Invest in Robinhood – Investing in Robinhood Beginners Guide 2021

Fact Checked by Gary McFarlane

Very few companies found a silver lining during the global pandemic of 2020 – one such company is Robinhood. Robinhood is a financial services company launched in 2013 with a mission to “democratize finance for all.” It offers brokerage services through a mobile app highly favoured among millennials and young investors, primarily thanks to its commission-free model and simple trading platform. 

In this guide, we explain how to invest in Robinhood, run through the pros and cons of investing in Robinhood, and offer a simple guide on how to get started with the best broker.

#1 Broker to Invest in Robinhood – eToro

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How to Invest in Robinhood – Step by Step Guide 2021

For those who intend on investing in Robinhood, here’s a straightforward step-by-step guide to getting you started.

  • Step 1: Sign up for an eToro account – Firstly, you’ll have to register with eToro for a live trading account. Go to their website and click “Join Now” at the top right corner of your browser and fill in the details required.
  • Step 2: Verify your account – You’ll be required to verify your identity by providing proof of ID (National ID, passport, or driving license) and proof of address (bank statement or a utility bill) before proceeding to trade with eToro.
  • Step 3: Fund your account – After your account has been verified, proceed to deposit funds. Simply click on the “Deposit Funds” tab at the bottom left of your account and proceed to deposit funds via credit/debit card, PayPal, Skrill, bank transfer, or Neteller.
  • Step 4: Invest in Robinhood Now you’re ready to invest in Robinhood. Type in and search “Robinhood” in the search bar, click the “Trade” tab, and proceed to invest.

Where to Invest in Robinhood – Choose a Broker

There are thousands of brokers available online, and naturally, it may be impossible for you to do your due diligence on all of them to find the best one. We’ve done that for you, and here is our in-depth review of the best brokers to use when investing in Robinhood.  

1. eToro – The Best Overall to Invest in Robinhood

eToro was officially launched in 2013, and since then, it has grown into one of the most popular trading platforms globally, with over 20 million active traders from over 140 countries. Its popularity is primarily thanks to a host of innovative features suitable for beginner and experienced traders. 

Security and Privacy

Security and privacy are paramount for any trader, and eToro has not skimped on its security measures. eToro has three layers of protection to guarantee the security of your funds. 

Firstly, it is strictly regulated by FCA (UK), ASIC (Australia), CySEC (Cyprus), GFSC (Gibraltar), FinCEN, and FINRA (United States). Secondly, eToro has an automatic insurance cover for all its clients, covering losses in the unlikely event of insolvency. This gives coverage of up to 1 million Euro, GBP, or AUD (depending on the region). Thirdly, clients’ funds are held in segregated bank accounts; and for US clients, their deposits are held in an FDIC-insured custodial account. 

For privacy, all client data is protected under SSL encryption, ensuring no third party has access to personal data. 

Fees and Features

eToro offers multiple trading instruments ranging from stocks, Forex, cryptocurrencies, ETFs, and CFDs. As we mentioned, eToro is popular thanks to a host of innovative features that will satisfy the needs of both novice and experienced traders. One such feature is Social Trading. Like any social network platform, the eToro Social News Feed allows you to interact with like-minded traders to share trading ideas and strategies. And with the CopyTrader function, you can copy the trades of the top traders on the platform. This feature isn’t just useful for beginner traders who are still learning the basics and for experienced traders who may not have the time to watch the markets constantly. 

For stock traders, eToro doesn’t charge commissions on any trades you make. This means there are no management fees, ticket fees, rollover fees, nor additional broker fees. Here’s the broker’s fee structure.

eToro Fees

Fee Type Amount
Deposit Fee $0
Withdrawal Fee $5 
Inactivity Fee $10 after 12 months with no login activity
Commission Fee 0%

 

Pros

  • Social trading
  • Reliable and regulated
  • No commissions
  • Easy-to-use platform
  • SSL encryption

Cons

  • Doesn’t support MetaTrader (MT4 or MT5)
  • Conversion fees since deposit and withdrawals are done in USD

67% of retail investor accounts lose money when trading CFDs with this provider.

 

2. Capital.com – Easly Invest in Robinhood CFDs

Capital.com was launched in 2016 and specializes in financial derivatives. This makes it suitable for trading Robinhood CFDs. Thanks to this specialization, it has attracted over 788k users who trade over 4000 markets with leverage. 

Security and Privacy

In an era where privacy is becoming elusive, Capital.com has implemented strict measures to guarantee that personal data remains just that – personal. The broker is fully compliant with PCI Data Security Standards which means that your personal information is fully encrypted and protected via Transport Layer Security. Furthermore, your deposits and withdrawals are only routed through the most secure data environments. 

