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Cryptocurrencies are taking the internet by storm. Many people are enjoying this new asset class and the riches it can deliver. Robinhood is one of the platforms that is benefiting from this surge in user interest.
But does the platform charge you fees when you purchase cryptocurrency?
Robinhood doesn’t charge any fees on cryptocurrencies. Instead, they will make their money in other ways such as through their subscription service and by acting as a market maker.
Before you start using any online trading platform, you need to understand its fee structure. Keep reading to learn more about how Robinhood makes their money.
Will You Pay Any Crypto Fees on Robinhood?
Robinhood is one of the most popular trading platforms in the United States. People love it because of its easy-to-use interface. It also has plenty of charting tools, so you’ll be able to monitor the price movement of your stock or crypto easily.
Their biggest benefit is their promise to eliminate commission fees. This applies to both their stock and cryptocurrency offerings.
Robinhood doesn’t have any fees however they will typically make a small amount on each trade through selling market order information.
Now selling market order information doesn’t mean they are selling your name or other personal information. Instead they are selling info about your order.
So let’s say you want to buy Ethereum or Bitcoin so you place a market order to buy it. Robinhood will sell that order information right before you buy so you could end up paying a tiny bit more for your Bitcoin or Ethereum because of that information given away.
So although Robinhood doesn’t charge commissions you will end up paying a few pennies extra on a transaction most times because of this practice.
You can avoid paying more than what you want by simply setting a limit order for the crypto you want to buy. So then you won’t buy it until you are able to secure it for that price.
Although you will pay a tiny fraction more than the current market, a limit order will allow you to get the exact price for the crypto that you want.
On Robinhood you also won’t need to pay for things like converting dollars to crypto. When compared to other sites this makes them a more desirable option.
For example, Coinbase will charge around 4% per trade.
How Does Robinhood Make Their Money?
The fact that Robinhood doesn’t generate any money from commissions poses a very important question. How do they earn their cash?
There are a few methods they use.
1. Premium features. These are additional charges made to users, in exchange for more advanced features. We’ll discuss these features a little later.
2. Getting paid as a market maker. Robinhood is used by larger corporations, like Citadel, to execute trades on their behalf. In exchange, they earn a small amount of the value of the trade.
3. Selling order flow information. In this case, they will tell other companies the number of orders waiting to be executed and at what price.
4. Interest on loans. Some customers will use margin to trade margin. In essence, Robinhood is lending them money. As a result, they will be expected to pay interest on the loan. However, you currently aren’t able to use margin to purchase cryptocurrency.
These methods of making money have proven to be very lucrative for Robinhood, especially in periods of high volatility. Last year, they made a profit of $180 million.
However, whether they are a benefit to customers is still up for debate.
You won’t need to pay anything for trades which is huge if you have a smaller account or trade frequently. On the downside, you might have a slightly larger spread when you buy and sell.
This means that you will be paying a slightly higher price to purchase or sell the cryptocurrency unless you set a limit order.
Do You Own The Cryptocurrency On Robinhood?
Before using a service like Robinhood, you’ll need to be clear about what you are getting.
Unlike other exchanges, you aren’t actually buying the underlying cryptocurrency on Robinhood. Instead you are just holding a right to a certain amount of it that you can then trade back on Robinhood.
As a result, even though you own Bitcoin, Ethereum, etc. you can’t use the coins to buy anything. All you can do is convert the currency back into fiat and only on Robinhood.
How big a problem this is will depend on how you view cryptocurrency trading.
If you are just looking to make money from the price fluctuations of a crypto, this might be a good solution for you. However, if you are a believer in the currency, and want to put the coins into cold storage, this might not be a good solution.
It should be noted that this is subject to change in the future.
Robinhood is planning to change this aspect, allowing its customers to open crypto wallets. Once they do this, you will be able to own the cryptocurrency.
However how long this will take to happen is anyone’s guess at this point.
What Does Robinhood Gold Get You?
Even though cryptocurrency is free to trade, Robinhood allows you to upgrade to their Gold membership if you choose. This will cost you around $5 per month and will give you access to a range of premium features.
The features that come with Robinhood Gold are:
• Professional research
• Increased account transfer limits
• Level 2 market data
While these benefits can be appealing for stock traders, the offer isn’t as good for those interested in cryptocurrencies.
