My Experience with Robinhood Instant thus far:
Disclaimer – I deposited $3,000 to invest on Robinhood Instant.
I have advocated in a previous post for investors with relatively low starting account balances investing and trading using a personal account on Robinhood. Robinhood pioneered the commission free broker market in late 2014/2015. Now in early 2016, the company has offered a new service, Robinhood Instant.
I got early access to the service by referring a few friends. I believe I got three friends to join, and I jumped to the top of the waiting list, which had over 150,000 people in line at my last count. You can refer friends with your own unique url by text, email, Twitter, Facebook, and many other mediums. If you’re still on the waiting list, referring even one friend will get you towards the top. The company will likely release the service in batches to customers until they release to everyone.
I liked Robinhood before, but now I love it. After using Instant for a few days, I’m considering consolidating my personal accounts into Robinhood.
How it Works:
Robinhood Instant has a few major improvements over the first version of Robinhood. By far the main improvement is immediate access to funds after selling an issue. In the past, Robinhood would hold your funds as “uncleared” for 3 days following a sale. If you’ve got a small account, you may have most or all of your balance on a single trade and if so, not having access to the funds after a sale can dampen your ability to enter into a new position quickly.
There is one caveat to this new feature however. It’s not entirely clear yet, but it looks like Robinhood only releases two-thirds of the sale equity back into your account immediately, and the remaining funds are available the next day. This is not a big deal, but it would be nice to know exactly what the policy is. According to customer service, they will be releasing a FAQ on this and other specifics of Robinhood Instant soon.
Another advertised feature is immediate access to $1000 of your deposit amount, with the rest clearing after 4-5 business days. This isn’t exactly an enhancement, as they offered this feature previously. Since I had funds in Robinhood before Instant, this wasn’t noteworthy to me, but it may be to you.
There are also some new features on the user interface, such as a widget on the home page that updates you on trade execution, price watches, and other useful information. Think of it like Facebook or Twitter notifications, right on the home screen of the app.
With these benefits comes opportunity, but you must be careful. Since you can trade quickly with no commissions, it can be tempting to buy and sell more often than you would with a commissioned broker or if your funds were held for days before clearing. Active trading is best suited for experienced investors and traders, and quick access must be weighed equally with smart decision-making.
The balance statement also seemed off at times. On one day in particular, I was sure that I was up on my two positions, but the running P&L statement was incorrect. This is not a huge problem, buy keep this in mind. This is not to say that the total equity value was incorrect, but the daily dollar and percentage gain or loss ticker was wrong. Hopefully this is a minor bug fix that the company will take care of.
Robinhood still has its limitations. As of now, you can only trade on a personal account (no IRAs). There is no margin leverage yet, but the company may offer that in the future. Since Robinhood sells their execution, spreads may not be as tight as you might find with a full service online broker.
A Few Tips for Trading and Investing on Robinhood:
Always use limit orders – This is sage advice for most trades, but it’s especially important on Robinhood since your market orders might not be filled at the same rates you would find elsewhere.
Don’t rely on Robinhood for charting and research – The charts on the app serve their purpose, but they are very limited. The charts are limited in time horizons and don’t have a price axis. Use another free online service for your research and charting. I recommend finance.yahoo.com, finviz.com, freestockcharts.com, and stockfetcher.com.
Don’t let commission free trading affect your overall strategy – If you are an investor, stick with it; if you actively trade, keep your focus on trading. With no commission and access to your funds from sales with no delay, it’s easy to want to buy and sell on a whim. Sometimes paying commission fees forces you to do your due diligence which can be a good thing. So long as you don’t lose sight of this, commission fee trading can add significantly to your bottom line.
FINRA has a regulation that allows you to place no more than three day trades within any 5-day rolling period. A day trade is defined as buying and selling the same security within the same day. If you place four or more day trades within five days, you will be flagged as a pattern trader and need to maintain a $25,000 balance along with other terms. If you cannot meet this burden, your account is suspended for three months.
Robinhood does have a protection feature against this that you can enable. I enabled the feature on my app just to be safe, although I typically don’t get close to four trades within a 5-day period anyway. I recommend you enable this protection as well to protect yourself against falling into this classification.
Robinhood Instant is a huge step in the right direction for commission free trading. Robinhood has brought investing to many young investors who might have avoided it before due to commission fees and complicated interfaces. Hopefully Robinhood will gain a larger investor base, allowing them to expand their services and offer upgrades in the future such as a fully functioning website, margin leverage trading, and other features. For now, I highly recommend using Robinhood as your broker, particularly if you’re starting out with a small account.
Are you excited about Robinhood Instant? Leave a comment below.