Investing with Robinhood opens up a world of possibilities, allowing you to easily buy and sell stocks with just a few clicks on your smartphone. It’s a great way to begin investing and potentially make money in the stock market.
However, with convenience comes risk, and it’s crucial to have a solid investment strategy in place before diving in.
In this guide, we’ll explore the best strategies for making money with Robinhood, highlight potential risks to be aware of, and provide valuable insights to help you navigate your investment journey successfully.
What is Robinhood?
Robinhood is a popular online trading platform launched in 2013 by Vlad Tenev and Baiju Bhatt that aims to make investing simple for everyone. It offers various financial services, such as buying stocks, trading cryptocurrencies, and planning for retirement.
What’s unique about Robinhood is that it doesn’t charge fees or require a minimum amount to start trading, making it appealing to new investors. This has led to Robinhood attracting millions of users each month and managing over $102.6 billion in assets as of Q4 2023.
While currently only available in the US (as a platform that democratizes the process of buying and selling stocks) due to regulations, many people hope it will expand to other countries soon. Robinhood also provides detailed information about cryptocurrencies to help users make informed decisions.
Robinhood takes security seriously, offering features like fingerprint or face recognition to protect users’ accounts and being part of a program that ensures users’ funds are safe.
How to Make Money on Robinhood
While everyone looks for innovative methods to earn on Robinhood, these options can be limited. And that’s normal, as platforms like Robinhood, which make buying and selling stocks and crypto easier for everyone, only have a few ways to empower investors to make money.
That’s why most investors on Robinhood (and even on other trading platforms) use two main strategies to make a profit:
- Asset Appreciation;
- Stock Dividend Income.
1. Asset Appreciation
Firstly, they buy and sell stocks or crypto assets at prices higher than their initial investment, a practice referred to as capital gains.
To excel, investors embrace the timeless principle of “Buy Low, Sell High.” For instance, imagine acquiring shares in a promising company at a stock price of $50 each. As demand grows, propelling the share price to $150, selling at this peak secures a $100 gain per share.
This strategy, known as asset appreciation, hinges on quick market prediction and well-timed selling.
2. Stock Dividend Income
Secondly, investors take opportunities submitted by dividends offered by their stocks. Dividends represent distributions from a company’s profits to its shareholders. Opting for dividend income entails choosing stocks from companies that distribute profits rather than reinvesting them.
For instance, if a company offers an annual dividend of $0.50 per share, owning 1000 shares translates to a $500 yearly dividend income. Mature companies withholding from reinvesting profits present favorable prospects for dividend income.
Robinhood further empowers investors by facilitating dividend reinvestment, fostering the accumulation of compound interest. Investors procure additional shares by reinvesting dividends, increasing following dividend payments owing to increased share ownership.
Robinhood’s Features That Help You to Make Money Faster and Easier
1. Crypto Trading
Robinhood Crypto allows users to buy and sell cryptocurrencies like Bitcoin, Ether, and Solana, among others, 24/7, in a commission-free trading way.
This feature sets Robinhood apart from other trading platforms, offering users the convenience of trading digital currencies anytime without any fees.
2. Fractional Share Trading
Robinhood offers investors the opportunity to purchase fractional shares of a company. This means that even if you can’t afford a total share of a pricey stock like Berkshire Hathaway, you can still own a small portion.
With just a few taps on the app, you can invest just a few dollars, starting from as little as 1/1000000 of a share, which is worth a fraction of the stock’s price.
3. Margin Trading (Recommended ONLY for Seasoned Investors)*
Margin trading lets you trade with borrowed money, which can amplify your gains but also increase your losses. It’s a risky strategy, and if you’re not careful, you could end up losing a significant amount of money.
For instance, if you borrow money and the stock prices rise, you can sell them immediately to earn a significant profit. However, if you borrow money and the stock prices drop or cannot sell in time, you’ll be responsible for covering the losses.
The Financial Industry Regulatory Authority (FINRA) mandates a minimum of $2,000 for margin accounts, highlighting the importance of caution when engaging in margin trading, especially for beginner investors.
Tips for Making Money on Robinhood
1. Do Your Research Before Investing
Before jumping into the stock market, take the time to research each stock thoroughly. Robinhood’s feature allowing investment in fractional shares might make investing in cheap stocks with little thought tempting.
However, investing unthinkingly in risky companies can lead to significant losses. And all these tips also apply to crypto investing.
Ensure you understand each company’s financial health and potential before investing. It’s important to only invest in solid and promising companies.
2. Avoid Day Trading
While day trading might seem appealing for its potential quick profits, it’s crucial to understand its high level of risk.
Day trading involves buying and selling stocks or crypto within the same day to profit from short-term market changes.
However, if you’re an experienced investor with deep market knowledge, day trading can result in significant losses. Instead, consider a long-term investment strategy focusing on stable and growing companies.
3. Invest for the Long Term
Long-term investing is a safer and more reliable way to make money in the stock market. Instead of chasing quick gains, invest in companies with solid fundamentals and growth potential.
Look at factors like the company’s track record, management team, and competitive position in the industry. Investing in solid companies and holding onto your investments for the long haul increases your chances of earning significant returns over time.
Remember, patience is vital when it comes to long-term investing in Robinhood.
Related articles: The Robinhood Custodial Account | How to Transfer from Robinhood to Coinbase | How to Withdraw Money from Robinhood
FAQ
How to Open an Account on Robinhood?
To start trading on Robinhood, download the mobile app, create an account, and complete the necessary KYC verification process.
How Does Robinhood Make Money?
Robinhood makes money in a few ways. The most significant source of income in 2023 was interest earned on uninvested cash and margin loans, thanks to rising interest rates.
They also get paid by market makers for routing users’ trades through them (payment for order flow).
Robinhood also makes money from subscriptions to their Gold service (Robinhood Gold) and will soon add revenue from their new credit card.
How Much Money Do You Have to Make on Robinhood to File Taxes?
Filing taxes on Robinhood is independent of how much money you make. However, there are specific activities you need to report to the IRS regardless of the amount involved.
This includes any sale of stocks, even if it’s just a small gain or loss. These sales will impact your capital gains or losses, which must be reflected on your tax return.
Additionally, if Robinhood throws you a free stock bonus (think referral programs) and the value exceeds $600, that freebie counts as income and must be reported on your taxes.
What Types of Investments Can I Make on Robinhood?
Robinhood provides various investment opportunities, including stocks, ETFs (exchange-traded funds), options, and cryptocurrencies.
Can I Trade Options on Robinhood?
Yes, Robinhood permits users to trade options. However, it’s important to note that options trading comes with added risks and complexities that users should thoroughly understand before participating in such transactions.
Is Robinhood Safe? Does the SEC Regulate Robinhood?
Robinhood is registered with the Securities and Exchange Commission (SEC), which means it must follow specific rules to protect investors.
Conclusion
Guiding the investing world can be daunting, but with platforms like Robinhood, it’s never been easier to get started.
Robinhood offers a streamlined way to buy and sell stocks, cryptocurrencies, and more right from your smartphone.
This guide explored some critical strategies for making money on Robinhood, from capitalizing on asset appreciation to earning dividends on your investments.
*There’s always the chance to lose money when you invest on Robinhood or other trading platforms. It’s important to understand these risks before you begin money investing. Research thoroughly – past performance isn’t a guarantee of future results. Robinhood is a platform to help you invest, but it doesn’t promise profits. Consider consulting a financial advisor for personalized guidance.*
