What you can actually earn money doing on Robinhood
Robinhood makes money for you the same way a brokerage does: you buy investments at a lower price and sell them at a higher price, or you hold investments that pay dividends. Robinhood itself does not pay you to use the app. You earn money only when the value of what you own goes up, or when companies whose stock you hold send you a share of their profits.
The most common ways to make money through Robinhood are buying and selling stocks, buying and holding dividend-paying stocks, and trading options contracts. Each has different risks and requires different knowledge. Robinhood charges no commission on any of these trades, which is why many people use it — but that does not make any of these strategies profitable on their own.
Before you deposit money, understand that losing money is just as possible as making it. The app is designed to be straightforward to use, but that does not mean the investing itself is straightforward or safe.
Key Takeaways
- You make money on Robinhood by buying stocks or other investments at a low price and selling them at a higher price, or by holding dividend-paying stocks that send you cash.
- Robinhood charges zero commission on stock and options trades, which saves you money on fees but does not may provide you will make money overall.
- Day trading on Robinhood requires a minimum account balance of $25,000 and is riskier than buying and holding for the long term.
- Dividend stocks and index funds are lower-risk ways to earn money through Robinhood, though returns are typically slower.
- You pay taxes on any gains you make, and Robinhood sends you a tax form at the end of the year showing what you owe.
Buying and selling individual stocks for short-term gains
The most direct way to make money on Robinhood is to buy a stock when you think its price will go up, then sell it when the price rises. If you buy 100 shares at $10 each and sell them at $15 each, you make $500 before taxes and fees. Robinhood charges no commission, so you keep the full $500 profit.
This strategy works in theory but is difficult in practice. Stock prices move based on company performance, market conditions, news, and investor sentiment — all things that are hard to predict. Most people who try to time the market and buy low and sell high end up buying high and selling low instead. The easier stocks are to trade on Robinhood, the more tempting it is to trade often, and frequent trading usually loses money after you account for taxes.
If you do this more than four times in five business days, Robinhood will flag your account as a pattern day trader. Once flagged, you must keep at least $25,000 in your account at all times. If your balance drops below that, you cannot trade until you deposit more money. This rule comes from the Financial Industry Regulatory Authority (FINRA), not from Robinhood.
Holding dividend stocks for regular income
Some companies pay shareholders a portion of their profits four times a year. These payments are called dividends. If you own 100 shares of a company that pays a $0.50 quarterly dividend, you receive $50 every three months without doing anything. Robinhood deposits dividends directly into your account.
Dividend stocks tend to be larger, more established companies — utilities, banks, consumer goods makers — rather than fast-growing tech startups. Their stock prices usually move more slowly than growth stocks, so you are less likely to see big gains or losses. The trade-off is that you earn steady cash while you wait.
Dividends are taxed as income in the year you receive them, even if you do not sell the stock. If you receive $500 in dividends, you owe taxes on that $500. Robinhood will report all dividends you received on your year-end tax form.
Investing in index funds and ETFs for long-term growth
An index fund or exchange-traded fund (ETF) is a single investment that holds hundreds or thousands of stocks at once. When you buy one share of an S&P 500 index fund, you own a tiny piece of 500 large U.S. companies. Robinhood offers fractional shares, meaning you can invest any dollar amount — $1, $50, $500 — rather than waiting to save enough for a full share.
Index funds and ETFs are lower-risk than picking individual stocks because your money is spread across many companies. If one company fails, it barely affects your investment. Many financial advisors recommend index funds as the core of a long-term investment strategy because they are straightforward, diversified, and have historically returned about 10% per year over decades — though past performance does not may provide future results.
You can buy index funds on Robinhood with no commission. Some ETFs pay dividends, which Robinhood deposits into your account. You pay taxes only on dividends you receive or gains you realize by selling at a profit.
Trading options for higher risk and higher potential returns
An options contract is a bet on whether a stock price will go up or down by a certain date. You do not own the stock itself — you own the right to buy or sell it at a set price. Options are more complex than stocks and can move much faster. A $100 options trade can turn into $500 or become worthless in days.
