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Here are 9 extremely helpful things everyone should know about Robinhood trading that can save you a lot of money in the long run.
Robinhood is one of the best apps on the market to start your stock trading journey. There are many features to enjoy and I believe the app truly helps a beginner understand how the stock market works.
However, there are several things you should know before you stock investing. These items will help you save AND make more money within the app.
In fact, knowing some of these easy facts can help you save 30% right up front, something many beginner investors aren't familiar with.
Not to worry though! That's why I'm here.
This post is all about helpful things you need to know about Robinhood trading.
If you don't have Robinhood, you can sign up here for free and get a free stock!
Related:
- Robinhood Stock Trading Beginner’s Guide (Get a FREE Stock)
- Recommended Financial Tools
- Lessons from Rich Dad Poor Dad: The Finance Book That Will Make You A Millionaire
- How to Make Your Own FREE Personal Finance Organizer
9 Things You Need to Know about Robinhood
1.) Robinhood works in FIFO
Every brokerage sells stocks in a particular way. It's extremely important to know how your brokerage sells stocks as it could mean the difference between paying 15% in taxes or 20-50% in taxes. This can mean huge changes in the amount of income you take home.
Robinhood works in FIFO, which means first in, first out. This means that the first stocks you buy will be the first stocks sold.
Why is this important?
A stock that is owned for less than a year will be taxed a short term capital gains tax rate. At the time of this post (August 2021), the short term capital gains tax rate is whatever your ordinary income tax rate is (the tax rate your income is taxed at).
A stock that is owned for more than a year will be taxed at a long term capital gains tax rate. At the time of this post, the long term capital gains tax rate for is 0-20%, depending on how much you make. The majority of us will be 15% in long term capital gains.
Therefore, it's important to know how your brokerage sells stock so that you can decide whether or not you want to sell within less than a year or more than a year.
What does that have to do with FIFO?
Great question! Let's say you bought stocks at different times/days within the app. When you go to sell the stock, the app will automatically sell the first stocks you bought.
This is extremely important to know and make calculated decisions accordingly.
This is one limitation of the app I DO NOT LIKE. Hence why it's VERY IMPORTANT to know that Robinhood trading operates in FIFO.
Let's look at it in an example to get a better understanding of why this is so important.
Example: Let's say you buy 10 shares of Ford at $7 and then a few months later, you buy 10 more shares of Ford at $5.
Now, the stock is currently worth $6 and you want to sell your $5 shares, but not the $7 shares because you don't want to lose money.
You won't be able to choose to do that in Robinhood. If you sell 10 shares, it will automatically sell the first shares you bought (the $7 shares).
This is one negative of using Robinhood. However, the positives far outweigh this, especially for a beginner.
2.) Robinhood offers FREE Trades
Ya'll, this is huge! They were the first brokerage to offer free trades. As a result, many brokerages have followed suit and started offering free trades as well.
Before this, you'd have to pay $5-$20 to buy stocks and a large 5% fee when you decided to sell them. This made it an expensive barrier to entry. It was “insanity” as Kevin O'Leary likes to say!
We are so grateful to Robinhood for starting this movement! If it weren't for them, we'd still be paying lousy trade fees and less people would be invested in the market.
In fact, due to this and the ease of use of their app, Robinhood trading has been growing at an extremely fast rate since their launch. They've had more new members each year than any brokerage.
This is why I believe they'll continue to grow and offer more features on their app as they grow. They just went public recently so that also tells me they'll continue to develop their platform. (Hopefully, they'll take FIFO away and allow us to sell individual trades we make!)
3.) Robinhood has NO account minimums.
This is also a newer feature in the brokerage world. Investing used to only be for the rich as brokerages had account minimums people needed to invest.
Zero account minimums was first made available by Robinhood and other brokerages have no followed suit as well.
This is such an advantage for people wanting to get their feet wet in the investing world.
You can put in $5, invest in a $5 stock and watch your money start working!
4.) Robinhood Does Allow Day Trading
*If you are new to investing, I do not recommend day trading. Day trading is something that takes a thorough understanding of the market and a lot of research to do. It's something you can aim to work up to, if interested.*
Robinhood does allow day trading.
