How to Make Money with Robinhood Stocks: A Beginner's Guide

The world of investing has been transformed by the rise of user-friendly platforms like Robinhood, making it easier than ever for beginners to enter the stock market. Robinhood stocks have gained popularity among novice investors due to their accessibility and commission-free trading. This innovative app has opened doors for many to start building wealth through long-term investing and exploring various financial instruments such as ETFs, cryptocurrencies, and options trading.

This guide will walk readers through the essentials of using Robinhood to make money in the stock market. It will cover topics such as setting up an account, understanding the platform’s features, researching stocks, making initial investments, and implementing effective trading strategies. Additionally, it will provide insights on monitoring and optimizing a portfolio, discussing important concepts like diversification, dividend-paying stocks, and tax-advantaged investing. By the end, readers will have a solid foundation to begin their journey in the world of Robinhood stocks and potentially grow their wealth over time.

Why Choose Robinhood for Investing

Robinhood has gained popularity among novice investors for its innovative approach to stock trading. The platform offers several advantages that make it an attractive choice for those looking to enter the world of investing.

Commission-Free Trading

One of the most compelling reasons to choose Robinhood is its commission-free trading model. Investors can buy and sell stocks, options, and cryptocurrencies without incurring any fees ^[1]. This approach has revolutionized the brokerage industry, prompting many other firms to follow suit and eliminate trading fees. By removing this financial barrier, Robinhood has made investing more accessible to a wider audience, especially those just starting their investment journey.

User-Friendly Interface

Robinhood’s intuitive and visually appealing interface sets it apart from traditional trading platforms. The app’s design incorporates clever visual cues to enhance the user experience:

Color-coded market status: The app’s background is white when the market is open and black when it’s closed, providing an instant visual indicator of trading hours ^[2].
Performance visualization: Green and red colors are used to represent gains and losses, respectively, making it easy for users to quickly assess their portfolio’s performance ^[2].
Real-time updates: The main screen displays the current balance, which updates every few seconds, allowing users to monitor their investments in real-time ^[3].
Portfolio breakdown: The app offers an easy-to-understand breakdown of asset allocation, showing the percentage of investments in stocks, cryptocurrencies, and various sectors ^[3].

These design elements make it simpler for newcomers to navigate the complexities of stock trading and understand their investment positions at a glance.

Fractional Shares

Robinhood’s fractional shares feature is a game-changer for investors with limited capital. This innovative offering allows users to invest in high-priced stocks and ETFs with as little as $1 ^[4]. Here’s how it works:

Minimum investment: Users can purchase fractional shares of stocks worth over $1 per share and with a market capitalization exceeding $25 million ^[5].
Flexibility: Investors can buy as little as 0.000001 shares, providing unparalleled flexibility in portfolio construction ^[4].
Dollar-based investing: Users can place orders in dollar amounts, allowing them to invest specific amounts rather than being limited by whole share prices ^[4].
Diversification: Fractional shares enable investors to spread their capital across a wider range of stocks, potentially reducing risk ^[4].
Dividend benefits: Fractional shareholders receive proportional dividends, rounded to the nearest penny ^[5].

This feature democratizes access to expensive stocks that might otherwise be out of reach for many investors, allowing them to build diverse portfolios with limited funds.

Additional benefits of choosing Robinhood include:

No account minimums: There are no minimum requirements to open an account or start investing ^[1].
Access to IPOs: Robinhood allows users to request shares from investment banks at the IPO price before they’re available to the general public ^[1].
Cryptocurrency trading: The platform offers seven types of cryptocurrencies for trading ^[1].
Educational resources: Robinhood provides various tools and information to help users learn about investing and make informed decisions.

By combining these features with its user-friendly interface and commission-free model, Robinhood has created an appealing platform for both novice and experienced investors. However, it’s important to note that while Robinhood simplifies the investing process, users should still approach trading with caution and conduct thorough research before making investment decisions.

