How Robinhood's Trading Platform Works
What Robinhood does and how you use it
Robinhood is a brokerage platform — a company that holds your money and executes trades when you tell it to. You download the app or visit the website, fund an account with your own cash, and then buy or sell stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. Robinhood sends your order to the market, takes a small cut, and holds your investments in an account registered to you.
The platform is designed for individual investors who want to trade without calling a broker or paying per-trade commissions. You see real-time prices, place orders yourself, and watch your positions update throughout the trading day. Robinhood makes money through order flow payments (when market makers pay for the right to fill your orders), premium subscription features, and interest on uninvested cash in your account.
Key Takeaways
- You fund a Robinhood account with your own money, then buy and sell stocks, ETFs, options, and crypto through the app with no per-trade commission.
- Robinhood holds your cash and investments in a brokerage account registered to you, and you can withdraw your money at any time.
- The platform executes your orders during market hours (9:30 a.m. to 4 p.m. Eastern on weekdays) and offers extended-hours trading from 4 p.m. to 8 p.m.
- Robinhood uses order flow payments from market makers to fund the service, meaning your order details are sold to firms that execute trades.
- Your account is protected by SIPC insurance up to $500,000 if Robinhood fails, though this does not cover losses from bad trades or market declines.
Setting up an account and funding it
To open a Robinhood account, you provide your name, date of birth, address, Social Security number, and employment information. Robinhood verifies your identity and runs a background check. The process typically takes a few minutes, though in some cases the company may ask for additional documentation.
Once your account is open, you fund it by linking a bank account and transferring money. Robinhood accepts transfers from checking and savings accounts at most U.S. banks. The first transfer may take three to five business days to clear; after that, transfers usually settle within one to two business days. You can also deposit a check by photographing it in the app, though this method takes longer.
There is no minimum deposit required to open an account, though some features (like margin trading or options trading) may require a higher balance or additional approval.
How buying and selling works
When you want to buy a stock, you search for it by ticker symbol (like AAPL for Apple) or company name in the app. Robinhood shows you the current bid price (what buyers are offering) and ask price (what sellers are asking). You enter the number of shares you want and the type of order — a market order executes immediately at the current price, while a limit order waits until the stock reaches a price you specify.
Once you place an order during market hours, it goes to Robinhood's systems and then to a market maker or exchange. Most orders fill within seconds. Robinhood shows you a confirmation with the exact price you paid and the total cost including any fractional shares. Selling works the same way in reverse — you select the stock, choose how many shares to sell, and place the order.
Robinhood charges no commission on stock or ETF trades. The company makes money when market makers pay for access to your order flow, a practice that has drawn regulatory scrutiny but remains legal. You may see a small difference between the bid and ask price (called the spread), which is the cost of trading itself, not a Robinhood fee.
Understanding margin and borrowed money
Robinhood offers margin, which means borrowing money from the platform to buy more securities than your cash balance allows. If you have $1,000 in your account, margin might let you buy $2,000 worth of stock. You pay interest on the borrowed amount, and Robinhood can force you to sell positions if your account value drops below a certain threshold (called a margin call).
Margin is not available on new accounts — you must have been a customer for at least 30 days and meet minimum balance requirements. Robinhood's margin rates vary but typically range from 5% to 11% annually depending on your balance. Margin trading amplifies both gains and losses, so a 10% drop in the stock you bought on margin can wipe out 20% of your cash.
Most new investors should not use margin. It is a tool for experienced traders who understand the risks and can afford to lose the borrowed money.
Options trading and advanced features
Robinhood allows you to trade options — contracts that give you the right to buy or sell a stock at a set price by a certain date. Options are riskier than buying stock outright because they expire and can lose value quickly. Robinhood requires you to request options trading separately, and the platform will ask about your investment experience and risk tolerance before approving you.
The platform also offers fractional shares, meaning you can buy a portion of an expensive stock. Instead of needing $3,000 to buy one share of a $3,000 stock, you can invest $100 and own a fraction. This feature makes it easier to build a diversified portfolio with a small amount of money.
Robinhood Gold is a paid subscription ($5 per month or more) that offers margin at lower interest rates, extended-hours trading, and research tools. Most casual investors do not need it.
How your money is protected
Robinhood is a registered broker-dealer and member of the Financial Industry Regulatory Authority (FINRA). Your cash and investments are held in a brokerage account registered to you, meaning they are legally yours even if Robinhood fails. The Securities Investor Protection Corporation (SIPC) insures brokerage accounts up to $500,000 per account holder if the firm goes under — $250,000 for cash and $250,000 for securities.
SIPC protection does not cover losses from bad trades, market declines, or fraud by you or someone with access to your account. It only protects against the brokerage itself failing. If Robinhood is hacked and your account is drained, that is a different issue — you would need to report it to Robinhood and potentially to law enforcement, though recovery is not may provide.
You should use a strong, unique password and enable two-factor authentication (requiring a code from your phone in addition to your password) to protect your account.
Trading hours and when you can buy or sell
The stock market is open Monday through Friday from 9:30 a.m. to 4 p.m. Eastern Time. Robinhood executes most orders during these hours. The platform also offers extended-hours trading from 4 p.m. to 8 p.m. Eastern, though trading volume is much lower and prices can be more volatile.
Pre-market trading (before 9:30 a.m.) is not available on Robinhood. If you place an order before the market opens, it will wait until 9:30 a.m. to execute. Orders placed after 4 p.m. will execute at the next market open or during extended hours if you have that feature enabled.
Cryptocurrencies trade 24 hours a day, seven days a week on Robinhood, so you can buy and sell Bitcoin or Ethereum at any time.
Taxes and record-keeping
When you sell a stock for more than you paid, you owe capital gains tax. Robinhood tracks your trades and sends you a tax form (Form 1099-B) by January 31 each year showing your sales and gains or losses. You report this on your tax return.
Robinhood also tracks your cost basis — the original price you paid for each share. This matters because if you bought 10 shares at different times, you need to know which shares you sold to calculate the correct gain or loss. Robinhood defaults to a "first in, first out" method (selling your oldest shares first) but lets you choose a different method if you prefer.
Dividend income (payments companies make to shareholders) is also taxable and will appear on your tax forms. Robinhood automatically reinvests dividends unless you turn that off.
Frequently Asked Questions
Can I lose more money than I invested?
With regular stock purchases, no — your loss is limited to what you invested. If you use margin or trade options, you can lose more than your initial investment. Margin can force you to sell at a loss, and options can expire worthless, wiping out your entire investment in that contract.
What happens if Robinhood goes out of business?
SIPC insurance protects your account up to $500,000. Your stocks and cash would be transferred to another brokerage, and you would retain ownership of your investments. The process can take weeks or months, but your money is not lost.
Does Robinhood charge fees for anything?
Robinhood charges no commission on stock or ETF trades. It does charge interest on margin balances, fees for wire transfers in some cases, and a monthly subscription for Robinhood Gold. You also pay the bid-ask spread (the difference between buy and sell prices), which is a market cost, not a Robinhood fee.
Can I trade on my phone while the market is closed?
You can place orders anytime, but they will not execute until the market opens or during extended-hours trading (4 p.m. to 8 p.m. Eastern). Cryptocurrencies trade around the clock, so those orders execute immediately.
How do I withdraw money from my account?
You go to the app, select "Transfer," choose "Withdraw," and enter the amount. Robinhood sends the money back to your linked bank account, usually within one to two business days. You can only withdraw cash that is not tied up in open positions or margin debt.