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Traditional brokerage firms charge a commission each time you make a trade. While it’s usually not much at around $10 per transaction, if you make hundreds of trades per year this can really add up to a lot of extra cash, money that you could’ve put back in toward your investments.
In order to compete against these firms that charge a high commission fee, a fairly new online brokerage firm called Robinhood allows you to trade for free. Yet there are some limitations that you should be aware of.
What Is Robinhood?
The goal of RobinHood is to help traders and investors stop spending an average of $10 every time they make a trade. The reason that they are able to offer trades at no cost is due to their low overhead fees due to them being a completely technology-based company.
Although RobinHood doesn’t have a long-standing reputation of being a stock brokerage firm, they still offer the same type of security and insurance as other ones do. Robinhood is a member of FINRA and SIPC, protecting its clients of up to $500,000 in cash in case something happens to the company and your assets become in danger.
Many brokerage firms brag about how you should register an account with them due to quick transaction speeds, but Robinhood does a great job competing in this area. Trades are executed within a fraction of a second due to their low-latency speeds on their trading platform.
Yet the thing I hate the most with other firms is their delayed quote times. Often there’s a delay for up to 20 minutes on the actual price of a stock or other type of security. Robinhood displays this number in real-time so you’re always getting accurate information.
Despite all of this, the number one benefit that you’re getting out of switching to Robinhood is their no-commission trading. Instead of paying $10 per trade, now you can do it absolutely for free.
Things To Be Aware Of
Yes, free trading is great, but there are some limitations to their platform that you should be aware of before signing-up.
No Options Trading
For those of you interested in options trading, you’ll have to go with another platform. Robinhood states that they were in the works of building a system that allows you to trade options, but they have yet to build one.
While free trading may seem like a benefit, this can also cause also be harmful to certain investors as well. With no cost involved, day trading can become more frequent, causing investors to make spontaneous and uninformed decisions about their trading decisions. When you pay to buy or sell a security, you know you’re going to think twice about it since you know there’s a fee involved.
Upgrading To A Margin Account
Like a lot of traditional brokers, Robinhood users have the option of upgrading to a margin account, which allows you to borrow money to invest with interest tacked on to each dollar you take. I highly discourage this practice. If you don’t know what you’re doing you could end up losing a lot of money that isn’t yours thus putting you in debt.
How Do I Sign-Up For Robinhood?
If you want to stop paying for trades and want to switch to Robinhood, signing-up is easy and can be done in just 5 simple steps.
1. Register. You can register for a new account by clicking this link here. Click on the “Sign-Up” button in the corner and enter in the necessary information.
3. Begin trading. Once your account is setup you can begin trading. Their platform is very simple to use, and they’ll provide you with help if you need it.
Stop paying such high fees for each trade when you can do it for free with Robinhood. The only downside that more advance options such as trading options won’t be available, yet your money is just as safe as it is with any other protected brokerage firm.
I myself have dabbled in trading stocks, and after looking at my account I noticed that I spent a couple of hundred dollars this year on commission fees alone. Does this come close to what you spend? Let us know in the comments below. Thanks for reading and happy frugaling!
My name is Jason Wuerch and I'm currently located in Madrid, Spain running a personal finance blog called Frugal For Less. My goal is to help everyone and anyone willing to make and save money through easy and simple ways that don't require much effort. Just because you're frugal doesn't mean you have to give up life's luxuries.