Now, you have the opportunity to trade on stocks and ETFs completely commission free.
How exactly can any broker feasibly allow this?
Well Robinhood does!
So the primary question comes… How can a broker operate without making any commissions? Some would say that it must be a scam.
Robinhood is not a scam
I decided to do some investigating to see how a broker could stay operational and offer investors “free trading.”
It was launched in 2013 and is headquartered in Menlo Park, California. Many people exclaimed that the founders, Vladimir Tenev and Baiju Bhatt would fail. But failure was not in their future, because Robinhood has become a hit.
Known for their brilliant mobile application, both amateur and seasoned investors can purchase stocks and ETFs at market prices and there are no commissions taken by Robinhood when either buying or selling.
Robinhood is a FINRA-approved broker-dealer, registered with the U.S. Securities and Exchange Commission and is a member of the Securities Investor Protection Corporation (SIPC). So your funds are safe.
Besides stocks and ETF’s, investors also can invest in cryptocurrency on the Robinhood platform.
So how does Robinhood make money?
Before I explain the way the company makes money, I do need to say that the idea was so unique that various venture capitalists invested in the Robinhood platform. Some investors included:
- Google Ventures,
- Andreessen Horowitz,
- Index Ventures,
- Dave Morin,
- Jared Leto,
- Snoop Dogg,
- and more…
Robinhood makes money from interest…
Think about it… Let’s say that you have 49 cents sitting in your account that is not invested. Now, let’s say that 1,000,000 people have 49 cents in their accounts that has not been invested.
I’m just using a round-about figure as some will be more and others less.
But 1,000,000 times 49 cents and the interest on that comes to a big figure. Plus, when you sell stock and intend to withdraw, that money must sit in holding for several days… More interest for Robinhood.
It is really that simple and extremely brilliant!
Robinhood wins whether you win or lose
This is another great aspect about the Robinhood system. If your stock makes you a millionaire, Robinhood gains. If your stock choices send you to the soup line, Robinhood gains.
Robinhood is not betting with or against you. They are just the medium to allow you to invest in the most cost efficient way possible.
The only thing you don’t get with Robinhood is all the “bells and whistles.” No signals or handy systems to follow. Robinhood does offer economic news, but that is about it.
Overall, I would say that if you are ready to start investing in stocks, cryptocurrency or ETFs, Robinhood is a great place to start. But do keep in mind that any investing like this can be volatile. Do not invest more than you can afford to lose.
Yes… No commission trading at the United States based Robinhood awaits you.