Creating and Setting Up Your Account

Registration Process

To begin investing with Robinhood, users need to create an account through the mobile app or website. The registration process is straightforward and requires several key pieces of information ^[6]:

Email address and password
Legal name (as it appears on government ID)
Phone number
Date of birth
Residential address
Citizenship status

After providing this basic information, users will need to verify their identity by supplying their Social Security number ^[6]. It’s important to note that while some may be hesitant to provide this information, Robinhood uses encryption to protect sensitive data during transmission ^[6].

Identity Verification

Robinhood employs various methods to verify a user’s identity and ensure account security:

Two-Factor Authentication (2FA): This adds an extra layer of protection by requiring two sources of verification: a password and a one-time code or device approval request ^[7].
Strong Passwords: Users are encouraged to create strong, unique passwords for their Robinhood accounts ^[7].
Device Monitoring: Robinhood allows users to view and manage devices used to log into their accounts ^[7].
SIM Swapping Protection: Users are advised to work with their phone carriers to set up additional security measures against SIM swapping attacks ^[7].

If users encounter issues during the verification process, Robinhood offers troubleshooting options for different verification methods, including text message (SMS), authenticator app, and device approval ^[8].

Linking Your Bank Account

To fund a Robinhood account, users need to link a bank account. Here’s how to do it:

Choose a Checking Account: It’s recommended to link a checking account rather than a savings account to avoid potential transfer reversals ^[9].
Use Plaid: Robinhood uses Plaid to securely link bank accounts. Users can search for their bank and log in through the Plaid interface ^[10].
Manual Verification: If a bank isn’t listed, users can verify their account manually using microdeposits ^[9].
Funding Limits: Users can fund their account with as little as $1. Robinhood offers Instant Deposits of up to $1,000 for immediate use ^[6].
Account Types: Only individual or joint bank accounts can be linked. Trust or business accounts are not currently supported ^[9].

It’s worth noting that Robinhood limits the number of bank accounts that can be linked to a single Robinhood account for security purposes ^[9].

By following these steps, users can successfully create and set up their Robinhood account, verify their identity, and link their bank account to start investing. Remember to always prioritize account security by using strong passwords, enabling 2FA, and regularly monitoring account activity.

Understanding Robinhood’s Features

Robinhood offers a range of features designed to enhance the investing experience for its users. From quick access to funds to premium services and cash management options, these features cater to various investor needs.

Instant Deposits

Robinhood’s Instant Deposits feature allows users to access their funds quickly, enabling them to act on investment opportunities without delay. This feature is particularly useful for those who want to react swiftly to market changes or take advantage of timely investment prospects.

For standard Robinhood accounts, users can enjoy instant access to up to $1,000 of their deposited funds. However, Robinhood Gold members receive a significant upgrade to this feature, with instant access to up to $50,000 per day ^[11]. This enhanced access can be particularly beneficial for more active traders or those dealing with larger investment amounts.

Robinhood Gold

Robinhood Gold is a premium subscription service that offers a suite of advanced features and benefits for more serious investors. For a monthly or annual fee, Gold members gain access to several exclusive perks:

Higher Interest on Uninvested Cash: Gold members earn a competitive 5% annual percentage yield (APY) on uninvested brokerage cash through the cash sweep program, compared to 0.01% for non-Gold members ^[12].
Professional Research: Subscribers receive access to in-depth research reports from Morningstar, a respected financial services firm ^[12].
Level II Market Data: Gold members can view real-time bid and ask data from Nasdaq, providing deeper insights into market dynamics ^[12].
Margin Investing: The first $1,000 of margin borrowed is interest-free for Gold members. Beyond that, variable margin rates apply based on the settled margin balance ^[12].
Bigger Instant Deposits: As mentioned earlier, Gold members can access up to $50,000 in instant deposits daily ^[11].
IRA Matching: Gold members are eligible for a 3% IRA match on eligible contributions to their Robinhood IRA ^[12].
Deposit Boost: Members receive a 1% boost on new, eligible deposits ^[12].
Robinhood Gold Card: Exclusive to Gold members, this credit card offers 3% cash back on purchases ^[11].

Robinhood offers a 30-day free trial for new Gold subscribers, allowing users to explore these premium features before committing to a paid subscription ^[12].

