4 Alternatives to Robinhood

Nov 18, 2021 12:12 PM ET
4 Alternatives to Robinhood

Robinhood is a popular company that has helped to revolutionize the investing industry in the United States. The company, which was started in 2013, helps millions of people trade and invest online without commissions. The firm has more than 22.4 million monthly active users and more than $80 billion in assets. In this article, we will explain how Robinhood works and makes money. We will also look at the four best alternatives to the company.

How Robinhood works and how it makes money

Robinhood revolutionized the field of trading and investing. It was the first major broker that allowed investors to buy and sell shares without any commissions. At the same time, it introduced the concept of gamification, where it made investing fun. Before that, most brokers used to charge as high as $10 commission per trade. 

So, how does Robinhood work, and how does it make money? The company makes its money through what is known as payments for order flow (PfoF). This is a situation where the company works with a diverse group of market makers. These are companies that provide liquidity to the market.

Therefore, when a customer initiates a trade, the company routes the orders to the marketplace. Here, the market-makers place a bid for the orders and place a good price. They then pay a certain amount of money to Robinhood. 

Since the company implements millions of trades per day, the small amount it receives adds up. For example, in the third quarter of 2021, the company made more than $300 million from market-makers. Some of the biggest market makers used by Robinhood are Virtu Finance, Citadel Securities, and Arca.

Without payment for order flow, Robinhood would need to charge its customers a commission. Indeed, before Robinhood came, existing brokers used to make money through both payments for order flow and commissions. So, let us look at some of the top alternatives to Robinhood.

Webull

Webull

Webull is a new online brokerage that has become popular among retail traders. The company was started by Chinese developers, but it is currently headquartered in New York. In just a few years, WeBull has grown its number of customers to more than 3 million. 

As an international company, WeBull offers a whole variety of assets than Robinhood. For one, it offers stocks from countries like the United States, Canada, Hong Kong, Mainland China, Sweden, India, Singapore, and other countries. Therefore, if your goal is to have an investment platform that has more assets, WeBull is significantly better than Robinhood.

Another benefit of using Webull over Robinhood is that its network is less congested. A good example of this happened in early 2021 during the Wall Street Bets craze. At the time, Robinhood managed to put limitations on trading in a bid to seek liquidity. As a small broker, Webull was able to manage these orders.

In addition, WeBull offers forex trading on its platform. This means that you can trade in assets like EURUSD and USDCAD, which are not offered by Robinhood.

A key challenge for Webull is that it is a Chinese company. At a time when tensions between US and China are rising, there is a possibility that the firm could be targeted.

Schwab

Schwab

Schwab is a major financial company valued at more than $155 billion. The company offers a diverse number of services through its eponymous company. It also owns TD Ameritrade, another broker that it bought for more than $22 billion. The firm has more than 29.6 million active consumer accounts and about 2.1 million retirement accounts. It also has more than 1.5 million banking accounts.

For years, Schwab used to make a substantial amount of money through commissions. It ended these commissions in 2019 as more customers started moving to Robinhood.

While Schwab is not as “sexy” as Webull and Robinhood, it is a  good broker. First, it offers a wider variety of investment solutions than Robinhood. Robinhood only offers stocks and funds, cryptocurrencies, and options. 

On the other hand, Schwab offers more trading assets like annuities, bonds and CDs, fixed income, and mutual funds. In addition to the conventional ETFs, Schwab offers more than 25 in-house funds that have a lower expense ratio. Therefore, Schwab offers a more comprehensive product suite than Robinhood.

Fidelity

Fidelity

Fidelity is one of the biggest privately-owned companies in the United States. According to Forbes, it is the 15th biggest private firm in the US.

Fidelity offers a wide range of financial services, including investment planning, wealth management, robot-investing, bill payments, and a trading and investment platform.

Like Schwab, Fidelity’s solutions may not be as standing out as Robinhood’s. But it has a complete suite of products and services than Robinhood. For example, Fidelity runs hundreds of thematic ETFs that are at a lower cost in its platform. For example, it owns the Fidelity Sustainable US Equity Fund and Fidelity Women Leadership Fund. 

Also, it offers managed accounts, cash management, retirement, annuities, and insurance solutions. Therefore, you can manage your entire finances on its platform.

Public

Public

Public.com is a  new financial services company that was started to disrupt the popularity of Robinhood. To achieve that, the company has raised more than $308 million from investors. 

The company offers a  cool intuitive application that enables people to buy and sell assets. It primarily focuses on options, stocks, and cryptocurrencies. It has also introduced a feature where you can look at your friend’s investments.

Public and Robinhood offer similar products and services. The only difference is that the company does not deal with market makers. While this may sound good, analysts believe that customers get a worse price for their purchases. 

Summary and other options

In this article, we have looked at some of the best alternatives to Robinhood. We have also looked at how Robinhood works and how it makes money. Still, we have not looked at all alternatives. Some of the notable mentions are SoFi, Interactive Brokers, and eTrade. The eTrade is owned by Morgan Stanley.


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