Robinhood Crypto: A Beginner's Guide To Investing

Robinhood is a popular trading app, especially for first-time investors, that offers an intuitive, easy-to-use trading application that supports purchases of crypto, stocks, options, and ETFs. The platform is beginner-friendly and offers a wide range of asset classes, such as stocks and ETFs. Robinhood offers commission-free trades, which has made it particularly popular with younger generations. However, it is important to note that Robinhood offers a limited selection of cryptocurrencies compared to crypto-specific trading platforms. Currently, Robinhood supports seven cryptocurrencies, including Bitcoin, Ethereum, Dogecoin, and Litecoin. To get started with crypto investing on Robinhood, users can log in to their account via the desktop or mobile app and transfer money from their bank account, which will be held as brokerage cash on the platform. This deposited amount becomes the user's buying power to purchase crypto and other assets via the app.

How to buy crypto on Robinhood

To buy crypto on Robinhood, you'll first need to sign up for a Robinhood Crypto account. To do this, you must be 18 or older, have a valid Social Security Number, have a legal US residential address, and be a US citizen, permanent resident, or have a valid US visa.

Once you have an account, you can transfer money from your bank account, which will be held as "brokerage cash" on the Robinhood platform. This deposited amount is now your buying power to buy stocks and crypto via the app.

All crypto trading is done through a separate Robinhood Crypto account, which some users may not be able to access depending on their state or country. For example, Robinhood does not currently offer crypto trading in Hawaii.

To purchase crypto on the Robinhood app:

• Navigate to the search icon located at the bottom center of the screen and search for "crypto" to bring up a list of all tradeable cryptocurrencies, or search for the specific cryptocurrency you want to buy.
• Once you've selected the cryptocurrency you want to buy, navigate to the bottom of the screen and choose either the "trade" or "buy" button. The trade option will only be enabled if you already hold some of this cryptocurrency with Robinhood.
• Hitting the "buy" button will take you to a purchasing screen where you can enter the amount of fiat currency you would like to use to buy your crypto.
• Review the trade information and ensure you are comfortable with the purchase.
• When prompted, swipe up to confirm and submit your order.

It's important to note that users don't actually own their crypto assets on Robinhood. They are not able to transfer these assets from Robinhood to a crypto wallet or cold storage. Users can only sell their crypto and pocket the gains in the form of fiat currency. However, Robinhood does have plans to enable traders to open crypto wallets and transfer their holdings off the platform.

How to sell crypto on Robinhood

To sell crypto on Robinhood, follow these steps:

First, search and select the crypto you want to sell from your Robinhood account. Then, enter the amount of crypto you would like to sell. Next, select the frequency of this order, such as a one-time sale or a recurring monthly sale. You can then select the Actions menu (down arrow) to confirm the order type, such as a Market order, Recurring investment, or Send and Receive. Finally, swipe up or select "Submit buy or sell" to place your order.

Robinhood offers a variety of order types to choose from when selling crypto, including market orders, limit orders, and stop orders. A market order is executed immediately at the best available price. A limit order is an instruction to buy or sell a specified amount of crypto at a specified price or better. A stop order is an instruction to buy or sell crypto once it reaches a specific price, known as the stop price. When the stop price is reached, the stop order becomes a market order and is executed at the best available price.

It's important to note that when you sell crypto on Robinhood, you will have immediate access to the proceeds for purchasing stocks, options, or other crypto. However, there is a 5-business day waiting period before you can withdraw the proceeds from your Robinhood Crypto account to your bank account.

How to transfer money from your bank account to Robinhood

Investing in crypto on Robinhood is a simple process. Firstly, you need to set up a Robinhood account. To be eligible, you must be 18 or older, have a valid Social Security Number, a legal US residential address, and be a US citizen, permanent resident, or have a valid US visa.

Once you have an account, you can transfer money from your bank. To do this, select the 'Account' (person icon) and then the 'Menu' (three bars). From there, select 'Transfers' and then 'Transfer Money'. Enter the amount you wish to transfer, and select the bank account you are transferring from, and your Robinhood account as the destination. Review and confirm the transfer, and then select 'Transfer'. Bank transfers can take up to 5 business days to complete.

With your Robinhood account funded, you can now buy crypto. Robinhood offers 15 crypto assets to choose from, including BTC, ETH, DOGE, SHIB, AVAX, LTC, UNI, ETC, LINK, and XLM. You can place an order to buy or sell crypto at fractional amounts, and there are no commissions on trades.