Cash Management

Robinhood’s Cash Management feature provides users with additional options for managing their uninvested funds. This feature functions similarly to a checking or savings account, offering several benefits:

Competitive Interest Rate: Users can earn a solid 1.50% annual percentage yield (APY) on their uninvested cash ^[13]. This rate rivals some high-yield online savings accounts, providing an opportunity for users to earn returns on idle funds.
FDIC Insurance: Although not a bank account itself, Robinhood partners with banks to provide FDIC insurance protection for customer funds. The cash is swept to partner banks, extending federal insurance coverage up to $2.5 million ^[11] ^[13].
No Fees or Minimums: There are no maintenance fees or minimum balance requirements associated with the Cash Management feature ^[13].
Debit Card: Users can opt for a Mastercard debit card, issued by Sutton Bank, which is available as both a physical card and a virtual card compatible with popular mobile payment systems ^[13].
ATM Access: Robinhood provides fee-free access to over 75,000 ATMs in the U.S. and more than 15,000 internationally through the Allpoint and MoneyPass networks ^[13].
Funding Options: Users can fund their accounts through bank transfers or by setting up direct deposits of their paychecks ^[13].

It’s important to note that while Robinhood offers these bank-like features, it is not a bank itself. The company partners with various financial institutions to provide these services, ensuring regulatory compliance and customer protection ^[14] ^[15].

By understanding and utilizing these features, Robinhood users can potentially maximize their investing experience, manage their cash more effectively, and access advanced tools to inform their investment decisions.

Researching Stocks on the Platform

Using the Search Function

Robinhood offers a user-friendly interface that allows investors to easily search for and analyze stocks. The platform provides a search function where users can look up specific stocks or explore new investment opportunities. Once a stock is selected, investors can access a wealth of information on the stock’s detail page.

The detail page serves as a comprehensive resource for making informed investment decisions and tracking returns ^[16]. Users can utilize the chart feature to monitor an asset’s value over various time intervals, ranging from 1 day to 5 years. By selecting different increments or specific points on the chart, investors can view price changes and trends over time ^[16].

Analyzing Stock Data

Robinhood provides several tools and metrics to help users analyze stock data effectively:

Financial Ratios: Investors can examine key financial ratios to assess a stock’s performance and valuation:
- Price-to-Earnings (P/E) Ratio: This metric compares a company’s stock price to its earnings, indicating how much investors are paying for each dollar of earnings ^[17].
- Price-to-Sales (P/S) Ratio: This ratio compares a company’s stock price to its revenues, offering insight into its valuation relative to sales ^[17].
- Debt-to-Equity (D/E) Ratio: This measure helps investors evaluate a company’s financial health by comparing its total liabilities to shareholder value ^[17].
Growth Indicators: Users can assess a company’s growth potential by examining:
- Revenue trends: Increasing revenue from year to year generally indicates growth ^[17].
- Net income: Rising net income can be a positive sign of a company’s profitability ^[17].
- Earnings per Share (EPS): A high or increasing EPS may suggest a healthy stock ^[17].
Volatility Measure: The beta metric provides a numerical rating of a stock’s volatility, comparing its fluctuations to broader market movements ^[17].
Return on Equity (ROE): This ratio helps investors evaluate how efficiently a company is using shareholder equity to generate profits ^[17].

Reading News and Reports

Robinhood offers various resources for users to stay informed about their investments:

News Section: The platform provides a section displaying recently published news articles about the company and its stock. Users can select “Show all” to access more articles ^[16].
Analyst Ratings: Investors can view analyst ratings for buy, hold, and sell recommendations, along with the overall percentage and the number of ratings it’s based on. Recent, relevant information from analysts about the company and its stock is also available ^[16].
Earnings Reports: The platform charts quarterly earnings, showing Expected EPS and Actual EPS for stocks. Some stocks may offer the option to replay earnings calls for more detailed information ^[16].
Morningstar Reports: Robinhood Gold members have access to premium, in-depth stock research reports from Morningstar. These reports cover professional analysis and ratings on various aspects of a company, including business strategy, economic moat, fair market value, risk, and leadership ^[18].
Trading Activity: Users can view how fellow Robinhood customers, hedge funds, and company insiders are trading eligible stocks, which can help inform investment strategies ^[16].