Capital.com is also regulated and authorized by the FCA (UK), ASIC (Australia), and CySEC (Cyprus ). It has also partnered with the top money managers in Europe to ensure that customer funds are segregated from the broker’s operations accounts. That means you won’t be affected by any liquidity issues that may impact the broker. Investors are also entitled to compensation protection since every deposit made to Capital.com is protected by the  Investor Compensation Fund (ICF) or by the Financial Services Compensation Scheme (FSCS) in the UK. 

Fees and Features

Aside from the impressive security and privacy protection, Capital.com has many features suitable for beginner and experienced traders. Novice traders benefit from the curated library with various learning materials and trading guides designed to introduce them to the world of trading. Beginner and experienced traders also benefit from the frequent trading webinars hosted by the broker, which keeps them apprised of the developments in various markets and further improves their trading knowledge. For experienced traders, Capital.com offer AI analytics that helps further improve profitability. More so, the broker offers over 4000 tradable assets with full integration with TradingView offering unlimited technical analysis capabilities. 

In terms of fees, Capital.com charges zero commissions and there are no hidden fees and charges. 

Capital.com general Fees

Fee Type Amount
Commission 0%
Withdrawal Fee $0 
Deposit Fee $0 
Inactivity Fee $0 
Overnight financing fee Based on Leverage

 

Pros

  • Full TradingView integration
  • Free educational content and trading guides 
  • Zero commission
  • Negative balance protection 
  • Deposit insurance 

Cons

  • Only offers shares and CFD trading 
  • Fairly young broker with a shorter industry track record 

67% of retail investor accounts lose money when trading CFDs with this provider.

3. AvaTrade – Invest in Robinhood CFDs Easily

AvaTrade was founded in 2006 and is headquartered in Ireland. Its current stellar reputation is largely thanks to excellent customer service, security, and enhanced trading experience. AvaTrade has carved itself a niche in CFD trading, with over 3 million trades monthly. 

Security and Privacy

AvaTrade strongly believes that a trader’s success heavily relies on a safe and secure trading environment. As a result, it is one of the most heavily licensed and regulated brokers in the market. Here are the financial authorities globally regulating AvaTrade: 

  • The Central Bank of Ireland
  • Polish Financial Supervision Authority (Poland)
  • ASIC (Australia)
  • The Financial Services Agency and the Financial Futures Association of Japan 
  • FSCA in South Africa 
  • The Abu Dhabi Global Markets (ADGM) and Financial Regulatory Services Authority (FRSA) in the Middle East
  • The Israel Securities Authority
  • The British Virgin Islands Financial Services Commission 

Aside from the strict regulations, AvaTrade is also dedicated to guaranteeing that your personal information and funds are secure. This is achieved by encrypting its website with 256-bit SSL encryption. The broker also prevents identity and credit card theft using McAfee Secure. And as is customary in the industry, all clients’ funds are segregated from business funds. 

Fees and Features

AvaTrade has several features designed to provide a seamless trading experience for beginner and expert traders. AvaSocial App is a social trading platform for novice traders that allows any trader to follow and copy trades from the best-performing traders. It helps reduce the learning curve for new traders by getting trading and investment advice from experienced traders. Similarly, expert traders can also get wider coverage of several markets without performing tedious daily analyses. The broker also offers auto trading platforms through ZuluTrade and DupliTrade. 

With AvaProtect™, traders have access to a revolutionary risk management tool that allows traders to hedge specific trades against losses of up to $1 million over a specified timeframe. However, this comes a cost when opening the position. 

AvaTrade users enjoy commission-free trades with no hidden fees. 

AvaTrade general Fees

Fee Type Fee Amount 
Commission Fee 0%
Deposit Fee $0 
Withdrawal Fee $0 
Inactivity Fee $50 every quarter and $100 annually 

 

Pros

  • Offers Islamic accounts
  • Zero commission
  • Proprietary auto trading 
  • Social trading platform 
  • AvaProtect™ risk management

Cons

  • High inactivity fees
  • Only offers CFD trading

67% of retail investor accounts lose money when trading CFDs with this provider.

Invest in Robinhood – Broker Price Comparison

If you’re still undecided on which broker to choose, here’s a comparison of the top three brokers at a glance.

Broker Commission Deposit Fee Withdrawal Fee Inactivity Fee
eToro 0% $0  $0  $10 after 12 months with no login activity
Capital.com 0% $0  $0  $0 
AvaTrade 0% $0  $0  $50 every quarter and $100 annually 

 

What are the Different Ways to Invest in Robinhood?

There are various ways for you to invest in Robinhood. Typically, new traders and investors may find it difficult to differentiate between the various trading and investment methods available in the market. This shouldn’t bar you from investing in your favorite company. Here’s an easy explanation of the three different ways which you can use to invest in Robinhood. 

