The goal of every investor is to make money trading stocks or other financial instruments. However, as a beginner, you may not have access to investing tools, and if you happen to find an investment platform, you’ll have to part with a commission while trading. Robinhood is one platform that seeks to ensure everyone has access to investing tools and can trade without worrying about commission charges. But can you become a millionaire trading on Robinhood?
Most people trading on Robinhood will not become millionaires. Robinhood is a basic trading platform designed for beginners and lacks sophisticated trading tools. Hence, most of its user base comprises beginner investors, for whom the odds of making a million are relatively slim.
How rich you become on Robinhood will depend on you. Read on to learn more about what Robinhood is and how it works. Further in this article, we also discuss several ways in which you can increase your odds of making money on Robinhood, and perhaps even becoming a millionaire in the process.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
What Is Robinhood?
Robinhood is a brokerage firm established in 2013 that serves clients in the U.S. The firm has an investment trading app that allows investors to trade options, stocks, exchange-traded funds (ETFs), and cryptocurrency without parting with any fees or commissions. The platform provides both mobile and web trading platforms.
One thing to note is that Robinhood is not a full-service broker, which means it may lack in certain areas. The low cost of trade makes Robinhood ideal for traders looking for a new broker. The firm is not listed on any stock exchange and is a private company.
How Does Robinhood Work?
You’ll need to set up an account to start using the Robinhood app. The process takes about four minutes. What is required is a smartphone, bank information, and a social security number.
The sign-up process starts on Robinhood’s sign-up page, where you’re required to fill in a form with your details. You’ll need to choose whether you’re using an IOS or Android phone. The next step involves entering your contact information, which includes a contact number and address.
Verify your identity, and apply after reading the terms and conditions. You’ll get an email notification once your application has been accepted. At that stage, you should transfer funds into your account to start trading. You can download the Robinhood app on Play Store or Apple Store.
Robinhood works even if you don’t have money to fund a large trading account. There isn’t a minimum investment requirement, which means you can start investing immediately. The platform has its in-house clearing system that eliminates the service’s account fees, making it a 100% free trading platform.
You Can Still Make Money on Robinhood
It’s difficult to determine if one can become a millionaire on Robinhood, but you can definitely make good money on Robinhood. The platform provides commission-free ETF, crypto, options, and stock trading features that reduce the need for an investor to open multiple trading accounts. Along with that, you also get a streamlined platform that is simple to use and navigate.
You can make money with Robinhood, provided you get the trading skills and understand how the stock market works. The way most beginners accumulate wealth in financial markets is by avoiding to be stock pickers and instead focusing on building a diversified portfolio of bonds or stocks; oftentimes, leveraging an exchange-traded fund or an index fund.
It’s essential to understand that even long-term investing has risks, which is why you need to have enough savings before investing. Ensure that any money you spend is money you can part with and ensure that not all your savings are invested.
How Does One Make Money With Robinhood?
There are two ways in which you can make money by investing in the stock market and other financial instruments on Robinhood. These include asset appreciation and dividends.
Asset Appreciation
You can make money through asset appreciation, which entails buying low and selling high. However, this method of making money is not as simple as it sounds. You need to use facts and stop depending on emotions when making trading decisions.
Successful Robinhood investors do their research to determine when the stock is at a low-range price per share. Remember that the platform offers stop orders, market orders, stop-limit orders, and also limits orders. You can leverage all these order types to better define your trade entries and exits.
Robinhood also lists some of the top companies and the potential payoffs they may achieve in a specific time frame. These analyst ratings can help you buy low and sell stocks at a higher price than what you paid for previously.
A good example is if you buy a stock for $100, later in a year it moves to $250 per share, your capital gain from asset appreciation will be $150 per share.
Dividends
Dividends are the profits distributed by a corporation to its shareholders. You get dividends when a company or corporation earns a profit/surplus and decides to distribute a part of this earned profit among shareholders.
You can pick any corporation based on its performance, expansion over the years, or maybe you’ve got a tip on how the company will perform over the next few months. It’s essential to do your homework before buying shares in a company.
Take time to understand how the company has performed historically to avoid purchase stock you are not knowledgeable about. You can read a company’s annual reports that are available on websites. Focus on metrics like price-to-earnings ratio, revenue, net income, and earnings per share.
After settling on the stocks you’d like to buy, you can add them to your portfolio via Robinhood’s mobile app or site.
One thing to note is that dividends are paid out when a corporation decides to share its profits with the shareholders instead of reinvesting it into the business. You will get dividends depending on the stock price percentage, also known as the dividend yield.
You can make money with the Robinhood platform by having stocks that pay out dividends. There’s an option of reinvesting the profits back and getting extra shares with the dividend reinvestment feature. When you reinvest dividends, you, in a way, get to earn compound interest.
Who Is Best Suited for Robinhood?
Robinhood best works for:
- New Investors – Beginner investors will find the interface simple to use. The platform doesn’t have a minimum commitment for you to start investing. Newbies have the opportunity to try out the venue before making any investment.
- Margin Traders – Robinhood provides the Robinhood Gold option for those interested in margin trading. This platform gives you access to $5,000-$50,000 based on the account balance you have when depositing into your account. You get to pay 5% yearly interest on amounts over $1,000 if you use more than $1,000 of margin.
- Market Researchers – Robinhood allows you to learn as you invest. Some tools will enable you to understand the stock market and how different investments work.
Who Isn’t Suited for Robinhood?
Robinhood may disappoint you if you are:
- A Retirement Saver – If you’re planning to have an investment account, particularly for retirement savings, you may want to look elsewhere. The platform doesn’t have retirement savings options.
- Mutual Funds and Bond Investors – While you can invest in cryptocurrencies on Robinhood, you can’t use the platform to invest in bonds or mutual funds. You’ll need to look for another platform that provides mutual funds and bond investment.
- Advanced Technical Traders – Robinhood provides traders with an easy to interpret and simple to use trading platform. While the platform fits the needs of most beginners and fundamental traders, advanced technical traders would find it too basic for their needs. Hence, if you are one of the more advanced traders, you’ll be better off choosing a different investment platform.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Robinhood is a stock trading platform. Whether or not you become a millionaire will depend on you and your investing/trading strategy. The platform provides commission-free trades and is perfect for beginner investors with little cash. However, if you need something more robust, you may want to open a brokerage account with a mainstream brokerage where you get full service.
Robinhood is not a guaranteed place to become a millionaire, but it’s an excellent platform to grow your wealth over the long run.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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