Because of this, you can save some money by avoiding paying for Robinhood Gold if you are only trading crypto.
What Other Fees Does Robinhood Have?
Sometimes, Robinhood will be forced to pay a fee. In these cases, they will pass the costs onto the customer.
For example, FINRA charges brokerages fees to monitor their transactions. The good news is that most of these fees apply to share trading.
Those interested in cryptocurrency won’t need to pay any of these.
Can You Withdraw Your Cryptocurrency On Robinhood?
After you have purchased some crypto on Robinhood, you’ll want to know what to do with them. This is where the platform can be quite limited.
You cannot actually withdraw your crypto from Robinhood as of now. The only thing you can do is to sell it and then go to a different crypto exchange to buy it there.
As I mentioned earlier, you don’t actually own the coins on Robinhood. As a result, you won’t be able to withdraw them to a cold storage wallet or transfer them to a different company like Coinbase.
At this stage, all you can do is convert the crypto currency back into fiat. This will allow you to cash out after a successful trade but you can’t move the crypto out of Robinhood.
You won’t incur any fees when you buy or sell crypto on Robinhood but that’s all you can do with crypto on there… buy and sell it.
What Crypto Does Robinhood Offer?
While Robinhood might be one of the cheapest crypto brokers, it does have a much more limited selection of coins. Other exchanges will offer hundreds that you can buy and sell, but Robinhood currently only offers seven.
These crypto you can currently get on Robinhood are:
1. Bitcoin
2. Bitcoin Cash
3. Bitcoin SV
4. Dogecoin
5. Ethereum
6. Ethereum Classic
7. Litecoin
New coins will likely be added to the platform over the coming years but that is solely at Robinhood’s discretion. So if you want to be able to trade more than just a few cryptos you will want to join a platform like Coinbase, Voyager, or Crypto.com
It should also be noted that, due to regulatory issues, cryptocurrency trading isn’t available in all territories. If you can’t access it, there isn’t a lot that you can do about it.
Can You Trade Cryptocurrency With Margin on Robinhood
Some people like to use margin when they are trading. As I briefly explained earlier, this is like trading with borrowed money. It will allow you to get more exposure to the stock (or crypto).
When it goes up, your winnings will be amplified, but if it goes down you can lose more money than you actually have.
At present, you will only be able to get this feature when you are trading stocks. You can’t use margin when you are trading on cryptocurrencies.
Although this might seem like a bummer it will actually help protect you. Because of the massive volatility in the crypto markets you can easily lose hundreds, thousands, or more in a short period of time when the market moves against you.
If you own those cryptos with margin you could be forced to sell (have a margin call) at the worst possible time.
Can You Stake Crypto on Robinhood?
Some cryptocurrency exchanges will allow you to stake crypto coins. This allows you to keep the blockchain secure and as a result, you will earn interest on your crypto while still holding it.
Depending on the platform, you might be able to get around 7% APY for staking your coins.
Currently, Robinhood doesn’t offer staking of crypto currency. However, it might be something that will be included on the platform in the future.
As part of their IPO, Robinhood said that they would be looking into acquiring services that would allow them to offer staking and wallets to their crypto customers.
Does Robinhood Track Capital Gains For Taxes?
Finally, it should be noted that any gains that you make on Robinhood will be subject to taxation. This is the same as it is with all other cryptocurrency trading platforms.
The IRS has announced that they will start to put a greater focus on this area and you certainly don’t want to get on the wrong side of them!
You will owe taxes on any gains made on your crypto transactions on Robinhood but they do keep track of that for you and you can download the needed information at the end of the year.
The good news is that Robinhood offers the needed tax documents. This will make it easy for you to calculate the amount that you have made (or lost) over the course of the year.
As a result, it will be easier for you to be able to figure out how much you will be expected to pay in taxes.
Final Thoughts
Robinhood has become one of the most popular trading services in the United States and are well known for providing commission-free trading.
This is a true claim, as they make their money in other ways.
However, there are a few downsides that you will need to consider when trading crypto on Robinhood.
Most importantly, the fact that you won’t own the cryptocurrency assets. Currently, all you can do is buy cryptos on the platform and then convert them back into fiat.
This makes them ideal for short-term day trading, but for those who intend to invest for the long term, it might be best to choose a service that will allow you to send the funds to an external wallet.