Stocks

Stocks are also called shares and are the easiest way to invest in Robinhood. When you buy a stock of Robinhood, you have bought a piece of the company and are considered among the owners of Robinhood – hence the name shareholder. Owning stocks allows you to enjoy both active and passive income from the performance of the company. 

As a shareholder, you enjoy financial benefits from the market performance of Robinhood (not just the appreciation of the stock value). You can also vote during the company’s annual general meetings. Through voting, shareholders can decide on the future of the company. The financial benefit of being a shareholder is the right to receive dividends. Dividends correspond to the portion of the retained earnings distributed to shareholders. This is a way for the company to reward its current shareholders for investing in it and offer an ideal avenue for shareholders to earn passive income.

Companies issue dividends quarterly or yearly. Dividends from Typically, the dividend is issued as cash for every share held, for example, $1.5 per share. This is called a cash dividend.  Dividends can also be issued as additional stocks in the company instead of cash. This is called a stock dividend and is usually paid out pro-rata, depending on the number of shares one holds. 

Contract For Difference (CFDs)

CFDs offer the opportunity to invest in a company without owning the actual shares. CFDs are derivatives of a company’s share price, which means they allow you to speculate on whether the share price will increase or drop. Consequently, trading CFDs means that you can profit if the company performs well or poorly by going long and short, respectively. Note that you do not get the same privileges as owning stocks with CFDs – you won’t receive dividends or get any voting rights. 

Typically, investing in CFDs is done with leverage which increases your profitability. However, investing in Robinhood CFDs is deemed riskier than investing in actual stocks since the leverage used in CFDs can lead to early liquidation of positions, increasing the potential for massive losses. On the upside, CFDs offer the potential for quicker rewards compared to stocks, which is why Day traders highly favor CFDs. 

Exchange-Traded Funds (ETFs)

Like CFDs, ETFs are derivatives of the underlying stocks; but unlike CFDs, ETFs are a basket of securities grouped to form a single investment asset. This means that if you intend to invest in Robinhood ETF, you must select an ETF that has Robinhood stocks as one of the underlying assets. Typically, ETFs are designed by brokerages or fund managers, and they offer investors exposure to stocks in different sectors, eliminating the need to conduct tiresome market research. Since the financial institution that makes the ETFs owns the underlying stocks in the companies included in that particular ETF, it means that if you buy an ETF, you are entitled to dividend payouts from these companies. However, no voting rights are included.

Best Ways to Invest in Robinhood UK

As is with any investment, choosing the right investment vehicle entirely depends on your investment strategy and financial goals. However, for most traders and investors, selecting the appropriate security often lies in the duration of the investment. 

Invest in Robinhood Stocks

Investing in stocks is typically for those who believe in the longer-term prosperity of the company. In this case, if you believe that the fundamentals of Robinhood will improve and that the brokerage will continue to perform better, then investing in Robinhood stocks is the best strategy for you. Always keep in mind that when you buy a company’s stocks, you anticipate that the share price will increase, which means you expect that the company will perform well financially. Furthermore, because holding stocks gives the right to earn dividends, this investment strategy offers one of the best hands-free investing. However, should the company have a bad year, you risk having your investment drop in value.

Invest in Robinhood CFD

As we mentioned earlier, CFDs are especially preferred by day traders since CFDs offer the potential for higher returns over a much shorter period compared to stocks, thanks to the use of leverage. Naturally, not everyone has the mental stamina to cope with the stressful price fluctuations over the long term, which is why investments in CFDs are usually only for a couple of days, at most. Investing in Robinhood CFDs allows you to speculate whether Robinhood’s share price will go up or down in the near term. However, since leverage is involved, the potential for larger losses is involved. 

Invest in Robinhood ETF

Now, if you are interested in investing in Robinhood, but you don’t want to invest in either stocks or CFDs, then ETFs would be ideal for you. Investing in an ETF that has Robinhood allows you to benefit from price fluctuation of the Robinhood and any dividend the brokerage may issue. More so, since an ETF is a composite of different stocks, you gain exposure to various markets, consequently diversifying your risk. Remember to check the percentage allocation of Robinhood’s share in the ETF you choose to invest in. 

Is Robinhood a Good Investment?

Robinhood is one of the most popular and fasted growing app-based brokers, particularly among millennials. The shares of Robinhood (Ticker: HOOD) officially began trading publicly on July 29, 2021, at an IPO price of $38. HOOD hit an all-time high of $84.98 in August and has since been on a downtrend, shedding over 55%. However, we should note that it wouldn’t be prudent to judge whether Robinhood is a good investment based on this short-term (less than 2 months) share price performance. That is why we turn to its fundamentals and growth prospects. 

