How you make money on Robinhood depends on what you buy and how long you hold it
Robinhood is a brokerage platform where you can buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. You make money in two ways: by selling an investment for more than you paid for it, or by collecting dividends and interest that companies and funds pay to shareholders. The money you make is yours to keep, though you owe taxes on gains and dividends. Robinhood does not pay you to use the platform — the money comes from the investments themselves.
The amount you make depends entirely on which investments you choose, when you buy and sell them, and how market prices move. There is no may provide return, and you can lose money if prices fall below what you paid. Robinhood charges no commission on stock and ETF trades, which means more of your money stays invested rather than going to fees.
Key Takeaways
- You make money by selling investments for more than you paid (capital gains) or by receiving dividends that companies pay to shareholders.
- Robinhood charges no commission on stock and ETF trades, so you keep more of your money working in the market.
- Losses are real: if the price of what you own falls, you lose money, and you can lose your entire investment.
- The IRS taxes capital gains and dividends, and Robinhood reports your trades to the IRS at tax time.
- You must fund your Robinhood account with your own money before you can buy anything — Robinhood does not lend you starting capital.
Capital gains: selling investments for a profit
A capital gain is the profit you make when you sell an investment for more than you paid for it. If you buy 10 shares of a stock at $50 per share ($500 total) and sell them at $60 per share ($600 total), your capital gain is $100. That $100 is yours to keep, though you owe federal income tax on it.
The tax rate depends on how long you held the investment. If you held it for one year or less, the IRS taxes it as short-term capital gains at your ordinary income tax rate, which can be 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on your total income. If you held it for more than one year, the IRS taxes it as long-term capital gains at a lower rate: 0%, 15%, or 20% depending on your income.
Robinhood tracks your holding period automatically. When you sell, the platform shows you whether the gain is short-term or long-term. At the end of each tax year, Robinhood sends you a Form 1099-B that lists all your trades, and you report the gains on your tax return.
Dividends: income from stocks and funds you own
Some stocks and most ETFs pay dividends — regular cash payments to people who own shares. A company might pay a dividend of $0.50 per share four times a year. If you own 100 shares, you receive $50 each quarter without selling anything. That money goes into your Robinhood cash account and you can spend it, reinvest it, or leave it there.
Dividends are taxed as income in the year you receive them. If the stock or fund pays a may have access to dividend (which most do), you pay the same long-term capital gains rate: 0%, 15%, or 20%. If it pays a non-may have access to dividend, you pay your ordinary income tax rate. Robinhood shows you which type each dividend is, and reports all dividends to the IRS on Form 1099-DIV.
You do not have to do anything to receive dividends — Robinhood deposits them automatically if you own the shares on the payment date. Some investors reinvest dividends by buying more shares, which compounds growth over time. Robinhood offers automatic dividend reinvestment (called DRIP) for stocks and ETFs if you turn it on in your account settings.
Interest from cash and money market funds
If you keep cash in your Robinhood account without investing it, Robinhood sweeps it into a money market fund that pays interest. The rate changes with market conditions. You earn interest on that cash automatically — Robinhood does not charge you to hold it there. The interest is taxed as ordinary income at your full tax rate.
Interest rates on money market funds vary by provider and change frequently. Robinhood shows your current rate in the app. If you want a higher rate, you can move cash to a high-yield savings account at a bank, though that cash is no longer available to trade with when ready.
What you need to fund your account and start trading
You must deposit your own money into Robinhood before you can buy anything. You can link a bank account and transfer money electronically, or deposit by check. The minimum deposit varies — some accounts have no minimum, though you need enough to buy at least one share of whatever you want to own.
Once the money settles in your account (usually one to three business days for bank transfers), you can buy stocks, ETFs, options, or cryptocurrencies. You can only spend money you have deposited — Robinhood does not lend you money to invest with, except through margin accounts, which are available only to experienced traders and carry significant risk.
Robinhood offers fractional shares, which means you can buy a portion of an expensive stock with a small amount of money. If a stock costs $500 per share and you have $100, you can buy 0.2 shares. This makes it possible to own a diversified portfolio even with limited capital.
Losses: what happens when prices fall
If you buy a stock at $50 and the price falls to $30, you have a loss of $20 per share. If you sell at that price, you lock in the loss. The loss is real money gone from your account. You can use losses to offset gains for tax purposes — if you have $5,000 in gains and $3,000 in losses, you owe tax on only $2,000 of net gain.
You can lose your entire investment if a company fails or a stock price falls to zero. This is rare for large established companies but common for smaller or newer companies. Diversification — owning many different investments rather than putting all your money into one stock — reduces this risk but does not eliminate it.
Robinhood does not protect you from losses. The platform is a tool for buying and selling; the investment decisions and the financial outcomes are yours alone.
How Robinhood makes money (and why commissions are free)
Robinhood does not charge you a commission per trade, but the company makes money in other ways. Robinhood earns interest on cash in customer accounts before it is invested, receives payment from market makers when you place orders, and offers premium subscription tiers (Robinhood Gold and Robinhood Plus) that charge monthly fees for features like margin and research tools.
The lack of commission means your money is not eaten by trading fees, which is an advantage over older brokerages that charged $5 to $10 per trade. However, free commissions do not mean free investing — you still owe taxes on gains, and you still bear the full risk of price movements.
Frequently Asked Questions
Can I make money on Robinhood without buying and selling?
Yes. If you own dividend-paying stocks or ETFs, you earn money from dividends without selling. You also earn interest on cash held in your account. Both happen automatically, though both are taxed as income.
What is the minimum amount of money I need to start?
There is no set minimum to open a Robinhood account, but you need enough money to buy at least one share of something. With fractional shares, that could be as little as $1. Most people deposit at least $100 to $500 to build a meaningful portfolio.
Do I owe taxes on money I make on Robinhood?
Yes. Capital gains, dividends, and interest are all taxable income. Robinhood reports your trades to the IRS, and you report the gains and losses on your tax return. Short-term gains are taxed at your ordinary income rate; long-term gains and may have access to dividends are taxed at lower rates.
Can I lose money on Robinhood?
Yes, completely. If prices fall below what you paid, you lose money. You can lose your entire investment if a stock price falls to zero. Robinhood is a platform for trading; it does not may provide returns or protect you from losses.
What happens if Robinhood goes out of business?
Your stocks and cash are protected by the Securities Investor Protection Corporation (SIPC), which covers up to $500,000 per account if a brokerage fails. This protection is separate from Robinhood itself and applies to all registered brokerages.