By utilizing these features, investors can conduct thorough research on stocks, analyze financial data, and stay updated on market news and expert opinions. However, it’s important to note that while these tools provide valuable information, they should not be the sole basis for investment decisions. Robinhood encourages users to consider their individual financial situation, investment objectives, and risk tolerance before making any investment choices ^[19].

Making Your First Investment

Choosing a Stock or ETF

When making their first investment, investors should carefully consider whether to choose individual stocks or Exchange-Traded Funds (ETFs). ETFs offer a way to invest in multiple assets at once, providing diversification and potentially reducing risk ^[20]. For those new to investing, Robinhood offers a recommendation feature that suggests a portfolio of four ETFs tailored to the investor’s needs based on their answers to a questionnaire ^[20].

To select individual stocks, investors should examine various financial metrics:

Revenue and Net Income: Check if the company is growing by looking at increasing revenue and net income year over year ^[17].
Earnings Per Share (EPS): A high or increasing EPS can indicate a healthy stock ^[17].
Price-to-Earnings (P/E) Ratio: This metric compares a company’s stock price to its earnings, helping investors assess valuation ^[17].
Price-to-Sales (P/S) Ratio: This compares a company’s stock price to its revenues ^[17].
Debt-to-Equity (D/E) Ratio: A D/E ratio of one or lower generally suggests that a company can cover its debts ^[17].
Beta: This numerical rating indicates a stock’s volatility compared to the broader market ^[17].
Return on Equity (ROE): This measure helps investors evaluate how efficiently a company is using shareholder equity to generate profits ^[17].

Investors can find this information in companies’ financial statements, available on the SEC’s EDGAR site or investor relations pages ^[17].

Setting Up a Buy Order

Once an investor has chosen a stock or ETF, they can set up a buy order on Robinhood. The platform offers different order types to suit various investment strategies:

Market Order: This type of order indicates a preference for quick execution relative to price specificity. The investor is willing to accept the next available price, but a specific price isn’t guaranteed ^[21].
Limit Order: With this order type, the investor sets a specific limit price at which they’re willing to buy or sell. For buy orders, the stock is purchased at the limit price or lower ^[22].

It’s important to note that Robinhood defaults to either share-based or dollar-based orders, which can default to market or limit orders depending on the time of day and order side ^[21].

Understanding Order Types

Investors should understand the nuances of different order types to make informed decisions:

Market Orders:
- Execute quickly but don’t guarantee a specific price ^[21].
- Are not supported during extended-hours trading ^[21].
- May result in a different final dollar amount for share-based orders or a different final share amount for dollar-based orders ^[21].
Limit Orders:
- Can only be executed at the specified limit price or better ^[22].
- Aren’t guaranteed to execute if there aren’t enough shares available at the limit price ^[22].
- Allow more control over execution prices ^[22].

For extended-hours trading, Robinhood only supports limit orders ^[22]. The platform sets the limit price at 5% above the last trade price on a Nasdaq exchange for buy orders and 5% below for sell orders ^[22].

It’s crucial to remember that all investing involves risk ^[23]. Options trading, in particular, entails significant risk and may not be appropriate for all customers ^[23]. Investors should carefully read and understand the risks associated with different investment types before making decisions.

Robinhood offers commission-free trading of stocks, ETFs, and options, but other fees may apply ^[23]. The platform supports various order types, including Good-for-Day (GFD) and Good-til-Canceled (GTC) orders for stocks and equities ^[24].

Implementing Effective Trading Strategies

Long-Term Investing

Long-term investing is a strategy that focuses on building wealth over an extended period. This approach is particularly suitable for younger investors who have time on their side. When investing for the long term, individuals can often seek greater risks and rewards, such as investing in stocks, bonds, or real estate ^[25]. The power of compounding plays a crucial role in long-term investing. Unlike simple interest, compounding provides investors with interest on both the principal and any accumulated interest. Over decades, this can make a significant difference in investment growth ^[25].

