What Robinhood is and who uses it

Robinhood is a mobile and web-based brokerage platform that lets you buy and sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies from your phone or computer. The app is designed for individual investors — people managing their own money rather than working with a financial advisor. You create an account, link a bank account or transfer money in, and then place trades whenever you want during market hours.

The platform became popular because it removed account minimums and per-trade commissions that traditional brokerages charged. Before Robinhood launched in 2013, most brokerages required you to have thousands of dollars to open an account and charged $5 to $10 per trade. Robinhood's zero-commission model forced the entire industry to change, and now most major brokerages offer commission-free trading too.

Robinhood is owned by Robinhood Markets, Inc., a private company that went public in 2023. The company makes money through payment for order flow (when market makers pay to execute your trades), margin lending (charging interest when you borrow money to invest), and premium subscription features.

Key Takeaways

  • Robinhood lets you trade stocks, ETFs, options, and cryptocurrencies with no commission fees, though you still pay bid-ask spreads when you buy or sell.
  • The app is designed for self-directed investors and does not provide personalized investment recommendations or financial information.
  • Your cash and securities are protected up to $500,000 through SIPC insurance, which covers losses if Robinhood fails but not if your investments lose value.
  • Robinhood makes money from payment for order flow and premium features, not from charging you per trade.
  • You can start trading with any amount of money, though some investments like options require a minimum account value or approval process.

How to set up an account and fund it

Creating a Robinhood account takes about 10 minutes. You read the app or go to robinhood.com, enter your email, create a password, and provide your Social Security number, date of birth, and address. Robinhood runs a background check and verifies your identity using your driver's license or state ID.

Once your account is approved, you link a bank account to transfer money in. You can link a checking or savings account from any U.S. bank. Transfers typically take one to three business days to arrive in your Robinhood account. Some transfers are when ready if your bank is on Robinhood's supported list, which includes most major banks.

You do not have to deposit a minimum amount to open an account. You can start with $1 if you want, though trading very small amounts means you pay a larger percentage in bid-ask spreads. Once money is in your account, you can place trades when ready during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays when the stock market is open).

What you can trade and how commissions work

Robinhood lets you trade four main asset types: stocks, ETFs, options, and cryptocurrencies. Stocks are shares of individual companies. ETFs are funds that hold many stocks or bonds and trade like stocks. Options are contracts that give you the right to buy or sell a stock at a set price by a certain date. Cryptocurrencies include Bitcoin, Ethereum, and hundreds of others.

There are no commission fees on any of these trades. However, you still pay the bid-ask spread, which is the difference between what buyers will pay and what sellers are asking. If a stock's bid price is $100 and the ask price is $100.10, you pay that $0.10 difference when you buy. The spread varies by how actively the stock trades — popular stocks have tight spreads, while less-traded stocks have wider ones.

Options and cryptocurrencies have additional rules. To trade options, your account must be approved for options trading, which requires a minimum account value (usually $2,000) and a brief questionnaire about your investment experience. Cryptocurrency trading is available in most states but not all — check Robinhood's website to see if it is available where you live.

How Robinhood protects your money

Your cash and securities held at Robinhood are protected by the Securities Investor Protection Corporation (SIPC), a nonprofit created by Congress. SIPC insurance covers up to $500,000 per account if Robinhood fails or goes out of business. The coverage splits into $250,000 for cash and $250,000 for securities.

SIPC protection does not cover losses from bad investments. If you buy a stock for $100 and it drops to $50, SIPC does not reimburse you. SIPC only covers losses if the brokerage itself fails and cannot return your money. Robinhood also carries additional insurance beyond SIPC through Lloyd's of London, which covers certain scenarios not included in the standard SIPC policy.

Your account is also protected by username and password security, and Robinhood offers two-factor authentication (a second verification step when you log in) to prevent unauthorized access. If someone gains access to your account and makes unauthorized trades, contact Robinhood when ready — the company has a process for investigating and potentially reversing fraudulent trades.

Key differences between Robinhood and traditional brokerages

Robinhood is built for active, self-directed traders who want a straightforward mobile experience. Traditional brokerages like Fidelity, Charles Schwab, and E*TRADE offer more research tools, educational content, and customer service options. They also offer financial information through advisors (though that usually costs more) and have more investment options like bonds and mutual funds.

Robinhood's main advantage is simplicity and speed. The app is designed to make placing a trade as fast as possible — you can buy a stock in three taps. Traditional brokerages have more features, which means more menus and options to navigate. Robinhood also has no account minimums, while some traditional brokerages require $500 or more to open certain account types.

A major difference is that Robinhood does not offer retirement accounts like IRAs or 401(k)s. If you want to save for retirement with tax advantages, you need to open an IRA or 401(k) elsewhere. Robinhood only offers regular taxable brokerage accounts, which means you pay capital gains tax on profits when you sell.

What Robinhood does not do

Robinhood does not provide personalized investment information or recommendations. The app shows you information about stocks and cryptocurrencies, but it does not tell you which ones to buy. You make all investment decisions yourself. If you want someone to tell you what to invest in, you need a financial advisor or a robo-advisor (an automated service that builds a portfolio based on your goals).

Robinhood also does not offer margin accounts by default, though you can upgrade to Robinhood Gold (a paid subscription) to borrow money for investing. Borrowing to invest is risky — if your investments drop in value, you still owe the money back plus interest. Most new investors should avoid margin trading until they understand how it works.

The platform does not offer certain investment types like bonds, mutual funds (other than ETFs), or futures. If you need these options, you will need to use a different brokerage.

Frequently Asked Questions

Is Robinhood safe to use?

Robinhood is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Your cash and securities are insured by SIPC up to $500,000. The main risk is not the platform itself but your own investment decisions — the app makes it straightforward to trade quickly, which can lead to impulsive choices.

Can I lose more money than I deposit?

In a regular cash account, no — you can only lose what you put in. If you upgrade to a margin account and borrow money to invest, you can lose more than your deposit because you owe back the borrowed amount plus interest, regardless of how your investments perform.

How do I withdraw money from Robinhood?

Go to the Account section, select Transfer, and choose Withdraw. You can transfer money back to your linked bank account. Withdrawals typically take one to three business days. You can only withdraw cash that is not tied up in open positions — if you have unsettled trades (trades that have not yet completed), you may need to wait for settlement before withdrawing.

Does Robinhood report my trades to the IRS?

Yes. At the end of each tax year, Robinhood sends you a Form 1099 that reports your capital gains, dividends, and interest. You use this form to report investment income on your tax return. Keep records of all your trades throughout the year so you can match them to your 1099.

What happens if I do not have enough money to cover a trade?

The trade will not go through. Robinhood will not let you buy a stock if you do not have enough cash in your account unless you have a margin account and have been approved to borrow. If you try to place an order you cannot afford, the app will show an error message.