If you'd like to day trade, you can do so 4 times in 24 hours.
However, if you'd like to do unlimited day trading, you can do so, but you must hold at least $25,000 in your account. That money can be invested in positions, but it must be within the app itself.
5.) Robinhood Trading Allows IPO Investing
One of Robinhood's newer features is the introduction of IPO investing.
I absolutely love this feature!
Robinhood gives their users an opportunity to invest in upcoming IPOs before the company goes public. This means you have an opportunity to get in at the IPO price of a company.
I've done several IPOs within the app and have had a great experience with it so far! Actually, many of the companies I invested in were companies I already support in their mission so it was an easy decision for me.
However, Robinhood gives you the opportunity to fully research the company's and public offering prices so that you can decide whether or not it's an investment you want to make.
6.) Robinhood Offers a Money Market Account
This is also a new feature within the Robinhood trading app, but Robinhood now offers a money market account.
This means your money that is sitting in the app waiting to be invested can be collecting interest. The interest rate isn't very high, but it's higher than a savings/checking account and lower than a high yield savings account.
If you have money sitting in your Robinhood account, it may as well collect some interest, right? I don't decline free money so I'll take it!
7.) Crypto Is Offered
Robinhood now offers crypto trading! If you're into or interested in crypto, their free trades make crypto trading a breeze!
I personally have a very small portion of my portfolio invested in crypto. However, my crypto app (that only does crypto) charges a fee per sale. Therefore, if Robinhood has any cryptocurrencies I'm interested in, I always invest through Robinhood and buy the rest on my Crypto app (I use Coinbase Pro).
I think crypto will continue to grow on the Robinhood app, which is great!
Here are all the positions you can invest in within Robinhood currently:
- Stocks
- Crypto
- Options (not recommended, see #8 below)
- ETFs
- REITs
Since Robinhood trading only allows for the above positions, I use other brokerages for my other investments. However, for a beginner looking to learn and understand the stock market, Robinhood is a perfect app for that.
8.) Avoid Margin/Options Trading If You're a Beginner
Most likely, if you're reading this article, you are a beginner to an intermediate investor. Therefore, let me repeat that, AVOID MARGIN/OPTIONS TRADING UNLESS YOU'RE A SKILLED TRADER AND KNOW EXACTLY WHAT YOU'RE DOING!!
Robinhood has margin trading available, but I recommend ONLY doing cash trading, which means you trade with the cash you deposited into the app.
Margin trading can be very confusing and only professional skilled traders should do it. I can't stress this enough. Even if it seems easy, it's not and there are many things that go on in the back end that you will not realize.
My biggest advice is to stay away from it. Know that it's there so you know to avoid it, essentially.
9.) Robinhood Trading is Easy, but Practice Patience
One of the best parts about Robinhood is it's easy of use and simple interface. However, this is also the worst part about Robinhood.
Let me explain.
Since the app is so easy to use, users can often get caught up in emotions. When you see a stock you own decrease, it's human instinct to want to sell it, especially if it only takes the click of one button. The same goes the other way around. If we see a stock we own increase, we often want to sell it then too to capture the quick gains.
However, don't get caught up in emotions.
People make massive amounts of money from the stock market by holding stock for years and years…like 30-40 years.
The biggest billionaires in the world, like Warren Buffet, always say that the best thing to do to make money is to buy and hold the stock for as long as possible. I don't know about you, but I'll do literally anything Warren Buffet says. Ha!
Robinhood Trading for Beginners
Hopefully, these 9 things will help you make and save more money when using the Robinhood application. Robinhood is still the easiest and most cost-effective brokerage on the market. There's a reason it's had more downloads each year than any other brokerage!
Here is a full guide for beginner investors using Robinhood.
If you'd like to sign up with Robinhood, you'll get a FREE STOCK by signing up here.
Related:
- Robinhood Stock Trading Beginner’s Guide (Get a FREE Stock)
- My Favorite Financial Tools
- How to Make Your Own FREE Personal Finance Organizer
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