Robinhood Investing: A Beginner's Guide To Trading On The Platform

Robinhood is a commission-free trading platform that allows users to invest in everything from exchange-traded funds (ETFs) to cryptocurrencies without going through a traditional brokerage. The app is popular among young, first-time investors, and currently has around 11.4 million monthly active users.

To start investing with Robinhood, you need to be 18 years or older, have a valid Social Security number and a U.S. address. You can then open a brokerage account, which takes less than four minutes, and fund your account.

To buy stocks on Robinhood, you can use the mobile app or web-based dashboard. Go to the details page, where you can track earnings, stock performance, and analyst ratings. Search for the stock you want to buy, then click on it and type in the amount you want to spend. Review your order and confirm the details before submitting.

How to open a Robinhood brokerage account

To open a Robinhood brokerage account, you must be 18 years or older, have a valid Social Security number and a U.S. address. Here is a step-by-step guide to opening a Robinhood brokerage account:

Step 1: Set up an account

Go to Robinhood's sign-up page and click "open an account". Here, you will provide an email address and password, followed by your legal name as it appears on a government ID. You will then fill in some basic information, such as your phone number, date of birth, residential address, and citizenship.

Step 2: Verify your identity

Robinhood will ask for your Social Security number to verify your identity. If you are wary of giving out your SSN, be aware that the app is encrypted, and the number will be transmitted securely. Broker-dealers are required by law to collect SSNs to ensure you are not a known money launderer or terrorist.

Step 3: Provide your investing experience

Robinhood will ask you some questions about your investing experience. You will be asked to disclose whether you have no experience, some experience, a little more than average, or investing expertise. You will then be asked if you would like to enable commission-free options trading. If you are a beginner investor, this may be complicated, but it could be of interest if you have experience.

Step 4: Provide your employment information

Robinhood will ask you whether you, or a member of your immediate family, are employed by a member firm of a stock exchange or the Financial Industry Regulatory Authority (FINRA). You will also be asked if you or any family members are directors, 10% shareholders, or senior officers of a publicly traded company.

Step 5: Review agreements

You will be asked to review and agree to two different agreements: the Tax Certification, which asks you to certify that your information is accurate, and the brokerage agreement.

Step 6: Fund your account

You can fund your Robinhood account with as little as $1. You can link a bank account to the app or fund your account through the Robinhood app. You can also choose to fund your account from a list of financial institutions.

Step 7: Download the mobile app

After submitting your application, you will be redirected to a page that prompts you to download the app so you can start making trades.

Step 8: Log in to the application

After downloading the app, log in with the credentials you created earlier. Once you are in, you will see a message that your account has been approved, along with a prompt to fund your account.

Robinhood does not charge any fees for opening or maintaining a brokerage account, and there are no commissions on trades. However, the company offers a Robinhood Gold service for $5 per month, which provides additional features like larger deposit amounts and after-hours trading.

How to fund your account

To fund your Robinhood account, you can transfer money from a linked bank or debit card account. The platform supports instant bank transfers, which are typically completed in minutes, and standard bank transfers, which can take up to five business days.

Instant Bank Transfers

Instant bank transfers allow you to transfer money from your bank to your Robinhood account in minutes, with no fees involved. However, instant transfers may not be available if there are restrictions on your account or if you are not using the latest version of the app.

To initiate an instant bank transfer, follow these steps:

• Select "Account" (person icon) and then "Menu" (three bars).
• Choose "Transfers" and then "Transfer Money."
• Enter the amount you wish to transfer.
• Specify the accounts you want to transfer money from and to.
• Review and confirm the transfer by selecting "Transfer."

Standard Bank Transfers

Standard bank transfers typically take up to five business days to complete. To set up a standard bank transfer:

• Link your bank account to the Robinhood app if you haven't already done so.
• Select "Account" (person icon) and then "Menu" (three bars).
• Choose "Transfers" and then "Transfer Money."
• Enter the amount, select the account you want to transfer money from, and specify your Robinhood account as the recipient.
• Review and confirm the transfer.

Using a Debit Card

If you prefer not to use a bank account, you can use a non-Robinhood Visa or Mastercard debit card to fund your Robinhood account. However, there is a 2.5% fee for instant deposits via debit card. To link and verify your debit card:

• Go to "Account" (person icon) and select "Transfers," then "Linked Accounts," and finally, "Add Account."
• Enter your debit card information.
• Robinhood will temporarily charge $1.95 to your bank to confirm your card. Check your bank account for this charge.
• Find the $1.95 charge with "RH*" followed by a six-digit code on your statement.
• Copy the code, return to the Robinhood app, and select "Continue."
• Enter the code and confirm.

