New to the world of investing? Have massive trepidations about how it can backfire and incur you great losses? Robinhood helps mitigate most struggles that first-time investors may face when looking to make better financial decisions by investing.
As a financial technology company, it is transformative because it simplifies the complicated process of investing. This is further simplified as it brings it directly to your smartphone.
With features like no account minimums, crypto exposure, and fractional shares made easy via the smartphone-friendly sign up process with 0 commission fees, Robinhood is a state-of-the-art application.
It also functions as a wide-ranging trade market, using its user networks and connections. If you’re new to it and looking for ways to earn money with stocks, this is a great place to start.
Some of the perks you get by signing up right away and inviting your friends—free stock! For first-time investors, Robinhood isn’t a nudge—rather, a leap in understanding the gamification of the market.
Get the bucks
Investing is one financial endeavor that doesn’t get the bucks rolling immediately. Robinhood makes you money the same way any other trading platform does. You can make money on Robinhood using their 2 strategies:
1. Asset appreciation
With this method of making money by investing, you need to employ a shrewd thinking cap. In a game of chance and luck, making money from asset appreciation requires that you predict, correctly, which shares are likely to rise.
Say you bought a share for $15. Now divide the full cost of the share with other investors, which in turn increases the share price. You then choose to sell your share for $30, after presuming correctly that the price of the share won’t go further up and is now likely to fall. Voila! You’ve made $15 in profit.
The returns are obviously greater the more you invest, but asset appreciation is not without risk.
Confused as to where to put your money as a first investment on Robinhood? The app provides you all the direction you need via the independent analyst ratings. These detail the top shakers of the market, and to what extent their share price may rise given time constraints.
2. Dividend income
The second major strategy that enables you to make money on Robinhood is dividend income. Companies pay dividends from profit as an incentive for their shareholders to keep investing in the business.
Dividends make you money through this mechanism—say the company pays an annual dividend of $0.20 per share, and you purchased 100 shares. Your total dividend for that year will be $20. These are nominal numbers but the wiser your decisions in terms of which stock to invest in, dividend payouts can make you a significant return.
Higher dividend yields are only possible when you have invested a significant amount in shares, something that’s not recommended as a risk-taking strategy when you are a newbie in the investing world.
Well-established companies that have stable profit and distribute that profit as dividends are the safer route to take.
If you don’t want to redeem your money made via dividends, Robinhood gives you the option to reinvest dividend earnings into further shares, which increases your earning potential.
With both asset appreciation and dividend income, patience is key. Know that day trading carries significant risk which can result in losing more money than you are making. Margin trading is also a risky venture because you will be using money you borrowed from others to trade. Patience is key in ensuring your money compounds over time.
Features for the inflow
1. Crypto trading
Robinhood’s crypto trading feature enables you to trade in Ether, Dogecoin and Bitcoin, absolutely free of cost. None of Robinhood’s competitors in the market integrate crypto trading with other markets.
2. Fractional share trading
People who are new to investing will be unable and also unwilling to buy expensive shares in large companies, for example, the $3,000 share in Amazon isn’t easily attainable for most first-time investors. Fractional trading allows you to benefit from investing a nominal amount of share of the total share price.
The risks and the safety nets
Using Robinhood doesn’t necessarily mean that you are more or less at risk than using other means. However, there are some features that require extra caution from your side to be profitable, such as margin trading, which involves trading with borrowed money.
Only in the circumstance that the share price goes up can you pay it back and make a profit, otherwise you lose the money out of your own pocket.
You should also exercise caution when it comes to the higher risk, higher reward potential strategies offered by Robinhood like options trading. You can incur quite a serious loss if you aren’t careful.
How to make a profit with calculated risk
Mitigating risk on Robinhood can be achieved via avoiding margin trading. However, if you want to take the risk, make sure you have the money you are volunteering to put in the trade present in your account at all times.
To prevent Robinhood from taking your cash reserves by selling your stock should a margin call occur, keep safety money in your account at all times.
Even as a beginner you must be adequately reassured that your value of investment, and expected return far outstrips the cost of interest on the loan you have taken to trade on margin.
Another essential thing to keep in mind is the Maintenance Base Requirement. If the requirement is kept at 30%, and you own stock worth $20,000, keep a nominal $6,000 in your account as equity backing the investment.
Make sure to routinely pay off the interest on the margin amount. On a settled margin amount of $1,000, Robinhood charges its users 5% interest. Account for that and you will be good to go.
Conclusion
If you’re a first time investor in the stock market, you have struck gold with the features offered by Robinhood. The interface is extremely user friendly and features like independent analyst reviews provide you with much-needed direction. Simply access Robinhood on your smartphone, and have the stock market at your fingertips.
However easy Robinhood may be to use, it’s not a replacement to your decisions. Don’t go into any kind of investing endeavor without curating a strategy as to how you are to make money on Robinhood.
