This Robinhood Investing Review / Robinhood review is unique from all the other reviews about the Robinhood application / Robinhood trading application.
If you are a beginner in options trading and are looking for the best strategies to earn money using the Robinhood investing app, this blog post is for you.
I am going to share with you two of the BEST strategies that I teach to my students in the options trading education course.
However, if you are a serious and experienced options trader, you may want to read my post about the best online brokerage because, overall, I am not a fan of Robinhood.
Robinhood Investing Review (Key Points)
- Robinhood provides FREE trades but does not allow you to sell naked options with margin
- Students have reported the app automatically closing out your positions without notice
- They have poor customer support & I believe that most of their users lose money
- If you are a beginner, you can visit this Robinhood App Download link and use Robinhood while you learn about options trading
- For experienced options traders, read this post to learn about the best online brokerage
Is the Robinhood Investing App Safe and is Robinhood legit?
Robinhood is definitely safe and legitimate.
The primary reason people use Robinhood is that it provides commission-free trades without any Robinhood hidden fees (except the $75 "hidden" fee to transfer your account to a competing stock brokerage seems a bit ridiculous).
Some of my students are using this app but a few have reported that it automatically closes out their positions without notice (oftentimes for large losses).
Personally, I am not a fan of Robinhood because it does not allow you to sell naked options using margin.
Many RobinHood Gold Reviews claim that Robinhood Gold is slightly better, even so, I'm definitely not a fan.
Regarding how safe is Robinhood investing, traders are not in danger of having their money stolen, however because of the trading restrictions that Robinhood places on its traders, then traders will oftentimes create bad habits that will cost them money in the future.
If you are looking for safer ways to earn money trading, you should sell naked options and vertical credit spreads.
Additionally, I do not believe that Robinhood pays interest on unused cash balances.
Watch the video below to understand more about why selling naked options is the best options trading strategy (although using spreads can also be beneficial during periods of low volatility) and why you'll likely lose money trading options with Robinhood.
So, when asked, "is Robinhood safe?" or, "Is Robinhood legit?" the answer is definitely "YES", although I would not recommend Robinhood to many traders.
Two Effective Ways to Invest With Robinhood
My goal is to share my knowledge in options trading based upon my years of experience as a Wall Street investment banker and as an experienced trader.
I don't want you to lose money using the wrong strategies.
This is also the reason why I said earlier that this Robinhood investing review is different from the other Robinhood reviews.
What is Robinhood investing?
Robinhood is an app that offers commission-free trading.
Is Robinhood investing legit?
Robinhood investing scam? Is that something to be concerned about?
Due to the many restrictions that Robinhood places on its users, I believe that Robinhood encourages its users to establish bad habits (it's much easier to buy options than it is to sell options using Robinhood).
Buying options is similar to buying lottery tickets. It's important to combine long options, short options and stock.
I also believe (although I do not have proof) that the majority of Robinhood's users lose money by trading.
In this Robinhood investing review, we will analyze why, in my opinion, most Robinhood traders lose money.
If you are a novice options trader, then, despite the odds being against you, there are a few ways that you can utilize Robinhood to your benefit.
Overall, Robinhood options trading is very limited.
I am going to share with you two effective ways that will help you earn money. Robinhood investing for beginners, Robinhood investing strategies and beginner options trader will benefit.
Robinhood Investing Tips
Tip 1: How to Use the Robinhood Application to Make Money
The first strategy will be selling vertical credit spreads.
I have already mentioned in this Robinhood investing review that selling vertical credit spreads can be more risky than selling naked options.
However, because the Robinhood application is designed for selling vertical credit spreads, we will discuss the right way to sell a spread.
In general, I prefer to sell naked options because they provide more flexibility.
However, for expensive stocks, it makes sense to use spreads.
For example, I usually always have an open Amazon position where I'm selling a vertical credit spread.
Remember: If you have a small account, you should primarily focus on having five securities on your watch list.
You should also have only one or two open positions at a time.
"If you have a small account, you should primarily focus on having five securities on your watch list. You should also have only one or two open position at any time."
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For example:
Your five securities on your watch list are Facebook / META, Lockheed Martin, Amazon, JP Morgan, and McDonald's.
At any one time, you should only have one or two open positions.
Let's say Facebook right now is trading at $190 and it falls below $175, you can then sell a vertical credit spread.
You can sell a $160 put and buy a $150 put.
Irrespective of whether I am selling a vertical credit spread or a naked option, I will still choose to sell the same strike price. Meaning, I will sell a $160 strike price regardless of whether I trade a naked option or a spread.
When choosing which option to buy, I choose an inexpensive option that would minimize my buying power reduction .
By selling the $160 put and buying the $150 put, you are reducing your maximum loss from $160 to only $10.
