Robinhood is a brokerage platform, not a money-making system

Robinhood is a tool for buying and selling stocks, options, cryptocurrencies, and other investments. The money you make comes from the investments themselves — when the value of what you own goes up, or when you receive dividends. Robinhood does not generate returns; it is the platform where you execute trades and hold positions.

The most common ways people attempt to make money through Robinhood are buying stocks and holding them long-term, trading stocks more frequently, selling covered calls on stocks you own, and buying cryptocurrencies. Each of these carries different levels of risk and requires different knowledge. None of them is passive income — they all require you to put money in first and make decisions about when to buy and sell.

Before you deposit money, you should understand that Robinhood charges no commission on stock trades, but you can still lose money. The platform's low barriers to entry mean many new investors trade without a plan, and most lose money in their first year.

Key Takeaways

  • Robinhood makes money available to trade, but your returns depend entirely on which investments you choose and how their value changes.
  • Buying individual stocks requires research into company fundamentals, and most individual investors underperform the overall market.
  • Options trading and day trading carry higher risk and can result in losses larger than your initial investment.
  • Robinhood offers fractional shares, which means you can start with small amounts of money, but small amounts also mean small returns.
  • Dividends from stocks and interest from cash management accounts are real income, but the amounts are typically small unless you hold large positions.

Buying and holding stocks for long-term growth

The most straightforward approach is to buy stocks in companies you believe will grow over years or decades, then hold them. This is called long-term investing. You make money when the stock price rises, and you can also receive dividends — small cash payments that some companies distribute to shareholders quarterly or annually.

To start, you research companies using Robinhood's built-in tools or external sources like SEC filings, earnings reports, and financial news sites. You decide how much to invest in each company, then place a buy order. Robinhood executes the trade when ready during market hours (9:30 a.m. to 4 p.m. Eastern Time on weekdays). Your shares appear in your account, and you own them until you sell.

The risk is that stock prices fall as well as rise. If you buy a stock at $50 and it drops to $30, you have lost $20 per share. You only recover that loss if the price rises again, or you accept the loss and sell. Most individual stock pickers underperform a straightforward index fund over ten years, according to academic research, so this approach requires either skill, luck, or both.

Trading stocks more frequently for short-term gains

Some people attempt to make money by buying and selling stocks within days, weeks, or months — trying to catch price movements before they happen. This is called active trading or swing trading. The appeal is faster returns; the reality is higher costs and higher failure rates.

Each trade you make is a decision point where you can be wrong. If you buy a stock expecting it to rise and it falls instead, you lose money when ready. If you sell too early, you miss gains. If you hold too long, you watch profits evaporate. Robinhood charges no commission, but you still pay the bid-ask spread — the difference between what buyers will pay and what sellers will accept — on every trade.

Day trading (buying and selling the same stock within one day) is particularly risky. In the United States, if you make more than three day trades in five business days in a margin account, you are flagged as a pattern day trader and must maintain at least $25,000 in your account. Many new traders lose money before they understand this rule.

Selling covered calls to generate income

A covered call is an options strategy where you own 100 shares of a stock and sell someone else the right to buy those shares from you at a fixed price by a certain date. You receive a premium (cash payment) upfront. If the stock price stays below that fixed price, you keep the premium and the shares. If the stock price rises above it, your shares are called away and you miss the additional gains.

This strategy can generate regular income if you own stocks you are willing to sell. For example, if you own 100 shares of a stock trading at $50, you might sell a call that lets someone buy those shares at $55 in 30 days, and you receive $200 as the premium. If the stock stays at $50 or drops, you keep the $200 and still own the shares. If it rises to $60, your shares are sold at $55 and you miss the $5-per-share gain.

Covered calls require you to own the underlying stock first, understand options pricing, and accept that you are capping your upside in exchange for when ready cash. Robinhood allows options trading after you complete an process and are approved for options level 1 or higher.

Buying cryptocurrencies on Robinhood

Robinhood allows you to buy and sell cryptocurrencies like Bitcoin and Ethereum directly through the app. You make money the same way as with stocks — when the price rises. You can also lose money when the price falls, and cryptocurrency prices are far more volatile than stock prices.

Robinhood does not charge commission on crypto trades, but the spread between buy and sell prices is typically wider than for stocks. If you buy Bitcoin at $45,000 and sell it at $44,500, you have lost $500 before any price movement. Cryptocurrency markets trade 24 hours a day, seven days a week, so prices move constantly, including overnight and on weekends.

Most financial advisors recommend that cryptocurrency represent a small portion of a diversified portfolio, if any. The volatility means you should only invest money you can afford to lose entirely.

Dividend income and cash management accounts

If you own stocks that pay dividends, Robinhood deposits the cash into your account automatically on the payment date. Dividend payments vary widely — some stocks pay 1 to 2 percent annually, others pay 5 percent or more. A stock paying 2 percent means you receive $20 per year for every $1,000 invested.

Robinhood also offers a cash management account that pays interest on uninvested cash sitting in your account. The interest rate changes based on market conditions and is typically between 4 and 5 percent annually, though this varies. Interest is paid daily and deposited monthly. On $10,000, a 4.5 percent rate generates about $450 per year, or $37.50 per month.

Neither dividends nor interest is passive income in the sense that you do nothing — you must have money invested or in the account to begin with. But once you own the stocks or hold the cash, the payments arrive without additional action from you.

Common mistakes that cost money

New Robinhood users often trade without a plan, buying stocks based on social media tips or FOMO (fear of missing out). They sell at a loss after small price drops, locking in losses instead of waiting for recovery. They overtrade, paying spreads on dozens of small transactions that add up to more than any gains.

Another common mistake is using margin (borrowed money) without understanding the risks. Robinhood offers margin accounts that let you borrow money to buy more stocks than you can afford. If your investments fall in value, you can receive a margin call — a demand to deposit more cash when ready or have your positions sold automatically at a loss.

Tax mistakes are also common. Every trade is a taxable event. If you buy a stock for $1,000 and sell it for $1,500, you owe taxes on the $500 gain. Robinhood provides tax documents at year-end, but many traders do not set aside money for taxes and face a bill they cannot pay.

Frequently Asked Questions

Can I make money on Robinhood without buying individual stocks?

Yes. You can buy exchange-traded funds (ETFs) or index funds through Robinhood, which own hundreds of stocks in a single fund. You can also hold cash in a Robinhood cash management account and earn interest. Both approaches require less research than picking individual stocks and typically have lower risk.

How much money do I need to start on Robinhood?

You can open an account with any amount, including $1, because Robinhood offers fractional shares. However, small amounts generate small returns. If you invest $100 in a stock that rises 10 percent, you gain $10. Transaction costs and spreads eat into small gains quickly.

What happens if I lose money on Robinhood?

Your account balance decreases by the amount of your loss. You can withdraw the remaining cash, or you can continue trading. Losses on investments are not recoverable through Robinhood — the platform does not insure investment losses. You may be able to deduct investment losses on your taxes, but only up to certain limits.

Do I pay taxes on money I make through Robinhood?

Yes. Capital gains (profits from selling investments) and dividends are taxable income. Robinhood sends you a Form 1099 at the end of the year showing your gains and losses. You report this on your tax return. Short-term gains (from holding less than one year) are taxed as ordinary income; long-term gains (from holding more than one year) may have lower tax rates.

Is Robinhood a good way to make money for beginners?

Robinhood is a good platform for learning how to trade because it has no commission and a straightforward interface. It is not a good way to make money quickly. Most beginners lose money in their first year because they lack experience and trade without a plan. If you are new to investing, consider starting with a diversified index fund and reading books about investing before trading individual stocks.