Robinhood Markets, Inc. (NASDAQ: HOOD) is a US financial services company that pioneered commission-free stock and exchange-traded fund (ETF) trading with their mobile app. The company was founded in 2013 and is headquartered in Menlo Park, California.
Founded by college roommates and classmates, and named after the legendary outlaw who robbed from the rich to give to the poor, Robinhood’s goal is to enable regular people to trade shares without paying large commissions or fees, just like big Wall Street firms were able to do.
Since the launch of its trading app in 2015, the online brokerage firm has come a long way and extended trading to a variety of investment assets. Through a subsidiary, Robinhood Financial, it has widened its range of services to offer traditional banking features and has introduced a premium product.
Ready to buy shares in Robinhood? This is your complete guide.
About the company
Staying true to their mission to democratise finance for all, investors can now trade in stocks, funds (ETFs), options and cryptocurrencies with Robinhood. They can also get in on IPOs at IPO prices. They are also able to invest in fractional shares with a minimal (US$1) investment, diversify their portfolio and trade in real time.
Through Robinhood Financial, the company offers cash management services enabling people to deposit money, pay bills, send cheques, earn interest and invest, all in one place.
Robinhood Gold is a premium service (at a monthly rate of US$5) that offers access to research reports, advanced market data and the ability to get bigger instant deposits. Eligible customers can also borrow money at a variable interest rate..
By mid 2021, Robinhood had over 21.3 million active users and over 22 million net cumulative funded accounts and US$102 billion in assets under custody.
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Step 1: Choose an online broker
A broker is a service that lets you buy and sell shares. You will need an account with a broker who trades in US stocks if you plan to purchase Robinhood shares from UK. There are many options available, each offering different features, but these are some of the best and most useful to look for.
- Commission-free trades If you trade regularly, the commissions for each transaction can add up quickly. Many online brokers that trade in US stocks offer commission-free trading. This can make a huge difference.
- Fractional investing: It can be expensive to invest in tech giants such as Robinhood. However, you can still enjoy the benefits and security of owning shares without spending a fortune. This is safer than purchasing full shares.
- Research and reporting: You should look for a platform with a strong research and reporting section. This section can provide you with important information about Robinhood such as the company overview, price history and recommendations, and even price forecasts.
- Clean and modern experience: Too much information can make it difficult to start trading shares. You should choose one that makes it easy to trade.
Step 2: Transfer funds
Once you settle on a broker you will transfer money to your brokerage account from your bank account. This may take several days if your account is not open.
Step 3: Define your budget
Fractional share investing is a great way to invest in Robinhood shares. By buying part of a share, you can get a foot in the investment door. You can then build your investments as you please. It's important that you only spend what you can afford to lose.
Step 4: Purchase shares or an ETF
You may prefer to invest in an Exchange Traded Fund (ETF) over buying stocks. Cathie Wood’s ARK Innovation ETF (ARKK) and ARK Fintech Innovation ETF (ARKF) have both invested in Robinhood. Other ETFs with exposure to the company include Fidelity NASDAQ Composite Index ETF (ONEQ) and First Trust U.S. Equity Opportunities ETF (FPX).
ETFs can be described as a group of assets like bonds or shares that functions in the same way as individual shares on a market.
However, they are less appealing than share trading for active traders.
Step 5: Configure your order
There are many order types that you should be aware of. Some are tailored for specific market conditions.
Market orders are when your order is executed regardless of the current share price.
If the price for a Robinhood share was US $40, and you click buy, your order will go through at that price.
Remember that price fluctuations can cause you to pay more or less for your shares depending on the market.
Buy limit orders allow you to buy shares at a price that you choose (or lower). They can also be useful tools in sticking to your investing budget.
You might decide to buy Robinhood shares if they reach US$38 or less. Your trade will be executed if and when the shares reach that level.
You can place a sell order to set a price at the end of which shares will be sold.
Let's suppose you decide to let go of Robinhood shares when they reach US$37. Your order will be placed when the price reaches this price.
Stop loss orders are used to get out of stocks you don't feel comfortable holding on to if they fall below a specific price. Let's suppose you want to sell your Robinhood stock if it drops to US$36. Once the price reaches that level, your stock will be sold at the next available market price..
Step 6: Place your order
After you have chosen an order type, you can place your order. Once you have completed your order, wait to see what the market does before making your next investment.
When you invest in shares, you have to monitor your investment, unless of course, you are buying it to hold over the long term. Whether you buy shares with a speculative motive or as a long term investment, here are a few things you can do to keep on top.
Track Robinhood’s share price and company performance
Keep an eye on how Robinhood is performing, as well as things such as company announcements and external factors that could affect the stock price.
Roadblocks to the zero-commission brokerage model
According to NASDAQ, there are signs that the Securities and Exchange Commission (SEC) may ban the payments for order flow (PFOF) model which subsidises the zero-commission brokerage model that Robinhood pioneered. A ban would disproportionately impact Robinhood as it derives significant revenues from stocks and options vis a vis other market players who rely more on interest related revenues (margin) and supplemental investment services.
Watch Robinhood’s competitors
Payments giant PayPal (Nasdaq: PYPL) is reportedly considering updating its app to enable customers to trade in stocks as a way to drive engagement on its app. This could be a significant threat since PayPal has over 400 million accounts compared to Robinhood's 22 million. Keep watching the news.
Other fintechs like M1 Finance and SoFi are well capitalised and muscling in on the investing space with their own Robinhood-like investment service.
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