Robinhood Review: Why I Use Robinhood to Trade Stocks, Options, and Cryptocurrencies

Disclaimer: If you don’t have liquidity and an emergency fund saved up, don’t gamble with the stock market, options trading, or cryptocurrencies. I am not a financial advisor, and this post is NOT financial advice.

What is Robinhood?

Most companies charge up to $10 per trade, Robinhood lets you trade for free. Robinhood is currently valued at $5.6 billion with funding from prominent investors.

Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.

With most other platforms, if you don't purchase stocks in volume, you'll end up with paying a ton of fees. The benefit of using Robinhood is that they don't charge a fee to buy or sell stocks.

I’ve been using Robinhood for awhile now and haven’t had any issues.

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How does Robinhood make money?

There are two ways Robinhood makes money:

  1. Robinhood Gold — get 2x your buying power and access to after-hours trading for as little as $10/month. Trading is still commission free.
  2. Robinhood earns revenue by collecting interest on the cash and securities in Robinhood accounts, much like a bank collects interest on cash deposits.

How I buy stocks

The following are reasons why I love using Robinhood, and how I buy stocks:

  1. Lower costs and lower barrier to entry — if you do buy a lot of stock, other platforms charge $10. If plan on making a lot of transactions, it can really add up.
  2. Diversify — You can buy a lot of different stocks without worrying about transaction fees.
  3. Dollar Cost Averaging (DCA) — Instead of buying shares of one company all in one day, buy it in a span of 1 week to 30 days. The benefit of DCA is lowering volatility. For example, instead of buying $3,000 of Google shares in one day, I would buy $100 of Google shares over the course of 30 days. That way your holding share price is the average of 1 month.

What type of stocks I buy

I recommend buying stocks in the industry you have expertise in. For example, if you work in e-commerce, I would stick with e-commerce stocks.

On a similar note, DO NOT do insider trading. For example, if you work at Ford and they went from Steel Supplier A to Steel Supplier B, investing in Steel Supplier B would be considered insider trading.

What I mean by industry expertise is using any information that’s publicly available to make an educated stock purchase.

New Robinhood features

Robinhood recently added two new features:

  1. Crypto trading
  2. Options trading

Robinhood Crypto

The DCA strategy works well with cryptocurrencies because other platforms charge a fee for each transaction.

This means that with Robinhood, you can lower the volatility effects by investing a small amount per day without worrying about fees.

 For example, if you know you want to invest $xx and can stick to a schedule, sticking to the DCA strategy is significantly less stressful if the market turns.

  • Imagine investing $20,000 when BTC was at its peak
  • Imagine investing $1,000 every Friday, for 20 weeks

The benefit is that you can focus on your real job rather than trying to follow the market all day. DCA discourages you from trying to time the market and encourages you to focus on fundamentals (i.e., investing), rather than gambling

As of writing this post, the only cryptocurrencies that Robinhood supports buying/selling is Bitcoin (BTC) and Ethereum (ETH). 

A few important notes about crypto trading on Robinhood:

  • Robinhood Crypto is currently available to customers in the following states:

    • California
    • Colorado
    • Massachusetts
    • Mississippi
    • Missouri
    • Montana
    • New Mexico
    • Wisconsin
    • Check Robinhood's FAQ page for the most up to date list
  • Robinhood does NOT support coin withdrawals, but they plan to do so in the near future
  • You can't transfer your existing coins into Robinhood 
  • You can only buy and sell coins

Options Trading

What is options trading?

An option is a right, but not an obligation, to buy or sell a specific asset based on the strike price.

To access options, you'll need to have some stock trading experience before you can trade options. As an important note, trading options are typically riskier than trading stocks. DO NOT trade options if you don't have a high-risk tolerance. 

With options, you have a call option and a put option. Below are oversimpified explainations of each option.

What's a call?

Call options are used when you expect the stock to increase in value. Sellers of call options expect the stock to decrease or remain the same. 

A call option is the right to buy something at a specific price.

With a call option, let's say I'm a car manufacturer and I need to buy metal. A pound of steel costs $10; you're worried that the price will increase to $20 or $30 in the future.

If you buy a call option, you have the right to buy the steel at $10, regardless of the price increase. 

What's a put?

If you expect a stock to decrease in price, you would open a put option. Buying a put option gives you the right to sell the stock back for an agreed upon strike price if you choose. 

Put options = right to "put" something on sale for a fixed price (based on the option).

I pay $x to buy put options to sell at $100. If the stock drops, I'm out $x (cost I paid for options), but I protected my $1,000.

If the stock rises instead, I'm still out the $x, but I won't exercise it.