Growth in Active Users

Although the brokerage was officially launched in 2015, it shot into mainstream popularity during the 2020 pandemic largely thanks to its business model. The period saw many young investors seeking additional sources of income, which made them turn to stock trading. The number of active users surged from about 10 million at the end of 2019 to over 22.5 million by the second quarter of 2021. While most online brokers charge hefty commissions coupled with large spreads, Robinhood adopted a commission-free model, effectively making trades on free. This has been a huge draw, especially with young and novice investors who have less money to invest and prefer cost-free investing. 

Growth in Revenue 

Well, you might be wondering, if Robinhood offers free trading, how does it make money? Robinhood’s revenue comes from the payment for order flow system, accounting for up to 75% of its revenue. Effectively, any trade placed on the broker’s app is routed to different market makers who compete for order flow from the broker. These market makers compete with exchanges and thus offer rebates to Robinhood to route order flows to them. This means that Robinhood is compensated for sending customer orders to third-party entities to be executed. Note that market makers usually offer better prices than exchanges. 

Robinhood’s revenue has steadily grown from $2.9 million in 2015 to $959 million by the end of 2020. Similarly, its valuation has steadily increased from $1.3 billion in 2015 to $20 billion in 2021. Although the broker is fairly young compared to its competitors, its track record offers a rosy prospect. 

Investing in Robinhood – What are the Risks

As a nascent brokerage house, Robinhood faces a few teething problems that may otherwise pose a risk in the short term. One of the biggest thorns for Robinhood has been a slew of lawsuits that threaten an otherwise stellar reputation.

Mounting Lawsuits

For a young firm, Robinhood has faced more lawsuits than most investors are comfortable with. Over the past two years, about 49 class-action lawsuits have been filed against Robinhood, which have resulted in unprecedented regulatory fines and public scrutiny. In 2020, the Securities and Exchange Commission (SEC) slapped Robinhood with a $65 million fine for allegedly misleading its customers. It is worth noting that the company’s representatives clarified that this was for historical practices and in no way reflect current practices within the brokerage. 

In 2021, Robinhood also settled a wrongful death lawsuit over the suicide of a 20-year old user who erroneously received a negative balance of $730,000. In another blow, the Financial Industry Regulatory Authority (FINRA) fined Robinhood $70 million for alleged systemic supervisory failures and “false or misleading information.” This is the largest fine ever issued by FINRA. 

Punitive Regulations

Robinhood was formed on the promise to “democratize finance for all” and largely did this by appealing to millennial and novice investors. However, with the rise of gamification of the stock market, Robinhood has drawn the fury of regulators and lawmakers who are bent on taming the unconventional aspects of the broker. Should this persist, Robinhood’s growth may be stifled, spelling doom for investors.

How to Invest in Robinhood with eToro

For both beginner and experienced traders, starting your investment journey on a new trading platform may cause paralysis. The initial due diligence to identify the best broker can be hectic, which is why this guide shows you how to get started with the top Robinhood investment broker – eToro. 

Step 1: Open an account with eToro

The first step towards investing in Robinhood is registering with a reputable broker. That is why we recommend eToro, specifically because of its stellar security and easy-to-use trading platform. Go to their website and click “Join Now” at the top right corner of your browser and fill in the details required. 

Step 2: Verify your account

To start trading on eToro, you must verify your account since the broker complies with multiple jurisdictions’ strict data protection and money laundering regulations. Verification is a straightforward procedure where you’ll be required to verify your identity by providing proof of ID (National ID, passport, or driving license) and proof of address (bank statement or a utility bill).

Step 3: Fund your account

Once you pass verification, you need to deposit funds to start trading. Click on the “Deposit Funds” tab at the bottom left of your account, enter the amount you intend to invest, and proceed to deposit funds via credit/debit card, PayPal, Skrill, bank transfer, or Neteller. Note that deposits are usually instant.

Step 4: Invest in Robinhood!

Now you’re ready to invest in Robinhood. Type in and search “Robinhood” in the search bar, click the “Trade” tab, enter the amount you intend to invest, then press “Buy” and proceed to invest.

Conclusion

This has been a comprehensive guide on investing in Robinhood with the best broker in the market. We have analyzed the top three brokers you can use to invest in Robinhood, along with the different ways you can invest, and a recommendation of the best platform you can use to invest – eToro. 

Best Broker to Invest in Robinhood – eToro

1
$50Exclusive promotion
Our score10
  • Buy over 800 stocks with 0% commission
  • Social trading network
  • Copy over 12 million traders and investors
0% Commissionstart TradingOur score 10

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About Samwel Fedha PRO INVESTOR

Fedha Samwel is a freelance financial analyst with over 5 years of experience covering the global stock market, Forex, crypto, and macroeconomics. He is currently pursuing a CFA charter and is an avid champion of simplifying the intricate world of finance for all.