To construct a balanced portfolio for long-term investing, investors might consider a mixture of higher-risk investments, such as stocks, and lower-risk investments, like bonds. Diversification within asset classes is also important, for example, investing in both smaller and larger companies or across different sectors such as technology and pharmaceuticals ^[25].

Dollar-Cost Averaging

Dollar-cost averaging is an effective strategy for consistent, long-term investing. This approach involves investing a fixed dollar amount into a specific stock, ETF, or index fund at regular intervals, regardless of the asset’s price fluctuations ^[26]. The primary advantage of this strategy is that it removes bias from the investing process and aligns with the adage “time in the market beats timing the market” ^[26].

Robinhood’s automatic investment program facilitates dollar-cost averaging. Investors can set up recurring investments to automatically invest in stocks and ETFs on a schedule of their choosing ^[27]. For example, an investor could set up a recurring investment of $10 every week for a particular stock. If the stock is trading at $40 per share one week, the investor would receive 0.25 shares. If the price drops to $20 the following week, they would receive 0.5 shares, totaling 0.75 shares over the two weeks ^[27].

To implement dollar-cost averaging on Robinhood:

Choose a stock or ETF to invest in regularly.
Click the dropdown in the top right corner and select “recurring investment.”
Set the investment amount and frequency (e.g., every market day, weekly, bi-weekly, or monthly).
Choose the payment method and review the order ^[26].

Recurring investment orders are typically processed between 11 AM ET and market close on the scheduled date. If the scheduled date falls on a non-trading day, the order will be executed on the next trading day ^[27].

Dividend Reinvestment

Dividend reinvestment is another powerful strategy for long-term wealth building. Robinhood offers a Dividend Reinvestment Plan (DRIP) that automatically reinvests cash dividends back into the underlying stock or ETF ^[28]. This feature allows investors to compound their returns by using dividend payments to purchase additional shares or fractional shares of the dividend-paying stock.

To enable dividend reinvestment on Robinhood:

Click on the account icon.
Scroll down to find “Dividend Reinvestment.”
Click “Enable” and follow the prompts to set up DRIP ^[28].

Dividends are typically reinvested during market hours (9:30 AM to 4 PM ET) on the trading day after the dividend pay date ^[29]. It’s important to note that the cutoff to enable or disable dividend reinvestment is 12 AM ET on the day the dividend is scheduled to be paid ^[29].

The impact of dividend reinvestment can be significant over time. For example, a hypothetical investment of $10,000 in TD Bank stock from January 2000 to January 2021 would have grown to $62,000 without dividend reinvestment. However, with dividends reinvested, the same initial investment would have grown to $95,000, demonstrating the power of compounding through dividend reinvestment ^[28].

By implementing these strategies – long-term investing, dollar-cost averaging, and dividend reinvestment – investors can potentially maximize their returns and build wealth over time. However, it’s crucial to remember that all investing involves risk, and investors should carefully consider their financial situation, investment objectives, and risk tolerance before making investment decisions.

Monitoring and Optimizing Your Portfolio

Tracking Performance

Effective portfolio management involves regularly evaluating investment performance. By maintaining a record of their Robinhood stock portfolio history, investors can assess the performance of their investments over various time periods ^[30]. This practice allows them to identify which stocks have performed well and which have underperformed, enabling them to make necessary adjustments to their portfolio.

To track performance effectively, investors should:

Calculate Return on Investment (ROI) for individual stocks and the entire portfolio over different time periods (e.g., monthly, quarterly, annually).
Compare ROI to relevant benchmarks, such as the S&P 500 or industry-specific indices, to assess performance relative to the market ^[30].
Evaluate portfolio volatility by analyzing the standard deviation of returns.
Identify stocks or sectors that contribute significantly to the portfolio’s overall risk ^[30].

Robinhood provides tools to help investors track their performance. Users can utilize the chart feature to monitor an asset’s value over time, ranging from 1 day up to 5-year time intervals ^[16]. For open positions, Robinhood displays information about returns, equity, and portfolio diversity ^[16].

