Updated on May 17, 2022
Robinhood makes investing in the malcolm stock market easier than always. You can buy any stock you want with precisely a few taps on your smartphone .
This is fantastic if you want to start making money on the banal market. But the easier it is to invest, the easier it is to lose money, besides. It is more authoritative than ever to have a good investment strategy before you begin investing .
If you are interested in investing with Robinhood, read on. We plowshare what the best strategies are for how to make money with Robinhood, the risks you need to watch out for, and more .
What is Robinhood?
Robinhood is a fiscal technology company that makes investing friendly, approachable, and apprehensible for beginners and experts alike.
Robinhood disrupted the fiscal diligence for the better by offering zero commission fees, no explanation minimums, fractional shares, crypto exposure, and a simple, mobile-friendly sign-up process. It has an easy-to-use and satiny purpose that feels like sociable media. The platform besides uses drug user networks to create a large book of trades .
Robinhood incentivizes its users in different ways. It celebrates your trades with bursts of confetti after each transaction. It besides gives you detached stock if you refer friends to the platform. basically, Robinhood offers gamification of the stock market .
now that you know what Robinhood is, let ’ s look at how to make money with Robinhood .
How to Make Money on Robinhood
Making money on Robinhood is the same as making money on any trade platform. Because of Robinhood ’ s design, there are two main strategies that investors use to make money .
“ Buy Low, Sell High ” is the cornerstone philosophy of a successful investor. For exemplar, let ’ s say you love a product you use every day and decide to buy stock in the rear company. Say you pay $ 10 per share .
other investors agree with you and choose to buy shares of the parent caller, driving up its share price. Some clock time passes, and the monetary value reaches $ 25 per share. You decide to sell your contribution for $ 25 .
This exercise is known as asset appreciation. You bought low ( $ 10 ) and sold your plowshare when the price was high ( $ 25 ) to make a profit ( net gain of $ 15 ) .
Of course, this is easier said than done. You need to predict which shares are going to grow, and when to sell the shares that you have .
If you want to make money with Robinhood you need to do the research and be clear on where you want your money invested. You should besides take advantage of the autonomous analyst ratings provided by Robinhood. You will find lists of the peak movers and shakers, equally well as the benchmark they are expected to hit in a specific time frame. Use these to help you to make effective buy decisions .
The second option for how to make money with Robinhood is by collecting dividends. Companies that offer dividends pay out a share of their profits to shareholders as a reinforce for owning their stock. Dividends come into play when the company decides to parcel earnings with shareholders, rather than reinvesting profits spinal column into the clientele .
For model, if a company offered an annual dividend of $ 0.10 per share, and you owned 1000 shares, you ’ vitamin d collect $ 100 in dividend income each year .
Some companies have higher dividend yields than others. ripen companies who are not looking to reinvest profits into the business are good candidates for dividend income .
Robinhood besides offers you the choice to reinvest your dividend income back into extra shares. Reinvesting your dividends allows you to earn colonial interest. You use your dividend income to buy more shares, which means your adjacent dividend payment will be more because you own more shares and so forth .
Patience is the Secret to Making Money on Robinhood
Both asset admiration and dividend income are strategies that require patience .
The mistake many investors make on Robinhood is to get involved in day trades. Stocks go up and down day by day, and if you mistime it, you can lose serious money .
similarly, margin trade means you are trading on borrowed cash. If your margin trade doesn ’ metric ton workplace out, you can lose serious money .
however, the stock market, over meter, tends to go up. Increase your investment time horizon. Invest merely the money that you have. Be patient and allow your money to compound over time .
Robinhood Special Features
Robinhood besides has a few especial features that make it unique .
Fractional Share Trading
Robinhood allows investors to buy fractional shares of a company. indeed, if you are dying to own Tesla but can not afford its $ 500 parcel price, you can buy angstrom little as 1/1000000 of a share, or $ 0.0005 deserving of Elon Musk ’ s enterprise .
Robinhood Crypto enables users to buy and sell Bitcoin, Ether, Dogecoin, and other alternative coins, 24/7 and commission-free. This avail is fabulously alone to Robinhood and is another distinguishing feature .
trading on the margin means you can trade on adopt cash, but besides lose more money than you invest. allowance trading is bad, and if you aren ’ thymine careful you can lose serious money. The Financial Industry Regulatory Authority requires a $ 2,000 minimum for gross profit accounts .
Risks With Robinhood
In general, deal on Robinhood is not more hazardous than trading on any other platform.
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however, Robinhood ’ s margin trading sport is bad for the modal investor. trade with money that is not yours is very hazardous. If you borrow money and the parcel goes up, and you sell in time, you can make a bad profit .
But if you borrow money and the plowshare goes down, or you don ’ thymine sell in time, the personnel casualty you make has to be paid out of your already dwindling portfolio .
This big-risk, high-reward way of deal seems very glamorous. But remember for every boastful, leverage winner, there are thousands of much quiet losers .
Robinhood besides makes it very easy for customers to place options trades. This is another hazardous investment strategy that some compare to gamble .
Nathaniel Popper—a diarist for The New York Times and the generator of “ Digital Gold : Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money ” — wrote that Robinhood customers had “ bought and sold 88 times as many hazardous options contracts as Schwab customers, relative to the average account size. ”
Popper continued, “ This kind of trading, where a few minutes can mean the difference between winning and lose, was particularly hazardous on Robinhood because the firm has experienced an strange number of engineering issues, populace records read. ”
Before trade on margin or target options trades, be certain to understand how they work and your electric potential downside. These strategies are very bad and are not suited for most investors .
How to Mitigate Risk on Robinhood
The least hazardous direction of deal on Robinhood is to not do any gross profit deal .
If you ’ rhenium dead set on allowance trade, follow the succeed advice to mitigate your risk :
- Make sure you have enough cash in your account. If you ever have a margin call where Robinhood needs to cover your losses, it will pull from your cash reserves. This way you won’t have to sell any stocks to cover the call.
- Know the stock’s Maintenance Base Requirement. If the margin maintenance requirement is set at 30% and you own $10,000 worth, you must have at least $3,000 in account equity backing the investment.
- You should be extremely confident in the expected value of your investment to even consider margin. The expected return should far outweigh the cost of interest on the loan.
- Pay off the interest incurred on the margin amount you used. Robinhood charges its users 5% yearly interest on the settled margin amount above $1,000.
Investing is unforgiving. Be ache, play the long-run game, and invest in quality assets .
Robinhood makes investing in the stock market easier than ever ( even closing your Robinhood report is easy ! ). With its satiny interface, you can buy any stock you want with equitable a few taps on your smartphone .
This means it is vitally important to have a full investment scheme before you begin investing. The privy of how to make money with Robinhood is to be affected role, play the long-run game, and invest in timbre assets .
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