How to choose between Robinhood and Coinbase

Robinhood and Coinbase are two reliable, easy-to-use platforms for beginners looking to buy and sell cryptocurrencies. However, there are some key differences between the two.

Supported Currencies

Coinbase supports over 250 digital currencies and tokens, while Robinhood offers only 15 crypto assets, all of which are also available on Coinbase. Both platforms support Ethereum Classic (ETC) and Stellar Lumens (XLM). In addition to cryptocurrencies, Robinhood users can also buy and sell stocks, options, and ETFs, while Coinbase only offers crypto. Robinhood only supports US dollar (USD) deposits, whereas Coinbase users can deposit USD, euros (EUR), and British pounds (GBP).

Security

Robinhood and Coinbase both emphasise security, providing robust security measures to safeguard customer funds. Both platforms offer two-factor authentication (2FA) and Federal Deposit Insurance Corporation (FDIC) insurance. Coinbase keeps 98% of digital assets in air-gapped cold storage and holds an insurance policy to cover potential breaches of cryptocurrencies held in hot wallets. Robinhood also stores crypto assets in cold storage but does not specify what percentage of assets are stored offline. Robinhood users can benefit from Securities Investor Protection Corporation (SIPC) coverage for stocks, ETFs, and cash should the company go bankrupt.

Fees

Coinbase has a complex fee structure where fees are determined by factors such as trade size, payment method, market conditions, and location. Robinhood, on the other hand, does not charge trading commissions. However, Robinhood is not a zero-fee platform, as it makes money using a payment for order flow (PFOF) system where the company earns revenue by routing user orders through a market maker.

Ease of Use

Both Robinhood and Coinbase offer beginner-friendly platforms with easy sign-up procedures and intuitive mobile and web-based interfaces. Robinhood is particularly well-known for its simple mobile app, which contributes to its goal of opening trading up to a wider audience. However, this has also led to criticism, as it may encourage users to make hasty or risky trading decisions.

In summary, if you want access to other asset classes like stocks alongside crypto, Robinhood offers a low-cost, beginner-friendly alternative to dedicated crypto exchanges like Coinbase. However, if you're solely focused on crypto and want access to a wider range of crypto assets and advanced crypto investment services, Coinbase may be the better choice.

How to use Robinhood for day trading

Robinhood is a popular trading platform for investors new to the stock market or looking to make money through day trading. The platform is very easy to use, and you can trade on your mobile phone with access to real-time research and analytics. Robinhood offers zero-commission stock, ETF, and crypto trades. Since day trading often relies on very small changes in the stock price, commissions and fees can quickly eat into your profits. Trading with no commission charge preserves your profit.

To start day trading on Robinhood, you will need to sign up for an account. Robinhood offers three different types of accounts: Robinhood Instant, Robinhood Gold, and Robinhood Cash. Robinhood Instant is the default option and a margin account that gives you access to extended-hours trading and instant deposits. Robinhood Gold is an upgraded account that offers more buying power, access to larger deposits, and advanced market research for a $5 monthly fee. Robinhood Cash is a basic account that does not offer instant deposits or settlements but still allows for commission-free trades during extended and regular market hours.

Once you have chosen your account type, you can start day trading on Robinhood. It is important to note that Robinhood has specific rules to protect investors, such as the pattern day trading (PDT) rule. This rule states that users cannot place four or more day trades within a five-day period unless their account balance is over $25,000. Violating this rule will result in your account being restricted from further day trades for 90 days. To avoid this, you can use the day trade counter in the app and enable pattern day trade protection alerts.

When day trading on Robinhood, it is crucial to have a good risk management strategy. One popular rule to follow is the 1% rule, which states that you should not risk more than 1% of your capital on a single trade. Additionally, you can set stop-loss and take-profit levels to help manage your trades.

Another important consideration when day trading on Robinhood is the order types available. Robinhood supports trailing stop orders, buy and sell limit orders, and stop orders. Understanding the different order types can help you manage risk and execution speed.

Finally, it is essential to monitor your trades closely. Robinhood provides tools such as the Day Trade Counter to help you keep track of your active day trades. By following these steps and strategies, you can effectively use Robinhood for day trading.

Frequently asked questions