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According to Robinhood, “Getting started with a small amount of money is better than not investing at all.” This statement greatly reflects why you should begin your investing career in Robinhood. Offering free trades, a strategy that pressured many brokerages to cut commissions, and an easily understandable stock trading platform, Robinhood is quickly becoming the top choice for those entering the stock market.
It is important to note however, that in order to dabble in the stock market, you should have some practice. It is incredibly easy to gain applicable investing skills through something called paper trading, or using a stock market simulator and fake money to buy and sell stocks. There are many great resources for paper trading practice, such as MarketWatch’s “Stock Market Game” simulator. The idea of using fake money and a simulator should not deter you from paper trading. These simulators model a real trading portfolio very well and are always accurate in delivering stock prices.
Let’s say you’ve been paper trading for a year now. You’ve won some trades, and you’ve lost some. You feel ready to invest your own money. Now what? You have to find an online stock broker to trade from. Here’s why you should start with Robinhood.
Trading is expensive. The average cost of online stock trading used to be nearly $9 per trade, an incredibly expensive fee, before firms cut their commissions. If you have $1000 in your account, one trade would have cost you nearly 1% of your entire portfolio. Especially since you are just beginning to invest, you shouldn’t use a large amount of money to trade. There are also account management fees that you have to be cognizant of. So, a cheaper alternative has to be found.
Robinhood is precisely that alternative. Offering free trades, and no extra account or management fees, your trades will be easily executable and you won’t have to worry about large, expensive commissions.
Understand What You’re Doing
If you are new to the stock market and trading real money, you’ll want to be able to understand what is going on inside of your portfolio. The screen should be easy to manage and understand, and trades should be easy to execute. Robinhood offers exactly those things.
Inside of your portfolio, you will be able to easily see your stock holdings, account value, where to get trading ideas, and your watchlist.
When you want to trade a stock, Robinhood makes it incredibly easy. Just click on the stock that you want to buy or sell, and you will be quickly prompted with options. Then, you can input how many shares you want to trade, and even the order type (we will cover these later). You will be presented with the estimated cost of your transaction.
Robinhood is an excellent brokerage platform for some, but it is not without its drawbacks. Firstly, you are not able to short-sell stocks and other equities. You are still allowed to buy inverse ETFs and other financial products that are bearish on certain indexes, but you cannot short-sell stocks. Many traders are driven away from using Robinhood’s platform for this reason. Understandably, Robinhood wants to keep their platform free, and allowing short-selling would open up a wide variety of potential issues, such as margin accounts, requiring more work and risk on their end.
Robinhood also doesn’t allow for many other financial products to be traded, including mutual funds and options. Until recently, Robinhood had also not provided for foreign investments, but now there are many ADR (American Depository Receipts) that you can purchase. Larger brokerages such as Charles Schwab and Fidelity offer more asset classes, such as mutual funds. Fidelity, a large brokerage has a FundsNetwork that provides for different funds.
In conclusion, Robinhood offers the perfect inexpensive, understandable trading platform for the beginner. Although you cannot short-sell equities (we’ll cover this later), and there may be day trading restrictions, Robinhood is a great place for the new investor to grow wealth and gain experience in the stock market.