How Does Robinhood Make Money? - NewsHub360 (2024)

How Does Robinhood Make Money?

With the free services Robinhood offers, you might be wondering how it makes money. After all, an average investor has to shell out around $10 per stock to cover trading fees. But, how come Robinhood manages to do it for free?

Robinhood manages to offer its services at low to zero costs since it can generate revenue in other ways. These include:

• Income generated from cash
• Cash management
• Robinhood Gold (premium subscription)
• Stock loan
• Rebates from trading venues and market makers

With these options, you need not worry about using the platform for your hard-earned money.

What is Robinhood and How Does it Work?

Robinhood Summary

• $0 commission on all stock trades
• Invest in fractional shares from just $1
• 3 different trading options to choose from
• Get 0.3% APY on your uninvested cash

Robinhood is a free trading platform that has no required minimum investment. The company started in 2013, after Stanford classmates, Vladimir Tenev and Baiju Bhatt came up with the idea.

During its stint at Wall Street, they found out that investors are charged at least 10% commission rates. All these while trading firms didn’t need to pay anything to trade stocks. This scenario inspired the two founders to start Robinhood.

Since then, the California-based company has started offering its services, specifically catering to beginner investors and those with low capital. You can start investing through them and increase your net worth through the following:

Cash Management

Being new to investing requires that you learn where exactly you should put your money. With Robinhood, you can open a brokerage account and just let your uninvested cash sit there and earn a 0.30% APY.

Stocks and Funds

Using its mobile app, you can monitor the stock market in real-time. On top of that, your brokerage account allows you to trade stocks of individual companies. You can also trade baskets of securities or ETFs.

Options

Options are contracts that give the owners freedom to buy or sell specific securities, for specific prices up to a certain time. Through Robinhood, you can choose the stocks you want to be bullish in or the ones you’d rather be bearish.

Robinhood Gold

Robinhood Gold is a premium subscription that costs $5 per month.

Some of the perks you can enjoy with this product include:

• Professional research reports from Morningstar
• Advanced market data from Nasdaq (Level II)
• Bigger instant deposits
• The interest rate at 2.5% on margin investing (if eligible)

These features come on top of free perks when you use Robinhood, such as commission-free trading.

Crypto Trading

Besides stocks, you can also trade cryptocurrencies without having to pay any commission rates. This is quite contrary to other platforms that charge up to 4% when you buy or sell crypto.

Using the Robinhood app, you can start with as low as $1 and choose from any of the following:

• Bitcoin
• Ethereum
• Dogecoin
• Litecoin
• Ethereum classic
• Bitcoin cash
• Bitcoin SV

Of course, you don’t need to buy a whole coin at first. But, you can certainly sell one and get your profits.

Robinhood App Requirements

Since you’ll be using the Robinhood app, ensure that your device meets the following requirements.

Using the Robinhood mobile or web app, you can:

• Create a free account pending approval
• Add funds to your approved account
• Use funds to invest in stocks, options, ETFs, and crypto
• Increase your account capacity by subscribing to Robinhood Gold
• Read the latest news and get updated in the stock and crypto market.

How to Sign Up to Robinhood?

To create your Robinhood account, you should follow the simple steps below:

Step 1: Check Personal Requirements

With such products to choose from, get ready to start investing with Robinhood. But, make sure you meet the following requirements:

• Be at least 18 years old
• Have a valid SSN or Social Security Number
• Have a legal residential address in any of the 50 states in the US or in Puerto Rico
• Be a US citizen or a permanent resident, or at least a valid US visa holder.

Note that the SSN is not the same as the Tax Identification Number. Also, Robinhood might offer exceptions to active military personnel stationed abroad.

Step 2: Submit an Application

You can either send your application through the Robinhood website or mobile. For this step, you’ll start by providing your full legal name.

It should match the name on your government ID. You’ll also need to set an account password with a minimum of 10 characters

After creating an account, make sure to enter accurate contact information. These include your phone number, residential address, and zip code. Then, you’ll need to verify your identity through the following information:

• Social Security Number
• Date of Birth
• Citizenship

For the next steps, you need to provide some background information on your:

• Investment experience
• Employment status
• Being a shareholder of a publicly-traded company
• Working with another brokerage

Finally, you’ll need to confirm and submit W-9 certification and review the Brokerage Application Agreement. You’ll also receive electronic copies of your application documents.

After sending your application, Robinhood provides the option to link a bank account. This allows you to fund your account, so you can start investing once they approve your application. On the other hand, you can do this step later.

Step 3: Account Verification

After sending your application to create an account, you can start exploring the Robinhood dashboard. However, you’ll still need to verify your identity to start using its services.

To do so, upload a photo of your driver’s license or passport. You’ll also need to take a live photo of yourself. If there are more documents needed to verify your account, Robinhood will provide you with instructions in securely submitting those.

Robinhood needs to handle sensitive data and ensure the legitimacy of your application. For that, account verification typically takes five to seven days. You can easily check the status of your application through the Account option on the Robinhood dashboard.

While waiting for the approval, you can already fund your account. Robinhood allows you to queue one deposit, while they process your application. Once they approve your account, they’ll also initiate the deposit to your new Robinhood account.

Suppose you didn’t add a bank account soon after submitting your application. In that case, you’ll need to wait for approval to link a bank account.

Pro Tip: Instead of a savings account, link a checking account to prevent bank transfer reversals.

This can happen due to any of the following:

• Duplicate transaction
• Declined transfer
• Insufficient funds
• The incorrect type of account

Robinhood Alternatives

As the classic adage implies, it’s beneficial to not put money in one investment. It’s why you can look for other investment platforms to grow your money on. Understandably, there might be some investment products you’re specifically looking for.

Robinhood vs. Stash

Stash Summary

• Start investing with any dollar amount
• Buy fractional shares from just $0.05
• Low monthly fee starting at $3
• Insurance coverage of up to $10,000¹

Stash, like Robinhood, is another platform that appeals to beginner and self-driven investors. Using their app, you can easily find ETFs and stocks to invest in.

It also features DIY and automated investing, which can give you the freedom to choose your portfolio. Usually, platforms like Stash use Robo-advisors, which usually pick the investments for you.

Another noticeable feature of Stash is its Stock-Back Card. You can use this shop, letting you earn rewards in the form of stocks.

But between Stash and Robinhood, you might find the latter more advantageous if you’re new to investing. To start, Robinhood is a commission-free platform, guaranteeing that all your money goes to your stocks.

Stash, on the other hand, requires an account management fee depending on your subscription. Additionally, you’ll need at least $5 to start investing with Stash, unlike with Robinhood’s $0 account minimum.

Robinhood vs. Public App

Public App Summary

• Invest in stocks, ETFs, and crypto
• $0 commission fees for any stock trades
• Over 100 articles to learn about investing
• Low 1-2% commission for crypto trades

Another good alternative to Robinhood is Public App. Like Robinhood, this platform has an app that you can use to manage your investments. The two also offer commission-free trading and no account minimums.

While these two have similarities, other features significantly differentiate Public from Robinhood. Besides being a trading platform, Public is a social networking platform. It includes a Newsfeed feature that allows you to view posts from other investors.

Additionally, you can share your thoughts and follow investors to learn about their investment strategies. Overall, Public, like Robinhood, provides you the opportunity to learn trading without needing to shell out huge sums of money or risking your savings.