How Do Stocks Work on Robinhood

How Do Stocks Work on Robinhood- You’re here, so you probably already know Robinhood is the most popular way to trade stocks. But you might not know why or how it differs from other brokers. And I’m sure you want to know all the cool stuff you can do with this app. So without further ado, let me show you how to buy stocks on Robinhood step by step.

How do stocks work on Robinhood, you ask? What’s the professional lingo that Robinhood investors speak — how do we buy stock on robinhood and sell stock on robinhood? And can we actually invest in stocks for free using this app? Well, there’s a lot of information out there about this topic and it can be hard to navigate and figure out what you should be doing. That’s why I created this guide for beginner Robinhood investors.

Table of Contents

Understanding the stock market

Stocks are bought and sold on stock markets, which bring together buyers and sellers of shares in publicly traded companies. Stock markets operate kind of like auctions, with potential buyers naming the highest price they’re willing to pay (“the bid”) and potential sellers naming the lowest price they’re willing to accept (“the ask”). The actual execution of a trade price will be somewhere at or between the bid and the ask. Trades can be placed by stockbrokers, usually on behalf of portfolio managers or individual investors like you. In the US, the stock market is made up of 13 exchanges—the best known are the New York Stock Exchange and the Nasdaq.

How does the stock market work?

The primary role of the stock market is to bring buyers and sellers together to negotiate the trade of stocks. To determine the price, a stock market operates kind of like an auction.

  • Buyers want to pay the lowest price possible. Stockbrokers who want to buy (or who represent customers who want to buy) can bid a price they’re willing to pay for a stock. The highest price becomes the “Best Bid.”
  • Sellers want to sell at the highest price. Owners of stock or their stockbrokers can show their willingness to sell by placing an ask, which is the price they’re willing to sell a stock for. The lowest price becomes the “Best Ask.”

The difference between the Best Bid and Best Ask is called the “Spread.” The two sides negotiate to meet in the middle, and the intermediary who executes the trade takes the difference as their fee.

As you follow a stock, you’ll notice the share price moves. The share price can change frequently based on the number of investors looking to buy or sell the stock and the number of trades that happen.

Stocks are traded on an individual basis through the negotiation between the bid and ask prices. Those prices can move together with stocks of other companies as economic, political, and specific news stories affect the movement of markets in general.

Robinhood offers commission-free stock, ETF and options trades, a streamlined trading platform and free cryptocurrency trading. But customer support is lacking, and the broker has run afoul of regulators.

The bottom line: Robinhood provides free stock, options, ETF and cryptocurrency trades, and its account minimum is $0, too. Mutual funds and bonds aren’t offered, and only taxable investment accounts are available.

on Robinhood’s website

FEES

$0

per trade

ACCOUNT MINIMUM

$0

PROMOTION

1 Free Stock

after linking your bank account (stock value range $2.50-$225)

Pros & Cons

Pros

  • No account minimum.
  • Streamlined interface.
  • Cryptocurrency trading.

Cons

  • No retirement accounts.
  • No mutual funds or bonds.
  • Limited customer support.

Where Robinhood shines

Costs: Robinhood is a true discount broker — although its offerings may not be as robust as some other brokerages, Robinhood has some of the lowest costs in the industry.

Streamlined interface: Robinhood is extremely easy to use. So easy, in fact, some have argued that it’s made complex trading strategies, such as options trading, too accessible to inexperienced users. However, if your only goal is to dabble in stocks, the trimmed-down interface is highly convenient.

Free cryptocurrency trading: Robinhood is still one of the few brokers that lets you trade cryptocurrencies for free, so among stock brokerages, it’s a stand out feature. However, if you compare Robinhood’s crypto offerings to pure-play crypto brokerages, that shine starts to fade.

IPO access: In 2021, Robinhood unveiled a new offering that lets users take part in a company’s initial public offering, or IPO. This has typically been reserved for financial institutions.

Where Robinhood falls short

No retirement accounts: Robinhood only offers taxable brokerage accounts. So, if you park your money here long-term or are hoping to save for retirement, you’ll miss out on the tax benefits of retirement accounts like traditional and Roth IRAs. For most investors, investing through a taxable brokerage account should come only after they have started funding such a retirement account.

No mutual funds or bonds: The lack of mutual funds and bonds may make it difficult to build a truly diversified portfolio.

Limited customer support: Robinhood has made noticeable improvements to its customer service in the past year, but it’s still not on par with other brokerages.

Reliability: Robinhood has received criticism for untimely outages and trade restrictions amid market volatility, and has been charged by regulators for misleading customers, resulting in significant fines. We discuss these charges and other customer service issues in detail below.

Robinhood is best for:

  • Mobile users.
  • Individual taxable accounts.
  • Margin accounts.

Investments you can make on Robinhood

With Robinhood you can make your money work for you. We offer a variety of assets that you can invest in, from stocks to options.

You can invest in over 5,000 stocks with Robinhood Financial, including most U.S. equities and exchange-traded funds (ETFs) listed on U.S. exchanges. We’re also excited to offer options trading and access to over 650 global stocks through American Depositary Receipts (ADRs).

Robinhood Financial currently supports the following assets:

  • U.S. Exchange-Listed Stocks and ETFs
  • Options Contracts for U.S. Exchange-Listed Stocks and ETFs
  • ADRs for over 650 Globally-Listed Companies

Robinhood Financial currently doesn’t support the following assets:

Though we generally don’t currently support stocks that trade on foreign exchanges, we do support certain American Depository Receipts (ADRs) and some stocks that trade on Canadian and Israeli exchanges.

Depending on where you live, you may also be eligible to trade certain cryptocurrencies through a separate account with Robinhood Crypto. For a guide to eligible cryptocurrencies on the Robinhood Crypto platform, check out Commission Free Cryptocurrency Investing. Keep in mind, Robinhood Crypto is not a member of the Financial Industry Regulatory Authority (FINRA) or the Securities Investor Protection Corporation (SIPC). Cryptocurrencies are not stocks and cryptocurrency investments are not protected by SIPC.

Conclusion

You’ve just found the best guide on Robinhood. Among the series of blogs I write, this is an upated one that has been most visited by me. The reason why is that it contains a lot of useful information for all Robinhood users. If you are not yet an user of Robinhood, you should visit them now to make a try-out account there.

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