A Robinhood account is a brokerage account that lets you buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies through a mobile app or website

Robinhood is a company that acts as a broker — a middleman between you and the financial markets. When you open an account, you deposit money, and that money sits in your account until you use it to buy investments. You own whatever you buy; Robinhood holds it for you and executes your trades. The account itself is not an investment — it is the container where your investments live and the tool you use to trade them.

The account comes in two main types: a standard taxable brokerage account and an Individual Retirement Account (IRA). A taxable account has no contribution limits and no rules about when you can withdraw money, but you pay taxes on gains and dividends each year. An IRA has annual contribution limits and rules about when you can withdraw without penalty, but the money grows tax-deferred or tax-free depending on the type.

Key Takeaways

  • A Robinhood account is a brokerage account where you deposit money and use it to buy stocks, ETFs, options, and cryptocurrencies.
  • You can open either a taxable brokerage account with no limits or an IRA with annual contribution caps and withdrawal rules.
  • Robinhood charges no commission on stock and ETF trades, but you pay spreads (the difference between buy and sell prices) and may pay fees for certain features.
  • Your investments in a Robinhood account are protected by SIPC insurance up to $500,000 if Robinhood fails, though this does not protect you from market losses.
  • You can withdraw cash from your account at any time, but selling investments to raise cash may trigger capital gains taxes in a taxable account.

How money moves in and out of your account

To start trading, you link a bank account to Robinhood and transfer money in. This process usually takes one to three business days. Once the money is in your Robinhood account, you can buy investments when ready — you do not have to wait for the transfer to fully settle, though Robinhood may limit how much you can trade on unsettled funds.

When you sell an investment, the money goes back into your Robinhood cash balance. You can then withdraw that cash back to your bank account, which takes another one to three business days. If you buy and sell the same stock within five business days, Robinhood may flag you as a pattern day trader, which comes with restrictions on how often you can trade unless you keep at least $25,000 in your account.

What you can and cannot buy through Robinhood

Robinhood lets you buy individual stocks, ETFs, options contracts, and cryptocurrencies like Bitcoin and Ethereum. You cannot buy bonds, mutual funds, or commodities like gold or oil directly through Robinhood — though you can buy ETFs that hold these things. You also cannot buy fractional shares of most stocks, meaning you must buy whole shares at the current price.

Options trading requires a separate process and approval. Robinhood assigns you an options level based on your experience and account size; level 1 lets you buy call and put options, while higher levels unlock more complex strategies. If you are new to options, Robinhood may start you at level 1 and require you to request an upgrade.

Costs and fees you should know about

Robinhood charges zero commission on stock and ETF trades, which means you do not pay a per-trade fee. However, you still pay the spread — the difference between what buyers are willing to pay and what sellers are asking. On a stock trading at $100 bid and $100.10 ask, you pay the extra $0.10 per share when you buy. This spread is invisible but real.

Robinhood Gold is a paid subscription ($5 per month or $55 per year) that gives you margin borrowing, extended hours trading, and research tools. You do not need it to trade during regular market hours. Robinhood also charges fees for wire transfers out of your account and does not pay interest on cash balances, so money sitting in your account earns nothing.

How your money is protected if Robinhood fails

Robinhood is registered with the Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA). This means your account is protected by SIPC insurance up to $500,000 if Robinhood goes out of business. This protection covers the value of your stocks, ETFs, and cash — up to $250,000 in cash per account type.

SIPC insurance does not protect you from market losses. If you buy a stock at $100 and it falls to $50, SIPC does not reimburse you the $50. It only protects you if Robinhood itself fails and cannot return your investments or cash. Your investments are held in your name, not Robinhood's, so even if the company closes, your stocks and ETFs belong to you.

Taxable accounts versus IRAs on Robinhood

A taxable brokerage account has no contribution limits and no rules about when you withdraw. You can deposit $1,000 or $100,000 in a single year. However, you owe taxes on any gains when you sell, and you owe taxes on dividends each year even if you do not sell. This makes taxable accounts better for short-term trading or money you might need soon.

A Roth IRA on Robinhood lets you contribute up to $7,000 per year (as of 2024, though this amount changes). Money grows tax-free, and you can withdraw it tax-free after age 59½ if you have held the account for at least five years. A Traditional IRA offers a tax deduction for contributions, but you pay taxes on withdrawals in retirement. Both IRA types penalize withdrawals before age 59½, with some exceptions for hardship.

How Robinhood makes money

Robinhood does not charge you commissions, but it makes money in several ways. It earns interest on cash balances in your account before you invest them. It sells order flow — information about your trades — to market makers and other traders who use that data to profit. It charges for Robinhood Gold subscriptions. And it earns a small amount from margin interest if you borrow money to buy stocks.

This business model means Robinhood has an incentive to encourage trading, which is why the app is designed to be straightforward and fast. Before you trade, understand that frequent trading usually costs you money in spreads and taxes, even if you are not paying a commission per trade.

Getting started with a Robinhood account

To open an account, read the Robinhood app or visit the website, enter your name and email, and verify your identity with a Social Security number and date of birth. Robinhood will ask about your investment experience and financial situation. Link a bank account and transfer money in. Once the transfer settles, you can start trading.

Before you do, decide whether you want a taxable account or an IRA. If you are saving for retirement and have not maxed out an IRA elsewhere, an IRA on Robinhood makes sense. If you are trading with money you might need in the next few years, a taxable account is simpler. You can open both types of accounts with Robinhood, though each has its own contribution and withdrawal rules.

Frequently Asked Questions

Can I lose more money than I deposit in a Robinhood account?

In a standard account, no — you can only lose what you have deposited. If you buy a stock for $1,000 and it goes to zero, you lose $1,000. If you use margin (borrowing money to buy stocks), you can lose more than your deposit because you owe the borrowed amount back. Margin is available through Robinhood Gold and requires careful management.

What happens to my stocks if Robinhood shuts down?

Your stocks belong to you, not Robinhood. If the company closes, SIPC insurance ensures you get your investments back or their cash value. Robinhood would transfer your account to another broker. You would not lose your stocks, though the process might take weeks.

Can I transfer stocks from another brokerage into Robinhood?

Yes. You can request an ACAT transfer (Automated Customer Account Transfer) from your old broker to Robinhood. The process usually takes five to seven business days. Robinhood does not charge a transfer fee, though your old broker might.

Do I have to pay taxes on stocks I own but have not sold?

Not on the gains. In a taxable account, you only owe taxes when you sell (capital gains tax) or when the stock pays a dividend. In an IRA, you owe no taxes on gains or dividends while the money is in the account. You only pay taxes on withdrawals in retirement, and only if it is a Traditional IRA.

Is Robinhood safe to use?

Robinhood is regulated by the SEC and FINRA, and your account is insured by SIPC. The company has faced criticism for outages during high-traffic trading days and for its order-flow business model, but it has not lost customer money due to company failure. Your main risk is market risk — stocks can fall in value — not the safety of the platform itself.