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Robinhood bills itself as a commission-free platform to trade stocks, ETFs and cryptocurrencies. But Is Robinhood zero-commission? What does it actually cost?
While it’s free to sign up for a Robinhood account and there are zero commissions for any trades, Robinhood does have some hidden costs and caveats that could end up costing you money on top of the amount you’re paying to buy stocks.
No worries, though, I will be diving into the actual cost of Robinhood and whether or not you should use this “zero commission” online broker.
I’ve been using Robinhood for years and love it, but I want to ensure you get the most out of the platform and understand all of the potential hidden fees and extra costs associated with the app.
Is Robinhood Zero Commission (What Does it Actually Cost)?
Robinhood is, in fact, a zero commission online broker when it comes to buying and selling stocks, ETFs, crypto, and options.
However, while this was once what made Robinhood so unique, virtually every stock broker today offers zero commissions and zero fees.
With that said, Robinhood does have a few features that inexperienced investors can take advantage of, including:
- Zero commission trading for stocks, options, and ETFs
- Zero commission crypto trading (limited)
- Fractional share investing
- Low-priced margin trading through Robinhood Gold
- Robinhood Cash Management (cash management account that comes with a debit card)
Now that you’re aware of what Robinhood offers with their online trading platform, let’s take a look at some of the hidden fees and caveats you’ll want to know before opening an account.
What Does Robinhood Actually Cost & How Do They Make Money?
For a company that doesn’t charge anything to open an account or take any commissions on the trades you make, Robinhood still makes money.
But, how? Are there hidden fees users don’t know about?
After all, Robinhood is not a non-profit, is backed by venture capital, and is a publicly traded company that will want to make the shareholders a lot of money.
In order to do this they must be making money off you. Here’s the two ways Robinhood turns a profit:
1. Payment For Order Flow (PFOF)
While technically you don’t pay any fees for the trades you make on Robinhood, you might not be getting the best price in comparison to other brokers.
This is a result of “order flow”. Essentially, when a stock is bought by you (the investor) Robinhood will send that order to other stock brokers who will then pay Robinhood a finder’s fee.
Because a 3rd party is being involved, this will raise the share price of the stock you’re buying, costing you more than you’d otherwise pay without the additional broker.
For instance, if other trading platforms are selling a specific stock for $30, Robinhood might charge you $30.05.
While this isn’t a stark difference at face value, if you’re trading frequently those extra cents can start to add up quickly.
Keep in mind, Robinhood isn’t the only “free” trading platform that takes payment for order flow as a means of turning a profit.
A lot of the major online brokers do this to keep their platforms free of traditional commissions and fees to be able to compete with Robinhood.
One way to only pay exactly what you want is to set limit orders. Although you might still be paying a few cents more a share then you would at that exact second with a different broker, you also make sure that you don’t pay more than you are willing to for that stock, option, ETF, etc.
2. Robinhood Gold
For $5 per month, you can sign up for Robinhood Gold, which is a premium product that gives you access to additional features you won’t get with a regular free account, including:
- Margin Trading: or “Gold Buying Power” as Robinhood calls it is essentially 2x margin on your account. You don’t pay interest, though, which is different from other margin accounts and your margin power is predicated on the flat fee you pay per month.
- After Hours/Pre Market Trading: You get access to after hours and pre market trading
- Larger Instant Deposits: Unlike the free Robinhood account, Gold members get instant access to funds, including those made from the sale of a security. With the standard plan, you need to wait a few days for the money to settle.
- Level II Market Data: get real time data to learn more about a stock other than just the best bid or best ask on the market.
- Pro Research: professional research provided by Morningstar
While Robinhood Gold is technically an added charge at $5 per month, you don’t need to sign up for it.
You can get by comfortably with a Robinhood Instant account or a Robinhood Cash account.
Both are free to open and offer enough perks to be able to buy and sell stocks, cryptocurrencies, and ETFs.
3. Additional Fees
There are some additional hidden fees that you should know about before opening an account with Robinhood. Let’s take a look at them below:
- If you want to transfer an account to a competing broker, Robinhood charges $75 via the ACAT system. Paper statements are $5 each and paper confirmations are $2 each.
- There is a $10 surcharge per trade when an account becomes restricted, no matter the reason. If you place an order over the phone with a live representative it will cost an additional $10 as well.
- Robinhood charges $50 per transaction when trading a foreign security. Cancelling a foreign security or making an adjustment to the trade is $15. Canadian and Euroclear securities will run you $35 per trade.
- Regulatory fees — including the SEC fee which is 2.31 per $100,000 of principal and only valid for sales — are passed onto Robinhood users.
- Wire transfers are pretty steep with domestics costing $25 and $50 for international wire transfers.
- TAF (Trading Activity Fee) which is 0.00119 cents is applied only to stock sales and is rounded up to the nearest cent. TAFs are capped at $5.95 per transaction.
So…is Robinhood zero commission? Yes, but there are caveats and hidden fees you may not know about before joining.
All in all, though, if you’re trying to get started investing in stocks or ETFs with a small amount of cash, Robinhood might be ideal for you.
Just make sure you’re aware of the possible fees associated with the platform before opening an account.