My Experience Day Trading on Robinhood

I have been trading on Robinhood seriously since February, and what an adventure it has been. Discount brokerages, popularized in the mid to late 90’s, took a leap in 2014 with the introduction of Robinhood. If this is the first time you are hearing about the company, please take a minute to Google them and learn about what they offer. This is not the first time that commsionless trading has made an entrance into the marketplace, but many of the companies that tried offering it have disappeared over time. At one time you could log onto your WellsTrade account for 100 free trades. Even now, with over $25,000 in a Merrill Edge account you are afforded 30 free trades a month. But what do you do if you don’t have $25,000 to invest right now? Get Robinhood.

Investors are naturally conscious of costs, and so for many people, it was hard to rationalize paying E*Trade’s $7 commissions. Even now you see a race to the bottom in the ETF market as Vanguard continues its dominance achieved through their low maintenance fees on index trackers. VTI, one of their most popular funds, has an expense ratio of only 5 basis points. Vanguard funds have been showing up in portfolios regardless of their investor’s age or industry. But that’s a story for another time.

I started trading Robinhood with an excel spreadsheet, a dream, and $60. I had a background in picking stocks after interning at a local investment firm where I learned some of the fundamentals. With Ben Graham’s “The Intelligent Investor” in hand, I set out to be a hedge fund manager with less than $100 AUM, expecting full well to lose most of it, but always hoping I’d come out ahead.

You can read about trading in books, about liquidity and gaps and strategies, but it’s hard to fully grasp these concepts until you start working with them every day. Robinhood forces you to ask questions like “Why does my account balance change 20 minutes after close?” and “Why didn’t my market orders fill the next morning at the price they previously closed at?”. Robinhood forced me to learn about things that almost never had a simple answer. I found myself scouring Reddit forums, opening support tickets, and filling word documents with facts about the market that I would later refer to from time to time.

As you would expect, there is a rush of adrenaline that courses through your veins when you notice a 5% drop in your account; you begin to ask yourself what happened. What did I do wrong? How do I make this up? It’s only 10:45 in the morning, should I pull out now? Only to have your portfolio up by 2% 20 minutes later. Every day I’m learning something new, but I would never have had the opportunity to try this out while trading on my Merrill Edge account, I would have eaten all of my profits up in commission! Without a doubt, Robinhood makes you feel every ounce of volatility that the market has the offer, and in 2016 there has been a lot to go around.

Robinhood is not for the faint of heart. I actually believe that commissions help to discipline an investor, by offering a reason not to trade. When it doesn’t cost you anything, it’s easy to sell your entire position of SPY after Brexit, only to sell at a loss and have the S&P recover in two weeks, and then push even further to record highs while you sit on the sideline nursing your loss. Robinhood’s user experience draws you in, and becomes a game that is more addictive than any mobile app, but that’s not what long term investing is about.

Robinhood is not a retirement account. It’s not a place to put 20% of your paycheck into every two weeks. The only advantage Robinhood brings to the user is the ease at which it allows you to trade. It also does not help you pick what to buy, a major problem for inexperienced investors. Downloading the app brings a level of responsibility that forces you to learn about what to buy, which can be a bigger commitment than what most people bargain for.

In closing, I would recommend Robinhood to anyone that wants to learn more about investing at the expense of a few tens of dollars. Playing around with $100 will make you ask questions about how the market works that classes and books may gloss over.Learning about investing this way can help you find resources on the internet that may later help you answer the question of “What 401(k) fund do I choose at my first job?” or “Should I really buy this stock that my friend Dave keeps going on about?”. Don’t treat it as a long-term investment account though, I’m still skeptical that this is a place to save for retirement or a down payment on a house.

There will be more to come about my adventures trading!

Feel free to comment on the article below or send me a message on LinkedIn if you have comments!

Robinhood - The Nuts and Bolts