How to Invest on Robinhood: A Beginner's Guide

Thanks to financial apps like Robinhood, even beginners can buy and sell crypto, ETFs, and shares on the stock market. If you still find the process intimidating — or just want some valuable tips — this guide will help you get started.

Understanding Robinhood’s Unique Features

Robinhood isn’t the only place to buy stocks online, but its combination of investment features and easy-to-use platform make it a good place to start if you’re new to investing.

Fractional Shares

Some stocks and exchange-traded funds (ETFs) cost hundreds or thousands of dollars. But you can still invest in these stocks in a way that fits your budget by purchasing fractional shares. Fractional shares let you buy a portion of a share. For example, if a stock costs $1,000 per share and you buy a fractional share for $10, you own 1/100th of a share.

That may not sound like much, but the payoff is real. When that stock goes up, your partial share increases in value by the same percentage.

Robinhood Crypto

Robinhood has officially demystified cryptocurrency. Log in to easily buy, sell, and transfer more than 20 of the most popular cryptocurrencies, including Bitcoin and Ethereum.

You can choose between one-time and recurring scheduled buys and change your strategy anytime. Most of what you buy goes into offline cold storage, so you know it’s secure. As for the rest, Robinhood invests in regular security reviews to protect assets across its network.

IRAs

Saving for retirement or planning to? Robinhood Retirement offers traditional and Roth individual retirement accounts (IRAs), and you can manage them alongside your market trading.

Traditional IRAs let you contribute pre-tax funds, but you pay tax on withdrawals. Roth IRA withdrawals are tax-free because you contribute with after-tax income.

Either way, you can build your investment portfolio or let Robinhood customize one for you. Robinhood matches 1% of your IRA’s value, or 3% if you subscribe to Robinhood Gold. This premium service gives you higher instant deposit limits, 4% annual interest on uninvested funds, and more detailed market data.

Advantages of Using Robinhood for Investing

Robinhood exists to make investing as simple as possible. All investors enjoy benefits such as:

• No broker commissions
• No minimum investment
• Built-in educational resources
• An intuitive user interface

Gold subscribers enjoy even more benefits for $5 per month or $50 per year.

Setting Up Your Robinhood Account

To open a Robinhood account, you must be at least 18 years old and have a valid Social Security number and U.S. address. You’ll start by entering your contact information so Robinhood can confirm you are who you say you are.

Once your account is active, you can fund it by linking a bank account. Then, transfer money into your Robinhood account and use it to buy your first stock.

Exploring Investment Options on Robinhood

Robinhood offers cash and margin investing accounts. Margin accounts offer more advanced trading actions like options trading and margin investing. Cash accounts exclude those riskier actions but let you place unlimited trades.

Stocks

A stock represents an ownership share of a particular company. Corporations use the money they receive from stock purchases to fund their operations, and shareholders get a percentage of ownership in exchange.

Robinhood lets you buy stocks by number of shares or dollar value. The cost per share depends on the company’s overall market value and the number of shares on the market. If the cost goes up and you sell, anything above what you paid is your profit.

ETFs

ETFs are collections of stocks from a certain category, such as an industry or geographical market. Some ETFs have a broader focus and track an entire market index, which is a benchmark that tracks a group of stocks.

For example, several ETFs follow the S&P 500, a market index that tracks the 500 largest companies in the U.S. market. Want to learn how to invest in the S&P 500 on Robinhood? Simply find a fund using the search bar, browse the details of the fund, and place an order.

Options

An option is a contract that allows you to buy or sell an investment asset, such as a stock, at a specific price. The vocabulary can be confusing, so here’s a quick guide: stocks that let you buy are called “call” options, while those that let you sell are “put” options. The cost of an option is the “premium,” or the assessed value of buying or selling outside the market price.

You can exercise your right to buy any time before the contract expires, but you’d usually only do so if the value exceeds the purchase price. If it doesn’t get there, the option expires worthless.

Portfolio Management Strategies

Using Robinhood allows you to build hands-on portfolio management experience. You can track your stocks’ performance and learn investing best practices.

Risk Assessment

All investing involves risk. An asset’s value could drop below what you paid, and you never know if it will recover. To minimize your risk, research a company before you invest. Evaluate its performance and financials, focusing on whether it shows signs of growth. Your predictions could be wrong, so only invest money you can afford to lose.

Diversification

Investing in different markets, asset types, and industries can help control your losses. Stock values often fluctuate by category, with one market or stock type dropping while another rises. A diversified portfolio can better weather those fluctuations, though losses will still happen.

Tips for Effective Use of the Robinhood App

If you’re new to investing on Robinhood, follow these two tips as you get started.

Build Watchlists

With watchlists, Robinhood makes it easy to track stocks, ETFs, and cryptocurrencies. You can create one list or make custom watchlists based on your strategy. For example, if you want to invest in a specific industry, you can follow a few stocks and use their performance to help you decide.

Set Up Notifications

Robinhood can send you personalized messages related to your holdings. Allowing notifications keeps you updated with your investments and makes it easy to take action.

Costs Associated with Trading on Robinhood

Robinhood Financial offers commission-free trading, so you’ll never have to pay a broker on the platform. However, specific actions incur fees, such as contract fees for trading options.

Learn If Robinhood Is Right for You

With these basics of how to invest on Robinhood for beginners, you can decide whether it will work for you. With MoneyAtlas, you have expert tools to compare financial products like investments, bank accounts, loans, and credit cards. Check out our Robinhood review to learn more about the platform.