This week’s question is all about a brokerage app (trading app) and why it’s not on my recommended page.
We have a website TradersFly.com, and there are some recommended resources and this one’s not listed there.
And you might wonder why.
I’m going to answer this question for you and maybe give you some thoughts and takes. It’s all about the Robinhood app.
Here’s the question:
“Hi, Sasha, my name is George. I live in Connecticut, and I have been following you for some time. I want to thank you for all your videos and everything that you do for free on YouTube. Thank you!
My question is about a trading broker. I choose RobinHood, and I noticed that on your website, you have some recommendations, and RobinHood is not on the list.
Well, why you do or you do not recommend RobinHood? I find it useful because there are no trading fees. I can buy one or two stocks if I am trying out something and not be worried about how much I’m going to lose on trading fees alone.
I do understand that it is slightly slower, and there is not much support system. However, I am just wondering if we could use RobinHood for trading and use some other platform for research. I would like to know if you have any specific thoughts on this.
Thank you very much again!”
Let’s cut to the chase.
Most of the people that I deal with they trade pretty actively. And different brokers fit different people. It’s like you might like pasta. I might like sushi, and another person might like burgers. Everybody has their tastes and pick.
A lot of people negate certain brokers because of the fees. But remember this is how a lot of brokers make money is through the fees. One of the reasons RobinHood is very successful is they’ve taken the fees out of the equation.
Imagine going to a restaurant, and they give you a free burger. You get free burgers anytime you come in. But there’s a catch – you have to wash dishes for an hour every time you come.
This is what they’ve done, but it’s underneath the surface that most people are not aware of. And it’s one of the reasons why it’s not on my recommended list.
They go under the surface of what most people are aware of because they don’t understand the topic.
I’m not saying it’s a bad thing. I’m just saying most people are not aware of. There’s still a fine broker good to execute the trades; there’s nothing wrong with them in that respect. But most people don’t understand why they are attracted to these fees.
My audience, the majority of the people, are active traders. And I think that because I focus on active traders, this is why I don’t recommend Robinhood. You have to trade on the phone. That’s one thing that stinks. But you have to understand where does the money comes from.
Let me dig deeper into this. Here’s Robinhood if you’ve never heard of them.
Invest Commission-Free – you don’t have to pay fees specifically on the trades that you put on. Let’s say $5 a trade, $1 trade, $10 a trade. You don’t have to do that.
You could trade:
- Stocks
- ETFs
- Options
- Cryptocurrencies
A lot of great things, but it’s all on your phone. That’s one thing that’s tough for active traders. If you’re trading a large portfolio and if you’re trading a lot of different trades, managing it on your phone sometimes it’s just worth the cost alone for the fees.
I’ll show you what most people don’t understand, and this is where I’m going to put some light on for you.
The reason people get into this is that its Commission-free. I will tell you a lot of this is underneath the surface that you’re not aware of. And this is what you have to understand.
You can read it in their disclaimers. And most people don’t read these things.
These things will change from time to time.
When it first came out, this is why I didn’t switch to the platform.
I’m thinking of a commission-free. That’s fantastic. I could make a hundred million trades, and it’s perfectly free? No, no, no. There’s always a catch. Nothing’s free in this world – you have to remember this.
From the money that you don’t use, they make money from that interest. It’s like a bank. That’s where they make their money. They reinvest it, and they make money from that. That’s one thing.
They make money from premium accounts. Allows extra margin, thousand of margin, allowing them to trade with more money. A lot of other brokers, you don’t have to worry too much about these kinds of margin fees. It’s a lot better than the RobinHood.
The next thing is the margin rate; I don’t find it as good. People pay a more premium for that. Another thing is high-frequency trading and order flow.
Here I’m just shining some light. I’m not saying it’s a bad thing. I’m just saying this is how the world works.
You want to make a trade. In most brokerage platforms, you can route it through the best exchange. Or you can choose other exchanges.
Here’re exchanges 1, 2, and 3.
Some of them have better rates.
If you’re putting a trade on Apple and right now, you see the price at 204.56. That might be the best price you can get through the best exchange.
Well, what’s the best one? We’ll route it through this one.
Then you’ll get this 204.56. At exchange 3, this might be 204.75. And at exchange 1, this might be 204.62.
You can see, while the best trade was 204.56. That’s what you got it at. That’s what you’re seeing. That’s the price.
Well, when you route a trade, they got this partnership with this exchange.
Even though you’re thinking you’re saving $3 on a $20,000 trade when you’re trading stock, you’re worried about it $3. If you’re putting 300 shares, for every share, you might be paying 70 cents more or 20 cents more. That’s because this is their partner.
They’re going through their partner. And they can jack up your price. I’m not saying they do it all the time. Sometimes you might get the best rate. I’m just saying this is what’s in their Terms of Service. This is what you’re signing up for.
It might be instead of 204.56, and you’re paying maybe 204.72. It might not be the worst, but it might not be the best.
That’s what people don’t understand. The fees are there to be able to keep someone in the business. And people don’t understand that you negate these fees, that’s fine. But you’re paying more on the back end. And that’s what you have to understand with Robinhood.
They have to make money. That’s business. That’s America, and that’s capitalism. That’s in general how the world works.
They make money in all sorts of ways, which is fine. They need to make money to stay in business. But for our community as active traders a lot of them, it’s challenging to trade on the phone. That’s one thing. It’s nice to have a trading platform.
You can:
- order entry very quick
- split it up amongst multiple monitors
- get in and out of trades
- call for support and help if you need
There’s a lot of customization that you can do to make trading a lot better for you.
You’re aware of the fees that most brokers put on their website initially they’re starting fees. If you’re trading more actively, you can call and renegotiate those rates.
You might see a $15 per trade fee. Well, if you’re an active trader, they’ll give it to you for way less depending on how many trades you do. And if you have a track history, they negotiate those rates. That’s the world we live in.
The more business you can bring them, the better the rate. It’s just like if you’re buying business cards. If you buy one business card, you’re going to pay a premium for one business card to print it out. But if you buy a stack of 500, you get a better deal.
If you buy a stack of a thousand on a per business card rate, you’ll get a better deal.
I’m not saying that Robinhood is bad. I’m just saying the reason most people go with it, don’t align with their full understanding. If you’re going with Robinhood, I think it’s okay and good and great for somebody that’s putting on trade here and there.
Maybe you’re trading a couple of times a month. There’s nothing wrong with that. But understand where your money is going through and understand how do they make their money. That way, you can be sure that your orders are processed in the right way that you’re getting the most bang for your buck.
Pro Tip: Use the platform and understand where the money is going rather than being blindsided, and attracted to the no fees.
That’s my take on it. I think it’s great and fine if you’re a light trader.
Here’s a platform called Tastyworks.
It’s not that I get any commission for you signing up because I don’t think they have an affiliate program yet.
Look at these: Closing trades – $0.00
If you go into the pricing, let’s see.
Options on stocks is $1 opening trade. Stocks $5 – unlimited shares. Closing trade $0.00.
Think about that. The fees these days are minimal, and here you get a way better platform. There’re other trading platforms that you can go with. I’m just saying that you need to learn and understand what you’re getting yourself into. Read the fine print.
And that way, if there are better tools out there for you, use them. If you like Robinhood, use it. If you like a different platform, use it. And don’t be scared to call in and see if you can get a better rate.
You can get a better rate with a lot of those brokers as long as you can show the activity.
Remember, they have to pay fees to do your order and route it through the exchange.
And Robin Hood is no different. They have to make money somewhere.