You will receive a confirmation in the app when your card is successfully verified and ready for use.

How to research stocks to buy

Before you buy stocks on Robinhood, it's important to do your research. Here are some steps to help you get started:

Understand the Basics of Stock Analysis

First, familiarize yourself with the different types of stock analysis: fundamental analysis and technical analysis. Fundamental analysis focuses on a company's financials, such as annual reports, balance sheets, earnings per share (EPS), and price-to-earnings (P/E) ratio, to determine if the company's current price reflects its future value. Technical analysis, on the other hand, utilizes market data like trading volume and prices to predict future price movements.

Dig into Company Reports

Publicly traded companies are required to share specific information with the public. You can find these reports on company websites, usually on "investor relations" pages, or on the Securities and Exchange Commission's (SEC) filing database, EDGAR. The 10-K and 10-Q forms are particularly useful, providing financial statements, management discussions, and insights into the company's operations and performance.

Consult Brokerage Firms and Research Tools

If you have an online brokerage account, take advantage of the research tools available. Stock screeners, analyst reports, and news feeds linked to individual stocks can provide valuable insights to guide your investment decisions.

Understand the Basics of the Company

Go beyond financial statements and understand how the company operates. How does it make money? Who are its customers? Where does it operate? Understanding the industry the company is in and its position within that industry is crucial. Consider its regulatory environment, competitive advantages, and ability to adapt to change.

Conduct Qualitative Research

Evaluate the company's leadership team and their track record. Are they capable of steering the company in the right direction? Do their past actions align with your values as an investor? Additionally, consider the company's values and ethical standing. Are they a responsible global citizen? Do their mission and sustainability statements resonate with you?

Remember, investing in stocks carries risks, and it's important to do your due diligence before making any investment decisions.

How to make trades

Robinhood's default buy order is an order to buy a number of shares or a dollar amount of the specified stock or ETP. During regular market hours (9:30 am-4 pm ET), dollar-based buy orders are entered as market orders, and share-based buy orders are entered as limit orders with a preset limit price.

Here's a step-by-step guide on how to make trades on Robinhood:

• Go to the stock's detail page: Here, you can view the stock's historical performance, analyst ratings, company earnings, and other helpful information to consider when buying or selling a stock.
• Select 'Trade' → 'Buy' or just 'Buy' if you don't currently own the stock.
• By default, you will be asked to enter the amount you'd like to purchase in dollars. Alternatively, you can choose to buy shares or select another order type by selecting 'Dollars'.
• Review your order and confirm that all the details are correct. If you need to make any changes, select 'Edit'.
• If all looks good, swipe up to submit your order.

It's important to note that the last traded price may not be the price at which your buy order will be executed. Additionally, trading outside of market hours involves additional risks, such as increased price volatility and lower trading volume.

Robinhood also offers extended-hours trading, allowing you to trade before and after the market. The pre-market hours are from 9:00 am to 9:30 am ET, and the after-hours are from 4:00 pm to 6:00 pm ET. During extended hours, dollar-based and share-based buy orders are entered as limit orders with a preset limit price.

How to buy fractional shares

Fractional shares are portions of full shares, allowing investors to buy a small increment of equity in a stock or exchange-traded fund (ETF) without needing to purchase a full share. On Robinhood, investors can buy fractional shares of stocks and ETFs with as little as $1, allowing for greater accessibility and flexibility in investing.

To buy fractional shares on Robinhood, you can follow these steps:

• Sign up for a Robinhood account: Provide your personal details, including your name, email address, and Social Security number. You will also need to create a username and password.
• Fund your account: Although not mandatory at the signup stage, you can link your bank account and fund your Robinhood account. This can be done directly through the mobile app.
• Choose your investment: Select the stock or ETF you want to invest in. Ensure that it is eligible for fractional shares on Robinhood (stocks worth over $1 per share with a market capitalization of more than $25 million).
• Place your order: During market hours, you can place real-time fractional share orders. Specify the dollar amount you want to invest (as little as $1) or the share amount (as low as one-millionth of a share).
• Review and confirm your order: Before submitting your order, carefully review the details to ensure they are correct. You can edit your order if needed.
• Monitor your investments: After purchasing fractional shares, you can monitor their performance and keep track of any dividends or capital gains. Remember that all investments carry risk.

Fractional shares on Robinhood offer an excellent opportunity for beginners or those with limited funds to start investing and build a diverse portfolio. It is essential to do your research, understand the risks, and make informed investment decisions.

Frequently asked questions