Robinhood: Heroic pricing but an ISA is sorely needed

With Robinhood, you can cheaply trade US stocks, and you can only do it through a general trading account at the moment, as there’s no ISA.

That means, you’re best suited to Robinhood if you’re looking to trade US stocks and you’ve already used up your annual ISA allowance with accompanying tax-free benefits with a different platform.

Although there are no ready-made portfolios on offer, so you’ll need to be happy creating your own investment strategy, Robinhood is a platform that’s designed to suit beginners.

That said, there’s no reason you couldn’t take advantage of the near-non-existent fees as a more experienced trader too.

Account types

Robinhood only offers customers a general trading account. That’s a real shame as no stocks and shares ISA means no access to its tax benefits. All income and gains achieved inside an ISA are exempt from tax. With a general trading account, you don’t get these benefits, which is why general trading accounts are something we usually only suggest you use when you’ve maxed out your annual ISA allowance (£20,000 for tax year 2024/25).

There is also no personal pension. Robinhood may expand its proposition over time but for now, it’s a general trading account or nothing.

Assets

Also limited, is the asset choice. Robinhood only offers US stocks.

There are roughly 6,000 stocks to choose from, so a pretty good selection, covering the stocks most people are interested in. You can also trade Fractional shares are portions of shares (or ETFs) that are smaller than one whole share. They are designed to make ownership of large, expensive shares more accessible. fractional shares – a bonus if you’re a smaller-scale or a new investor wanting to test the water.

Margin investing

Robinhood offers [sc_Margin investing word=”margin investing”]. This gives customers increased buying power based on the value of assets in their investment account, which serves as collateral. Historically, UK retail investors have had challenges accessing features like margin investing as traditional brokerage firms often impose high fees or reserve competitive rates for those with the largest portfolios of wealth. Robinhood has set out to provide margin with more competitive rates:

6.25% for up to $50K
6.05% starting at $50K and up to $100K
5.75% starting at $100K and up to $1M
5.50% starting at $1M and up to $10M
5.45% starting at $10M and up to $50M
5.20% starting at and above $50M

You’ll need to apply and be approved by Robinhood to open a margin account, as per FCA rules about the appropriateness of these accounts for customers. That’s because trading with margin comes with additional, very high risks, including the risk of owing far more than your original trade was worth if it does not return a profit.

Looking at the list of all the fees you DON’T have to pay with Robinhood could leave you thinking this platform is too good to be true. There’s:

• No commission to pay
• No FX fees on trades
• No account or subscription fees
• No withdrawal fees

The “zero FX fees” claim feels a little misleading as while there are no FX fees to pay when you make a trade, that’s because you’ve already paid for currency conversion when you deposit or withdraw funds. All Robinhood accounts must be funded with US dollars, so you’ll need to pay to convert your sterling up front. However, the rate Robinhood charges for this service (or to be exact, the third party they use to carry out this service for their customers) is very, very low. Just 0.03%. To put into perspective just how bargain-level-low that is, take a look at this chart:

Robinhood is cheaper than even Trading 212 and equally as cheap as Interactive Brokers.

And if you want to get a sense of just what a difference the lack of FX fees makes on trading costs, take a look at this comparison:

The crazy low rates for exchanging currency, in addition to zero commission, makes Robinhood a bit of a no-brainer for US stock trading, if you can get over the lack of an ISA.

It does of course beg the question, where is Robinhood making money then? Because trading platforms must make money somehow.

Well, Robinhood somewhat recoups that lost FX income by offering [sc_Margin investing word=”margin investing”] with leverage for those clients who meet the criteria to trade in this way. Trading with leverage can magnify your losses and you’ll need to repay, not just your margin loan, but also the interest charges accrued on it. However, if you stick to trading without leverage, you’re getting unbelievably low cost trading without the additional, higher risks.

Robinhood also offers an excellent rate of interest on uninvested cash; currently, 4.75% AER, so it’s also a great place to hold your money in between trades.

Have a question about Robinhood that we haven’t covered? Ask it here and we will get back to you as soon as possible!