The word “free” gets tossed around a lot by companies advertising their stock trading apps. But with the historical necessity of broker commissions, free stock trading has always been an oxymoron. Even the deepest discount brokers tend to charge a nominal fee for scheduled trades and live trading. In fact, some of the most popular online brokers (E*Trade, Fidelity, Scottrade and Schwab) charge between $7 and $10 in trading fees, reports TechCrunch.
Programs billed as free stock trading apps, or free stock trading software, are nothing new. Users can download them at no cost to research, compare and track investments. Some of them are even high-quality, functional applications that provide excellent insight and tools. But if you wanted to actually buy, sell or trade stocks, it will cost you.
Related: How to Buy Stocks Online
Is Robinhood the Best Stock Trading App?
In 2014, the no-fee stock trading app Robinhood was launched. By employing algorithms instead of human traders and outshining brick-and-mortar competitors, the founders of the “freemium” service were able to remove commission fees altogether for “regular” trades of securities listed in the United States (premium services like margin lending come with a fee, however).
The app’s founders, who were roommates and classmates at Stanford University, were inspired by the 2011 Occupy Wall Street protests, reports Business Insider. Bloomberg News reported that while working on Wall Street, the pair realized that the true cost of executing trades had fallen to just a fraction of a penny, yet commissions as high as $10 were still the industry standard.
The concept, the price point and, perhaps, the fact that Snoop Dogg and Jared Leto were some of the app’s early backers, make it attractive to young, politically aware and financially struggling investors. According to MarketWatch, the average Robinhood customer is 26, and 25 percent of its users are investing for the first time. And Investopedia reports that millennials make up approximately 80 percent of Robinhood’s accounts.
Read: 5 Things First-Time Investors Need to Know
How to Get the Robinhood App
Any legal U.S. resident who is over the age of 18 and has a Social Security number can use Robinhood. It is available for download in the App Store and runs on the iPhone, iPad and Apple Watch devices running iOS 7 or higher. An Android version is in the works, and people may sign up for a beta waiting list online.
Once you download the app, signing up consists of a few steps: creating a profile, linking to a bank account and verifying your identity. From there, users can begin placing commission-free trades. The minimalist app is sleek, simple and intuitive.
Robinhood Vs. Other Free Stock Trading Software
NinjaTrader, for example, promises that you can use its service for free — and if you’re talking about charting, analytics, strategy development and trade simulation, you can. If you want to actually invest through buying and selling securities like stocks, however, commission fees range from 53 cents to 95 cents per contract. Ninety-five cents might seem cheap, but it fails to meet the definition of “free.”
Yahoo Finance and Bloomberg+ are both great apps for research, analysis and strategy. They’re free to download, but you can’t use them to trade stocks. TDAmeritrade, E*Trade and virtually all of the big-name online brokers have “free” mobile app versions, but those apps don’t offer commission-free trades.
Keep reading: How to Start Investing With Less Than $500
Free Stock Trading Software Pros and Cons
MarketWatch’s Victor Reklaitis wrote before Robinhood’s launch that one of the only drawbacks to commission-free trading is that it could encourage users to trade more frequently than they should. “Study after study has shown that most individual investors would be better off trading less rather than more,” he writes.
But Robinhood’s founders have said their app is “creating investors, not wild-eyed speculators,” reports Bloomberg, since the average user is placing only four to five trades per month.
Another potential drawback is the app’s inability to really educate its users. Investopedia points out the app does not offer Level II quotes or paid news service feeds. “Novice investors with very little experience may find the zero cost appealing, but risk making bad decisions if they are not able to obtain news, research and analysis from alternate sources,” states the site.
Robinhood currently dominates the world of free stock trading software and apps. The app is posing a direct challenge to every discount broker on the market and their respective “free” apps. After the announcement of an overseas expansion to Australia, it appears that Robinhood is here to stay.
This article originally appeared on GOBankingRates.com: Is Robinhood the Ultimate Free Stock Trading Software?
This article by Andrew Lisa first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.
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