This is called a defined risk options trade.
If you receive $1 per share by selling the $160 put, then you want to make sure that the $150 strike put that you buy doesn't cost more than ~$.15.
As a result, on a net basis, you will collect $.85 for selling that vertical credit spread.
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Robinhood Investing Tips #2: How to Trade with the Robinhood Investing App
The second strategy that I would recommend in this Robinhood investing review is to make sure that you allocate your capital well and have good capital efficiency when trading.
Imagine you sell the vertical credit spread on Facebook with an expiration of six weeks, then Facebook increases in price to $185 within two weeks.
That credit spread that you sold for $.85 per share is now trading at ~$.15 which means that you've already captured the majority of the option premium.
With the option spread now trading at $.15 cents, you will able to realize ~80% of the profit yet you only held the position for less than half the time.
If you wait the incremental four weeks, you will only profit $.15 per share.
In my opinion, that is not a good usage of capital.
You should close out that position and look at your watch list to see which stocks are currently trading outside its recent trading range.
You can then choose the best opportunity and open a new position.
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When trading, it's important to optimize your capital efficiency and ignore the noise.
When trading, you're NOT rewarded for "being busy", you're rewarded for making good decisions.
I am part of a Facebook group about the Robinhood investing app.
I observed that most members are posting about buying calls, which is a very foolish strategy with an extremely low probability of profit (almost guaranteed losses).
In order to make money in the stock market, you have to be the casino and insurance company, not the gambler.
This means that you have to SELL premium.
Key Points: Robinhood Review and How to Make Money Using the Robinhood Application when Trading Options
- Tip 1: SELL vertical credit spreads and only have one (or max 2) positions open at a time.
- If you have a small account, you should have only five securities on your watch list.
- When buying options as part of a spread, choose an option that minimizes your buying power reduction.
- Tip 2: Make sure that you allocate your capital and have very good capital efficiency.
- Close out your positions early and enter a new position after reviewing your watch list.
- Sign up for Trade Alerts – Receive real-time trade alerts so that you maximize your profits and minimize your mistakes; we have a Trial Offer of $19 for 7 days.
"In order to make money in the stock market, you have to be the casino and insurance company, not the gambler." - BestStockStrategy.com
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Conclusion: Robinhood Investing Review
In concluding this Robinhood review, I do NOT recommend the Robinhood trading app.
How safe is Robinhood investing? Well, I think that your money is safe, but I also believe that most of their users lose money.
What is Robinhood investing?
Is Robinhood investing legit?
Well, for many young people with money, I believe it'll cause them to lose money.
Robinhood encourages its users to develop bad habits, they also do not pay interest on unused cash balances, they have bad customer support and Robinhood does not permit its users to sell naked options using margin.
However, as I said earlier in this Robinhood investing review, you can use the Robinhood investing app if you are a beginner who is still learning to trade.
If you use the strategies that I have shared above, it would be a decent way to make consistent money.
You can earn 25% every single year by selling vertical credit spreads.
Best of all, you would limit your risk and reduce your commissions.
Overall, even for small accounts, I would recommend TastyWorks.
You can earn a free week of my trade alerts by clicking on this link and signing up.
Most of my students with account sizes below $20,000 use Tastyworks.
I also use have a small account with Tastyworks (and it's up around 85% as of September 23, 2019).
For my larger account, I use E*Trade and I pay zero commission and just 10 cents a contract.
Thanks for reading this Robinhood Investing Review.
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Frequently Asked Questions (FAQs)
Is Robinhood investing legit?
YES–Robinhood is absolutely safe. Your funds are protected up to $500,000 for securities and $250,000 for cash claims because Robinhood is a member of the SIPC. Furthermore, Robinhood is a securities brokerage and as such, securities brokerages are regulated by the Securities and Exchange Commission (SEC).
Even so, there are much better online brokerages out there.
Is Robinhood good for beginners?
Yes, it is. However, other brokerages are better. Robinhood encourages poor habits and I believe that most of their traders lose money.
Is Robinhood good for beginners?
Yes, it is. However, other brokerages are better. Robinhood encourages poor habits and I believe that most of their traders lose money.
Can you lose money on Robinhood?
Yes, of course. I believe that almost all their traders lose money.
Is Robinhood good for long-term investing?
Robinhood is okay for long-term investing, but not great. Robinhood is primarily for active retail traders with smaller accounts.
Long-term investors are better off with other brokerages like Fidelity, TD Ameritrade, E*Trade etc.
Will Robinhood get acquired?
Probably. As of late-August 2022, its stock price is around $9. A strategic acquirer could easily purchase Robinhood as a "tuck-in acquisition".
Can you trade options using Robinhood?
Yes, you can, although it's difficult to get approved for margin and they do not offer portfolio margin.
