Robinhood and E*TRADE may be the two most important names in online trading. In many ways E*TRADE introduced the world to online investments, taking stocks and bonds from the world of corner offices to kitchen tables. A couple decades later, Robinhood lapped its predecessor and took trading from laptop screens to smartphones. In other words, E*TRADE invented website-based trading as we think of it today, while Robinhood may have moved that revolution to investment apps.
If you prefer a hands-on approach to investing, a financial advisor can help you create a financial plan for your investment needs and goals.
Overview of Robinhood vs. E*TRADE
In many ways these are two distinct products. Where Robinhood offers low-friction, easy-to-use, no-fee trading, E*TRADE offers free stock and ETF trades but not free mutual fund or options trades and specializes in a suite of analytical tools that operate to a nearly professional degree of sophistication.
E*TRADE allows investors to trade a wide range of securities, including non-U.S. securities, options, futures and cryptocurrencies. Using Robinhood gives you access to a somewhat more limited range of securities, U.S. stocks, ETFs, options and American Depositary Receipts (ADR).
Robinhood vs. E*TRADE: Fees
Generally, traders have Robinhood to thank for the era of no-fee trading. While the explosion of online trading options has been making trading cheaper over the past 20 years, Robinhood was the first truly free trading platform. Once that genie was out of the bottle the other companies quickly followed.
From the user end side of things, there are largely four types of fees to look out for:
- Trading fees. Any form of fee attached to each trade that you make. This can (relatively rarely) come in the form of a flat fee, or more often the broker will charge you what’s known as the spread. This is the difference, if any, between the buying and the selling price of an asset.
- Trading commissions. This is when a broker will charge you a percentage based on the volume or value of each trade.
- Inactivity fees. Any fees that the broker charges you for not trading, such as if it charges you for keeping money in a brokerage account.
- Non-trading/Other fees. Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account or taking money out.
Robinhood does not charge either a fee or a commission on a per-trade basis. It does not charge you for inactivity, nor does it charge fees for adding or withdrawing money to or from your account. (It is able to afford this because the company’s business model generates revenue from third-party brokers each time you make a trade, profiting off of what’s known as the bid/ask spread to the tune of $0.01 or less per share traded.) It offers margin trading for users who sign up for Robinhood Gold. This service costs $5 per month, and margin loans start at a 7% interest rate.
Fees have been an issue for Robinhood. In December 2020 the Securities and Exchange Commission said one of “Robinhood’s selling points to customers [between 2015 and late 2018] was that trading was ‘commission free,’ but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices.” Robinhood agreed, without admitting or denying the SEC findings, to a cease-and-desist order and to pay a $65 million civil penalty.
E*TRADE charges no fees or commissions on a per-trade basis for stocks, mutual funds and exchange-traded funds. It does charge you a contract fee for options contracts, which typically cost $0.65 per contract and $0.50 with 30+ trades per quarter. (This may seem small, but for active traders it can add up fast.) It usually costs $1.50 for a futures contract and $1 per bond for online secondary trades (with a minimum of $10 and a maximum of $250). Margin rates start at 13.20% for small loans under $10,000 and decrease as the debt goes up.
Robinhood vs. E*TRADE: Services and Features
It is almost easier to compare where these two services do overlap than to discuss the ways in which they don’t. E*TRADE is a full-service trading platform through which investors can buy virtually any publicly traded U.S. security, and some foreign products as well. This includes stocks, bonds, ETFs, mutual funds, futures and options.
E*TRADE also offers indirect ways to invest in cryptocurrencies through securities and futures on its platform. It offers a full suite of tools for technical analysis and supports data sets going back to the full lifetime of an asset. While it is not at the caliber of an investment bank, it is more than enough for individual investors at almost any level of sophistication.
Traders can access E*TRADE through both its websites and its apps. The company offers two desktop options: its core brand, E*TRADE and the more sophisticated Power E*TRADE. It offers two corresponding apps, one tied to E*TRADE core and the other to Power E*TRADE.
Robinhood is a feature-limited trading platform which emphasizes ease of access and low-complexity. Through it users can trade U.S. stocks, ETFs, options and American Depositary Receipts (ADR). Through another section of Robinhood known as Robinhood Crypto, users can trade most cryptocurrencies.