Setting Up Alerts

Price alerts are smart notifications that help investors track price movements for stocks, ETFs, and crypto assets they hold or want to watch ^[31]. Robinhood offers various alert options to keep investors informed about their portfolio:

Price Movement Alerts: Users can set up alerts for 5% (default) or 10% price movements ^[31].
52-Week High/Low Notifications: Investors can enable alerts for when an asset hits its 52-week high or low ^[31].
Custom Price Alerts: Users can set up specific price alerts for individual stocks or ETFs through the app’s chart feature ^[31].

To manage alerts effectively:

Review settings carefully to understand and choose appropriate frequency and threshold limits.
Enable alerts for assets on watchlists, as they are disabled by default ^[31].
Be aware that alert delivery is subject to service availability, app settings, and mobile phone settings ^[31].

Additionally, Robinhood provides notifications and messages with timely, relevant, and actionable information tailored to each account ^[32]. These notifications cover important account updates, messages about holdings, and other critical information ^[32].

Rebalancing Strategies

Rebalancing is an essential investment activity that helps maintain the desired asset allocation in a portfolio. Over time, the percentage of money in each investment category may change, and rebalancing allows investors to reset the portfolio back to their initial preferences ^[33].

To implement effective rebalancing strategies:

Regularly review and update portfolio records, setting reminders for monthly, quarterly, or annual reviews ^[30].
Analyze sector and industry allocation to identify potential overexposure or underexposure to specific sectors ^[30].
Examine the correlation between stocks in the portfolio to understand how they move in relation to one another ^[30].
Utilize spreadsheets or portfolio management software to organize and analyze data more effectively ^[30].

Robinhood offers tools to assist with rebalancing, such as the ability to view buy and sell history for owned securities ^[16]. Investors can also set up recurring investments for stocks or ETFs to maintain their desired allocation over time ^[16].

By consistently monitoring performance, setting up alerts, and implementing rebalancing strategies, investors can optimize their Robinhood portfolio for long-term success. Remember to regularly assess progress, adjust investment strategies as needed, and seek professional advice when necessary ^[30].

Conclusion

Robinhood has caused a revolution in the world of investing, making it easier for beginners to enter the stock market. By offering user-friendly features, commission-free trading, and educational resources, the platform has opened doors for many to start building wealth through long-term investing. From setting up an account to implementing effective trading strategies, this guide has provided a comprehensive overview to help newcomers navigate the Robinhood platform and make informed investment decisions.

To wrap up, successful investing on Robinhood requires ongoing effort to monitor and optimize one’s portfolio. By tracking performance, setting up alerts, and rebalancing regularly, investors can stay on top of their investments and make adjustments as needed. Remember, while Robinhood simplifies the investing process, it’s crucial to approach trading with caution, conduct thorough research, and consider seeking professional advice when necessary. With the right approach and consistent effort, Robinhood can be a powerful tool to grow wealth over time.

FAQs

1. What are the basic ways to earn money using Robinhood for those new to investing?
To make money on Robinhood, beginners can focus on two primary methods:

Capital Gains: This involves buying stocks or other assets and selling them at a price higher than the purchase price.
Dividends: Owning stocks that pay dividends can also generate income. Dividends are payments made by companies to their shareholders from the profits they have earned.

2. Is Robinhood a suitable platform for novice investors?
Yes, Robinhood is considered a suitable platform for novice investors. It features on the list of best brokers for beginners due to its streamlined and easy-to-navigate trading interface. Additionally, it offers very low trading costs, which is a significant advantage for beginners.

3. What are some recommended stocks for beginners to consider buying on Robinhood?
For beginners, some of the most popular stocks on Robinhood include:

Tesla Inc. (TSLA)
Apple Inc. (AAPL)
Nvidia Corp. (NVDA)
Amazon.com Inc. (AMZN)
Ford Motor Co. (F)
Microsoft Corp. (MSFT)
GameStop Corp. (GME)
AMC Entertainment Holdings Inc. (AMC)

4. What is the minimum amount required to start investing with Robinhood?
You can start investing on Robinhood with as little as $1. Setting up your account involves linking a bank account through Plaid, and you can select from a list of financial institutions to fund your account.

References