If you are a current user you may not like that I suggest that you should stop using Robinhood. In this post, I hope to encourage you to do your own homework and take this post as a starting point to research if you should continue with Robinhood. I want to save you a lot of heartache and agravation down the road.
Since its inception in 2013, Robinhood became one of the most popular ways for beginner investors to get their feet wet with investing in the stock market. Robinhood made it possible for those without millions of dollars and financial institutions backing them to get involved in trading and to potentially make a profit while doing so.
Many of these new investors were teens and young adults that were drawn in from the friendly user interface of Robinhood and the fact that they offered a zero-commission trade structure. To complete with Robinhood all of the brokers we discuss in this post have followed suit and now offer zero-commission trades.
However, now is the time to stop using Robinhood. It has some major shortcomings that any beginner investor should be aware of before signing up for an account. The biggest issue is that it is very hard to get someone on the phone if you have issues or want to move your account. Many financial advisors have complained that it takes a long time to move an account from Robinhood and the process can be difficult for most investors.
Another big shortcoming of Robinhood is its lack of research tools. Their research tools are very lacking compared to bigger brokers. Below I share some other broker options and discuss research tools the other companies offer. Research tools are important to be sure you are making the best decisions with your investments.
One of the biggest concerns with Robinhood is its network and account safety. During the Covid shutdown, they had issues dealing with trade volume and trades were delayed. Also, at times their network went down, and customers could not access their accounts or make trades.
Finally, they do what is called Payment for Order Flow (PFOF). They make money by allowing speed traders to use your orders to make additional money. This is a controversial but common practice. It is Robinhood’s biggest source of income. The result to you is that you do not get the best possible price with your orders.
Some additional drawbacks of using Robinhood include:
- Limited educational resources
- No transparency on payments for order flow
- Limited offerings
- No retirement accounts
- No mutual funds or bonds
- Selling of investor data
What Are the Other Options?
While Robinhood clearly has a stronghold on a large segment of beginner investors, they are certainly not the only game in town. The top competitors of Robinhood are:
- Fidelity
- Schwab
- TD Ameritrade
- TastyWorks
Our goal was to find the best brokerage to use besides Robinhood. We decided to compare these different brokers to determine which is the best, and why you should use them over Robinhood.
Features
While Robinhood is known for its app interface and easy-to-execute trades, the features are fairly limited. Read on to find out the best features of the other leading trading platforms.
Fidelity: Fidelity is known for its mutual funds, many of which have no expense ratios or minimum investment requirements. Another top feature of Fidelity Investments is the range of offerings that are available to investors.
They offer short sales, bonds, Robo-advisory, fractional shares, and Forex trading options. They also use a proprietary system that finds the best available prices for its investors.
Schwab: Schwab positions itself as a traditional brokerage that has many different account types and various asset classes to invest in. They provide the traditional investing experience and can provide in-person advice if requested.
Schwab provides excellent stock research and a range of trading tools to give experienced investors and new investors plenty of tools at their disposal. They also offer over 10,000 mutual funds while Robinhood offers zero.
TD Ameritrade: TD Ameritrade started in 1971 and has the backing of many years of trusted investing at their backs. Their top features include a wider variety of products, educational resources, and a more complete trading platform.
Tastyworks: The top features of Tastyworks include a proprietary curve analysis visualization, quick order adjustments, and in-app “trading inspiration” that gives you fresh insight into the Tastyworks platform and gives you a live video stream to watch other traders tackle the market in real-time.
Tastyworks also caters to options traders specifically and is one of the top choices for anyone who is heavily involved in options trading.
Difficulty to learn
Fidelity: The Fidelity platform is highly customizable and there are plenty of educational resources that are available to investors to ensure that they get the most out of their trading experience. While Robinhood is a mobile-first trading platform, Fidelity has a mobile and desktop trading experience that Robinhood simply cannot compete with.
Opening a brokerage account is very simple with Fidelity and navigating the app on mobile and desktop is seamless. Once you are acclimated with the different sub-menus with Fidelity’s interface, you will find that the usability and ease of use are unrivaled.
