What Robinhood Is and How You Trade on It

Robinhood is a brokerage platform where you buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies without paying a commission per trade. You read the app or visit the website, link a bank account, deposit money, and then place orders to buy or sell securities at market prices. The platform executes your order and holds the securities in an account registered to you.

The core difference between Robinhood and traditional brokerages is that Robinhood charges zero commission on stock and ETF trades. Older brokerages charged $5 to $10 per trade; Robinhood eliminated that fee entirely when it launched in 2013, and most other brokerages have since matched that pricing. Robinhood makes money through other means: interest on uninvested cash in your account, premium subscription fees for advanced features, and payment for order flow (a practice where market makers pay Robinhood for the right to execute your trades).

Key Takeaways

  • You fund a Robinhood account by linking your bank account and transferring money, which typically takes one to three business days to settle.
  • Once your cash is available, you can place buy or sell orders for stocks, ETFs, options, and crypto during market hours or submit orders to execute when the market opens.
  • Robinhood holds your securities in a brokerage account in your name and insures deposits up to $500,000 through the Securities Investor Protection Corporation (SIPC).
  • You can set up recurring investments, use margin to borrow money for trades, or trade options if you meet Robinhood's requirements and request access.
  • Robinhood charges no commission on trades but does charge fees for certain features like margin interest, wire transfers, and its premium subscription tier.

Setting Up Your Account and Funding It

To open a Robinhood account, you read the app or go to robinhood.com, provide your name, email, date of birth, and Social Security number, and answer questions about your investment experience and financial situation. Robinhood verifies your identity and approves the account within minutes in most cases. You then link a bank account by providing your routing and account numbers or by connecting through your bank's website directly.

After you link your bank account, you transfer money into Robinhood. Transfers from your bank typically take one to three business days to settle, meaning the cash shows up in your Robinhood account and is available to trade. Robinhood does not charge a fee for deposits or withdrawals, though your bank may charge a fee if you use an external transfer service. Once your cash settles, you can place your first trade.

How to Place a Trade

To buy a stock or ETF, search for the ticker symbol (for example, AAPL for Apple or SPY for the S&P 500 ETF) in the Robinhood app, tap or click the security, and select "Buy." You enter the number of shares you want and choose between a market order (which executes when ready at the current price) or a limit order (which executes only if the price drops to a level you set). You review the order and confirm it.

Market orders execute within seconds during trading hours (9:30 a.m. to 4 p.m. Eastern time on weekdays when the stock market is open). Limit orders sit in the market until someone is willing to sell at your price or the order expires. You can also place orders before the market opens or after it closes; these execute during extended hours (4 a.m. to 8 p.m. Eastern) at potentially different prices than regular hours. To sell, you follow the same process but select "Sell" instead of "Buy."

Understanding Robinhood's Account Types and Protections

Robinhood offers a standard individual brokerage account, a joint account (shared with another person), and an Individual Retirement Account (IRA) for tax-advantaged retirement savings. Each account type has different rules about contributions and withdrawals. A standard brokerage account has no contribution limits and no restrictions on when you withdraw money, but you pay taxes on gains and dividends each year. An IRA lets you contribute up to $7,000 per year (or $8,000 if you are 50 or older) and defer taxes until retirement, but you cannot withdraw before age 59½ without a penalty in most cases.

Robinhood is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). SIPC insures your account up to $500,000 if Robinhood fails or goes out of business — $250,000 of that for cash and $250,000 for securities. This protection covers the value of your holdings at the time of the failure, not future gains. Your cash is also held in banks that are FDIC-insured, adding another layer of protection.

Fees You May Pay on Robinhood

Robinhood charges no commission on stock, ETF, or cryptocurrency trades. However, you may pay fees in other situations. If you use margin (borrowed money to trade), you pay interest on the borrowed amount; the rate varies but typically ranges from 5% to 13% annually depending on how much you borrow and your account balance. Wire transfers out of Robinhood cost $5 each. Robinhood Gold, the platform's premium subscription, costs $5 per month and gives you access to margin, extended-hours trading, and research tools.

Options trades are commission-free, but options are complex and carry higher risk than stocks. Robinhood also charges no fees for dividend reinvestment or for holding cash in your account. If you maintain a negative balance (you owe Robinhood money), you pay interest on that debt. Most casual traders never encounter these fees because they trade stocks or ETFs during regular hours and do not use margin.

What Happens After You Buy: Holding and Selling

Once you own a stock or ETF, it appears in your Robinhood portfolio with your cost basis (the price you paid) and current value. If the price goes up, you have an unrealized gain; if it goes down, you have an unrealized loss. You can hold indefinitely with no penalty. If the company pays a dividend, Robinhood deposits it into your account as cash or reinvests it automatically into more shares if you have that setting enabled.

When you sell, Robinhood calculates your gain or loss based on the difference between your purchase price and sale price. In a standard brokerage account, you owe capital gains tax on that profit. If you held the security for more than one year, it is taxed as a long-term capital gain (usually at a lower rate). If you held it for one year or less, it is a short-term capital gain (taxed as ordinary income). Robinhood provides tax documents at the end of the year to help you report these gains to the IRS.

Advanced Features: Margin, Options, and Recurring Investments

If you subscribe to Robinhood Gold, you can use margin, which means borrowing money from Robinhood to buy more securities than your cash balance allows. For example, with $5,000 in your account, you might borrow $5,000 more and buy $10,000 worth of stock. If the stock rises 20%, your $5,000 investment becomes $6,000 — a 20% gain on your money. But if it falls 20%, your $5,000 becomes $4,000, and you still owe Robinhood $5,000 plus interest. Margin amplifies both gains and losses and is risky for new traders.

Options are contracts that give you the right to buy or sell a stock at a set price by a certain date. They are more complex than stocks and can expire worthless, meaning you lose your entire investment. Robinhood requires you to request options access and answer questions about your experience before you can trade them. Recurring investments let you set up automatic weekly or monthly purchases of a stock or ETF; this is useful for dollar-cost averaging, where you invest the same amount regularly regardless of price.

Frequently Asked Questions

How long does it take for my bank transfer to show up in Robinhood?

Most transfers take one to three business days. Weekends and holidays do not count as business days. You can place trades as soon as the cash settles, not before. If you need to trade when ready, you can use Robinhood's when ready deposit feature if you have Gold, which makes a limited amount of cash available right away, though the full transfer still takes the normal time to settle.

What happens if I sell a stock for a loss?

You can deduct capital losses from your taxes. If you lose more than you gain in a year, you can deduct up to $3,000 of losses against other income, and carry forward any remaining losses to future years. Keep records of your purchase and sale prices; Robinhood provides a tax document, but you are responsible for reporting accurately to the IRS.

Can I trade before the market opens or after it closes?

Yes, if you have Robinhood Gold. Extended-hours trading runs from 4 a.m. to 9:30 a.m. (pre-market) and 4 p.m. to 8 p.m. (after-hours). Prices can be more volatile and spreads wider during these times, meaning the difference between the buy and sell price is larger. Not all stocks trade during extended hours.

What is the difference between a market order and a limit order?

A market order buys or sells when ready at the current market price. A limit order only executes if the price reaches a level you set. Market orders are faster but the price may be slightly different from what you see on screen. Limit orders give you price control but may never execute if the price never reaches your limit.

Is my money safe on Robinhood?

Your securities are protected by SIPC up to $500,000 per account if Robinhood fails. Your cash is held in FDIC-insured banks. However, Robinhood is not a bank, and your account value can fall if the stocks you own lose value. This is market risk, not platform risk, and is part of investing.