Robinhood allows options trading on most accounts, but you must request it. The app will ask you questions about your investing experience and risk tolerance. Robinhood may deny your request if you have little experience. Even if approved, options are risky. Most people who trade options lose money, especially when they are new to it.
Options are taxed the same way as stocks — you owe taxes on any profit when you sell. Robinhood reports all options trades on your year-end tax form.
Understanding taxes on your Robinhood earnings
Any money you make on Robinhood is taxable income. If you buy a stock for $100 and sell it for $150, you owe taxes on the $50 gain. If you hold a stock for less than one year before selling, the gain is taxed as short-term capital gains, which means it is taxed at your regular income tax rate. If you hold for one year or longer, it is taxed as long-term capital gains, which usually has a lower tax rate.
Robinhood sends you a Form 1099-B at the end of January showing all your trades and gains for the previous year. You report this on your tax return. If you owe taxes and do not pay them, the IRS will eventually contact you. Many people forget about taxes until April and then owe more than they expected.
If you lose money on an investment, you can deduct up to $3,000 of losses against other income in a single year. Any losses beyond that can be carried forward to future years. Keep records of all your trades so you can calculate your gains and losses accurately.
Why Robinhood's zero-commission model matters
Before Robinhood launched in 2015, most brokerages charged $5 to $10 per trade. If you made 10 trades a month, you paid $50 to $100 in fees. Robinhood eliminated these commissions, which made it cheaper to trade frequently. This is why Robinhood became popular with younger investors.
However, zero commissions do not mean zero cost. Robinhood makes money from you in other ways: it lends out shares you own to short-sellers and keeps the interest, it sells information about your trades to market makers, and it offers a paid subscription called Robinhood Gold that charges a monthly fee for margin borrowing and other features. None of these costs show up as a line item on your account, but they exist.
The lack of visible fees can make it feel like trading is free, which can lead to overtrading. Overtrading usually loses money because you pay taxes on every gain and incur losses on bad trades. The fact that you do not see a commission does not mean the trade is profitable.
Common mistakes that cost money on Robinhood
The biggest mistake is trading too often. Each trade is a chance to lose money, and taxes eat into gains. If you buy and sell the same stock five times in a month, you are paying taxes on each gain and locking in each loss. Long-term investors who buy and hold tend to do better than frequent traders.
Another mistake is buying stocks based on hype or tips from social media. Robinhood makes it straightforward to buy any stock in seconds, which means it is straightforward to buy something you do not understand. Before you buy, learn what the company does, how it makes money, and whether the price makes sense. If you cannot explain why you own something, you probably should not own it.
A third mistake is using margin — borrowing money from Robinhood to buy more stocks than you can afford. Margin amplifies both gains and losses. If you borrow $5,000 to buy stocks and they drop 20%, you owe the $5,000 back plus interest, and your own money is gone. Robinhood Gold offers margin, but it is risky for most people.
Frequently Asked Questions
Can I actually make money on Robinhood if I am a beginner?
Yes, but most beginners lose money at first. The best strategy for beginners is to invest in index funds or dividend stocks and hold them for years, not to trade individual stocks frequently. This requires patience but has a much higher success rate than trying to time the market.
How much money do I need to start on Robinhood?
You can open an account with any amount, even $1. However, if you plan to day trade (buy and sell the same stock multiple times in five days), you must have at least $25,000 in your account. For long-term investing, there is no minimum.
Do I have to pay taxes on money I make on Robinhood?
Yes. Any gain you make is taxable income. Robinhood sends you a tax form at the end of the year, and you report it on your tax return. If you do not pay taxes on your gains, the IRS will eventually contact you.
What is the difference between buying stocks and buying ETFs on Robinhood?
A stock is one company. An ETF holds many companies in one investment. Stocks can move faster and offer bigger gains or losses. ETFs are more stable because your money is spread across many companies. For most people, ETFs are less risky.
Can I lose more money than I put in on Robinhood?
With regular stocks and ETFs, no — the worst that can happen is the investment goes to zero and you lose everything you invested. With options and margin, yes — you can owe more than you put in. Avoid these strategies until you have significant experience.