Unlike E*TRADE, however, Robinhood offers very few tools for investment analysis. It is designed to make trading accessible and easy and its app does that job well. Traders on Robinhood will find an easy to understand screen for each asset they would like to trade, with information such as pricing history, basic statistics and purchasing information. However, this is all of the information that Robinhood generally offers. Technical analysis, context and even historical data going back further than five years is not available.
These two platforms are different specifically because their goals are different. E*TRADE offers a nearly full-service trading platform with only a few omissions (most notably currencies and most foreign assets). While well designed, it is built primarily for traders who want access to the data necessary to making complicated trades.
Robinhood, on the other hand, offers fewer options than E*TRADE. This is by design. Robinhood is a platform built around simplicity. It has a small number of assets and just as much information as can easily fit onto a telephone’s screen. It avoids complicated technical analysis that a layperson might not understand in favor of straightforward pricing and trading statistics. It offers some sophisticated trading options, such as limit and stop-limit orders, but not nearly to the degree that E*TRADE does.
Robinhood vs. E*TRADE: Online and Mobile Experience
One of the most important differences between the experience of these two platforms is access to customer service. E*TRADE offers a wide array of customer service options, including an FAQ, online chat, e-mail and a telephone number. Robinhood offers only an FAQ and an e-mail address. Given the amount of money that investors can have at stake, and the stress which can come with that, E*TRADE has a huge advantage in the user experience by making its service teams highly available.
Both E*TRADE and Robinhood offer very well designed, but very different products.
E*TRADE’s four different platforms (two apps, two websites) are well designed. They lay out key information prominently, and provide the user with quick access to their trading tools. However, the depth of this platform means that it has an unavoidable level of complexity. Users will need to learn how to navigate to their investments, a process which can take a bit of time. This complexity can also be daunting for a novice investor. Both E*TRADE and Power E*TRADE offer a wealth of data and markets that users need to navigate, much of which will be useless to the retail investor. This is less of an obstacle than a learning curve, but it is real nonetheless.
Robinhood’s platform is also well designed for its intended purpose. Unlike E*TRADE it does not support customization and requires relatively little navigation. Assets are listed on easy-to-access menus, and are even given quick categories for investors who would like to navigate to similar products. Trading screens are similarly stripped down, with little information beyond an asset’s basic statistics, pricing history and trading options. This makes Robinhood extremely easy to use, but also extremely limited compared to its competitor.
E*TRADE vs. Robinhood: Who Should Use It?
The central selling point of Robinhood is its ease of use. It makes investment quick, frictionless and even a little bit fun. This is on its face a worthwhile goal. However, the problem with this product is that it makes investment too easy. The Robinhood app provides investors with very little information and makes trading very quick. This appeals primarily to novice investors, but this is also the exact category of investors who should be slowing down a little bit and thinking about their investments a little bit more carefully.
At the same time, Robinhood’s design tends to nudge its investors into taking bigger risks. With few funds on the platform, traders primarily buy and sell equities. This is a relatively risky asset category and Robinhood encourages impulse trading of these assets with recommended purchases. At the same time the app steers its users towards options contracts, a potentially high-risk investment which most average investors barely understand (if at all). This is exactly the opposite of the guidance that a trading platform should give inexperienced investors.
E*TRADE’s platform is significantly more complex, which means it takes more time to learn how to use this toolkit. For experienced investors this means that E*TRADE will have the tools and data sets that they need to make more complicated trades. For novice investors this means that they will have to slow down a little and do more research before committing their money to a position. While contrary to Robinhood’s entire sales pitch, this will serve those investors well in the long run.
In other words, E*TRADE is the better platform for virtually any trader.
The advent of online and mobile investing has opened up a world of choices for retail investors. Since E*TRADE and Robinhood are clearly distinct, it is important to answer four questions before picking one of them. Firstly, are you interested in becoming or are you already a sophisticated and experienced investor? Secondly, how much data do you actually need to handle your portfolio? Thirdly, how many types of securities would you like to invest in? Fourthly, are you a “digitally native” user who is comfortable with the latest technology, or would you like to be able to get person-to-person help from your app’s vendor? If you’re looking to make a few easy trades, Robinhood may be the platform for you. If you want to really get into the nuts and bolts, E*TRADE is probably your better option.
- Whether you use an online brokerage platform or not, there’s a great deal of benefit in working with a financial advisor. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Whether you use E*TRADE or Robinhood or one of their rivals, a free, easy-to-use asset allocation calculator can be a valuable tool as you make investment decisions.
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