Schwab: Schwab caters to new investors with a range of online and in-person resources that they offer to their customers. They give investors access to videos, educational resources, and in-person advice to anyone who requests their help.
Schwab’s interface is very user-friendly and comes with above-average capabilities with Schwab Mobile and StreetSmart Mobile applications.
TD Ameritrade: The TD Ameritrade website is clean and easy to navigate. Right on the home page, you will find educational content, including articles, webinars, and videos. You can also customize your experience within the website to make it personalized to your unique preferences.
Tastyworks: Tastyworks has a fully-customizable trading experience where you can stream quotes in real-time across multiple platforms. Their advanced tools are very easy to pick up and beginners will find their interface very intuitive, especially if you plan on trading options.
Costs
Fidelity: One of the many benefits to using Fidelity is that they offer a zero commission trading structure for stocks, ETFs, and options contracts. They do not charge any fees for opening an account or for account inactivity.
Fidelity’s fees are transparent, as their margin interest is 8.325% for a $10,000 account balance and 6.825% at a $100,000 balance. While their fee structure may be somewhat comparable to Robinhood, Fidelity has a better offering and is much more transparent with their fees.
Schwab: Robinhood has pushed many traditional investment brokers like Schwab to adopt commission-free stock, options, and ETF trades, which is a major benefit of using Charles Schwab as your broker.
However, they did increase their OTC trade fees to $6.95 per trade in December 2021. If you are looking to invest in penny stocks, Schwab may not be the best option for you. Schwab also has a margin rate of 8.33% for assets under $10,000.
TD Ameritrade: Robinhood and TD Ameritrade are just about level from a fee standpoint. TD Ameritrade does have a $0.65 per contract option fee and $2.25 per futures contract. If you trade a lot of options, Robinhood might be the better option. Otherwise, they are equal when it comes to fees.
Tastyworks: Tastyworks customers also enjoy zero-commission trading, but they shine when it comes to how options are priced. Their base fee is $1 and capped at $10 per leg, and there is no charge to close any options positions. This positions them as the most cost-effective choice in the market for options traders.
Initial Deposit Requirements
Fidelity: For those that are trading or investing in smaller amounts, Fidelity is a great option to start your investment journey. There are no minimum deposit requirements to join Fidelity Investments, which means you can get started with as little or as much as you would like.
While there are no deposit fees or requirements for Fidelity brokerage accounts, there is a minimum of $2,000 required for margin accounts to get started.
Schwab: Schwab also shines with no initial deposit requirements and no-account minimum standards that investors must abide by. This makes Schwab another great option for beginner investors that want the experience of a traditional brokerage.
TD Ameritrade: Like most of the top options you have for online brokerages, there are no initial deposit requirements with TD Ameritrade. However, you do need at least $2,000 in your account to use margin.
Tastyworks: Tastyworks also has no deposit fees and zero initial deposit requirements. However, investors must only use bank transfers and withdrawals which can be expensive, especially for non-US clients.
The Bottom Line
While Robinhood pioneered the zero-commission trade structure that many online brokers have adopted today, they fall short in many other categories and simply cannot live up to the brand loyalty and trustworthiness of the other brokers that we discussed.
Our picks are Schwab and Fidelity Investments due to their ease of use, accessibility, cost structure, product offerings, and deposit requirements. If you plan on trading options frequently, you will want to check out TastyWorks as they are a good option for you. However, all the brokerages allow for selling options and do have fairly good trading tools.
I have been using Schwab for over 20 years and have had a great relationship with them. I have always been able to get answers quickly and even have an office nearby if I want to talk to someone in person. They also have a price improvement feature with their trading. Nearly 50% of my trades have had improvements. In short, if you do a market trade they will guarantee the price you see and do better if they can. This has allowed me to do passive trading. Below you will find a YouTube video I did where I talk about why I choose Charles Schwab.
I am a fan of Clark Howard. He has a great article on Robinhood and goes into more details about the Pros and Cons of using it. Here is the link: Clark Howard Robinhood Review.
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