Robinhood is a brokerage firm that lets you buy and sell stocks, options, cryptocurrencies, and other investments through a mobile app or website

Robinhood Financial LLC is a licensed brokerage registered with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). The company operates as an investment platform — meaning it holds your money and executes trades on your behalf, but does not manage your investments or give personalized investment information. You make the decisions about what to buy and sell; Robinhood processes the transaction and holds the securities in your account.

The company launched in 2013 and became known for eliminating commission fees on stock trades, a practice that other brokerages eventually matched. Robinhood makes money through other means: interest on uninvested cash in accounts, premium subscription fees for advanced features, and payment for order flow (a practice where market makers pay Robinhood for the right to execute customer trades).

Key Takeaways

  • Robinhood is a brokerage firm regulated by the SEC and FINRA that lets you trade stocks, options, cryptocurrencies, and other assets through an app or website.
  • You can open an account with a Social Security number, proof of identity, and a bank account or debit card to fund it.
  • Robinhood does not charge commission fees on stock or options trades, but does charge fees for certain services like wire transfers and margin borrowing.
  • Your cash and securities held at Robinhood are protected by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account type.
  • Robinhood is a self-directed platform — you choose what to trade, and the company does not offer personalized investment information.

What You Can Trade on Robinhood

Robinhood offers access to several asset classes. You can buy and sell stocks listed on major U.S. exchanges (the New York Stock Exchange and NASDAQ). You can also trade options contracts, which are agreements to buy or sell a stock at a set price by a certain date. Robinhood added cryptocurrency trading in 2018 and now supports Bitcoin, Ethereum, and dozens of other digital currencies.

The platform also offers fractional shares, which means you can buy a portion of a stock rather than a whole share. This lets you invest in high-priced stocks with a smaller amount of money. For example, if a stock costs $1,000 per share, you could buy 0.1 shares for $100.

Robinhood does not offer mutual funds, bonds, or forex (foreign currency) trading. If you want to trade those assets, you would need to use a different brokerage.

How to Open and Fund a Robinhood Account

Opening an account takes about 10 minutes. You provide your name, date of birth, Social Security number, and address. Robinhood verifies your identity using information from credit bureaus and public records. You then link a bank account or debit card to fund your account.

Once your account is open, you can transfer money from your bank account to Robinhood. Bank transfers typically take one to three business days to clear. You can also deposit money when ready using a debit card, though Robinhood may limit how much you can deposit this way on your first day.

Robinhood offers different account types: a standard individual account, a joint account (shared with another person), and an IRA (Individual Retirement Account) for retirement savings. Each account type has separate SIPC protection, meaning if you have both a standard account and an IRA at Robinhood, each is protected up to $500,000.

Fees and Costs You Should Know About

Robinhood charges no commission on stock trades, options trades, or cryptocurrency trades. This is one of its main selling points compared to older brokerages. However, Robinhood does charge fees in other situations.

If you want to borrow money to trade (called margin), Robinhood charges interest on the borrowed amount. The rate varies based on how much you borrow and your account balance. If you request a wire transfer of money out of your account, Robinhood charges $5 per outgoing wire. There is no fee for transferring money back to your linked bank account through an ACH transfer, which takes one to three business days.

Robinhood also charges a $75 fee if you close your account and request a check by mail instead of an electronic transfer. Some premium features, like Robinhood Gold (which gives you margin borrowing and advanced research tools), require a monthly subscription fee.

How Your Money and Investments Are Protected

Robinhood is a member of the Securities Investor Protection Corporation (SIPC), a nonprofit organization created by Congress to protect customers of failed brokerages. If Robinhood were to go out of business or fail, SIPC would return your cash and securities up to $500,000 per account type. Cash is protected up to $250,000, and securities are protected up to $250,000 (with a combined limit of $500,000).

This protection covers the value of your investments at the time of the brokerage failure, not the current market value. For example, if you bought a stock for $1,000 and it is worth $5,000 when Robinhood fails, SIPC protects the $5,000 value. If your account exceeds $500,000, the amount over that limit is not protected by SIPC.

SIPC protection does not cover losses from bad investment decisions or market downturns. It only covers the event of brokerage failure. Your investments can still lose value based on market conditions.

How Robinhood Makes Money (and Why Commissions Are Free)

Robinhood's business model differs from traditional brokerages that charged per-trade commissions. Instead, Robinhood generates revenue through several other channels. The largest source is payment for order flow, where market makers (firms that buy and sell stocks constantly) pay Robinhood for the right to execute customer trades. This practice is legal but controversial because it creates a potential conflict of interest — Robinhood may route your order to the market maker that pays the most, rather than the one that gives you the best price.

Robinhood also earns interest on uninvested cash sitting in customer accounts. If you have $10,000 in your Robinhood account that you have not yet invested, Robinhood can lend that cash out and keep the interest. Additionally, Robinhood Gold subscribers pay a monthly fee for margin borrowing and premium features.

The lack of commission fees is real — you do not pay per trade — but it does not mean Robinhood is free. You pay through other mechanisms, some visible (like margin interest) and some less visible (like the price impact of order routing).

Robinhood's Regulatory History and Controversies

Robinhood is regulated by the SEC and FINRA, the same bodies that oversee all brokerages. However, the company has faced enforcement actions and fines. In 2020, the SEC fined Robinhood $65 million for misleading customers about the true costs of trading and for failing to disclose how it made money through payment for order flow. In 2023, FINRA fined Robinhood $70 million for failing to properly supervise its options trading and for system outages that prevented customers from trading.

Robinhood also faced criticism during the 2021 GameStop trading event, when the company temporarily restricted customers from buying certain stocks. The company said it did this to manage risk and comply with clearing requirements, but customers and lawmakers questioned whether the restriction was fair. Robinhood later settled a lawsuit related to this incident.

These events do not mean Robinhood is unsafe — your money is still protected by SIPC — but they show that the company has had compliance issues. You should review Robinhood's current regulatory status on the SEC and FINRA websites before opening an account.

Frequently Asked Questions

Is Robinhood safe to use?

Robinhood is a licensed brokerage regulated by the SEC and FINRA. Your cash and securities are protected by SIPC up to $500,000 per account type. However, the company has faced regulatory fines for compliance issues. Your money is safe from brokerage failure, but you should review Robinhood's regulatory history and decide whether you are comfortable with the company's practices.

Can I lose more money than I invest on Robinhood?

With stocks and cryptocurrencies, you can only lose what you invest — if a stock goes to zero, you lose 100 percent of your investment, but not more. With options and margin trading, you can lose more than your initial investment. Options can expire worthless, and margin borrowing means you owe money to Robinhood even if your investments decline.

Does Robinhood report my trades to the IRS?

Yes. Robinhood reports all trades and earnings to the IRS on Form 1099, which you receive by January 31 each year. You must report this income on your tax return. If you do not report it, the IRS will know because Robinhood filed the same information.

Can I transfer my investments out of Robinhood to another brokerage?

Yes. You can request an ACAT (Automated Customer Account Transfer) to move your securities to another brokerage. The transfer typically takes five to seven business days. Some brokerages reimburse the transfer fee that Robinhood charges (usually $75 to $100).

What is the difference between Robinhood and a financial advisor?

Robinhood is a self-directed platform — you make all investment decisions. A financial advisor gives personalized recommendations based on your goals and situation. Robinhood does not offer information. If you want guidance, you need to hire a separate financial advisor or use a robo-advisor (an automated service that builds a portfolio for you).