9:30 a.m. and 4 p.m. to 8 p.m. Eastern time on weekdays. Regular market hours are 9:30 a.m. to 4 p.m. You cannot trade on weekends, and extended-hours trading has wider spreads and lower volume, so execution is less reliable.
Does Robinhood report my trades to the IRS?
Yes. Robinhood reports all sales to the IRS on Form 8949 (Sales of Capital Assets) and sends you a copy for your tax return. You are responsible for reporting gains and losses accurately. If you trade frequently, keep detailed records of your cost basis and sale prices, because Robinhood's reports may not match your own accounting if you bought the same stock at different times.