Robinhood launched in 2013 as a mobile-first brokerage

Robinhood began operations in 2013, founded by Vladimir Tenev and Baiju Bhatt. The platform started as an app-based brokerage designed to let people trade stocks and exchange-traded funds (ETFs) without paying commission fees — a significant shift from how most brokerages charged at the time.

The company's name references the folk legend of Robin Hood, reflecting the founders' stated goal of making investing accessible to people who couldn't afford traditional brokerage fees. When Robinhood opened to the public in 2015, it offered commission-free stock and ETF trading on iOS devices, followed by Android support later that year.

The platform expanded its offerings over time. In 2016, Robinhood added options trading. In 2018, the company introduced cryptocurrency trading for Bitcoin and Ethereum. In 2020, Robinhood added fractional shares, allowing people to buy partial ownership of stocks with smaller amounts of money.

Key Takeaways

  • Robinhood was founded in 2013 and opened to public users in 2015 with commission-free stock trading on mobile devices.
  • The platform started with stocks and ETFs, then added options trading in 2016 and cryptocurrency trading in 2018.
  • Fractional shares became available in 2020, letting people invest in high-priced stocks with smaller amounts of money.
  • Robinhood is a brokerage app, not a bank, so your cash and investments are held in a brokerage account rather than a checking or savings account.

How Robinhood makes money without charging commissions

Robinhood does not charge commission fees on trades, but the company generates revenue through other means. The primary source is payment for order flow — when you place a trade, Robinhood sends that order to market makers and receives a small payment in return. Market makers are firms that buy and sell securities constantly and profit from the difference between buy and sell prices.

Robinhood also earns money from Robinhood Gold, a paid subscription tier that offers features like margin trading (borrowing money to invest) and extended trading hours. The company also generates revenue from cash management services and interest on uninvested cash held in accounts.

What types of accounts Robinhood offers

Robinhood offers several account types for different investing goals. A standard brokerage account is the most common — there are no contribution limits, and you can withdraw money whenever you want. You pay taxes on any gains when you sell.

Robinhood also offers Individual Retirement Accounts (IRAs), which are tax-advantaged accounts designed for retirement savings. Traditional IRAs let you deduct contributions from your taxes now, and you pay taxes when you withdraw in retirement. Roth IRAs work the opposite way — you contribute after-tax money, but withdrawals in retirement are tax-free. Both types have annual contribution limits set by the IRS, which change year to year.

A rollover IRA is available if you have a 401(k) or other retirement account from a previous employer that you want to move to Robinhood. This lets you consolidate retirement savings in one place without triggering taxes or penalties.

How Robinhood's trading hours work

Robinhood lets you trade during regular market hours, which are 9:30 a.m. to 4:00 p.m. Eastern Time on weekdays when the stock market is open. The market is closed on weekends and on certain holidays like Thanksgiving and Christmas.

If you have Robinhood Gold (the paid subscription), you can also trade during extended hours — from 4:00 a.m. to 9:30 a.m. before the market opens, and from 4:00 p.m. to 8:00 p.m. after it closes. Extended-hours trading carries higher risk because fewer traders are active, which can mean wider price swings and larger gaps between buy and sell prices.

What happens to your money if Robinhood closes or fails

Robinhood is a brokerage, not a bank, so your money is protected differently than it would be in a bank account. Securities you own — stocks, ETFs, options, and cryptocurrency — are held in your name and belong to you, not to Robinhood. If Robinhood were to shut down, your securities would be transferred to another brokerage.

Cash held in your Robinhood account is covered by SIPC (Securities Investor Protection Corporation) protection up to $250,000 per account type. This means if Robinhood fails and your cash cannot be returned, SIPC will cover losses up to that limit. Some Robinhood accounts also offer additional FDIC insurance on cash through partner banks, which can extend coverage beyond SIPC limits.

How Robinhood compares to other brokerages

When Robinhood launched, commission-free trading was unusual. Today, most major brokerages — including Fidelity, Charles Schwab, and E-Trade — also offer commission-free stock and ETF trading. The differences now lie in features, research tools, account types, and customer service.

Robinhood is known for its straightforward, mobile-first interface designed for newer investors. Other brokerages often offer more advanced research tools, educational resources, and phone-based customer support. Some brokerages also offer checking accounts or debit cards linked to your brokerage account, which Robinhood does not.

Robinhood's fractional shares feature was innovative when it launched, but other brokerages have since added similar offerings. The choice between Robinhood and another brokerage depends on which features matter most to you and how you prefer to research and manage investments.

Robinhood's regulatory history and controversies

Robinhood has faced regulatory scrutiny and legal challenges since its founding. In 2021, the company faced criticism and investigations related to the GameStop stock trading surge, when Robinhood temporarily restricted buying of certain stocks during volatile market conditions. The company later settled with regulators over this incident.

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have investigated Robinhood multiple times over issues including order routing practices, customer communication, and system outages. In 2023, Robinhood agreed to pay a settlement related to these matters.

These events are part of normal regulatory oversight of brokerages. If you use Robinhood or any brokerage, you can check the company's regulatory history and any disciplinary actions through FINRA's BrokerCheck tool, which is free and public.

Frequently Asked Questions

Is Robinhood a bank?

No. Robinhood is a brokerage, which means it holds investment accounts, not checking or savings accounts. Your money is held in a brokerage account where you can buy and sell securities. If you want a checking account or debit card, you would need to open those at a bank or use a different financial service.

Can I lose more money than I invested on Robinhood?

With regular stock and ETF investing, you can lose up to the amount you invested, but not more. If you use margin trading (borrowing money to invest) through Robinhood Gold, you could potentially lose more than your initial investment. Margin trading is risky and not recommended for new investors.

Does Robinhood report my trades to the IRS?

Yes. Robinhood reports your trading activity to the IRS on Form 1099, which you receive each year. You are responsible for reporting any capital gains or losses on your tax return. If you are unsure how to report investment income, consider speaking with a tax professional or accountant.

What is the minimum amount needed to start investing on Robinhood?

Robinhood does not have a minimum account balance requirement. You can open an account with any amount of money. However, some account types like IRAs may have contribution minimums set by the IRS, which vary depending on the type of account.

Can I transfer money out of Robinhood to my bank account?

Yes. You can withdraw cash from your Robinhood account to a linked bank account. The transfer typically takes one to three business days. You can also sell securities and withdraw the proceeds to your bank account.