E*TRADE vs. Robinhood: Does Free Stock Trading Win Out?
Before you can make an investment, you'll need to open a brokerage account to place your trades. The choices are numerous, but today we'll compare two popular brokerages, E*TRADE and Robinhood, so that investors can better understand how their services might match up with their investment portfolios.
One broker, Robinhood, offers free stock trading, but the other, E*TRADE, offers more access to other types of investments. Let's take a deeper look.
Trading costs and commissions
Cost is but one consideration when deciding on a broker. We put together a table to show you how E*TRADE and Robinhood compare on the basis of commission costs for various types of trades.
Source: Company websites.
The differences in trading costs are pretty big, due to the fact that E*TRADE charges commissions on each trade and Robinhood does not. However, E*TRADE also offers access to more types of investments (options and mutual funds) that are not available to Robinhood customers.If price is of particular importance, continue on. The gap in commissions isn't as large as it may seem.
Commission-free ETFs and NTF Funds
Investors can generally avoid some commissions and transaction fees by buying and selling ETFs and mutual funds that are designated as commission-free or no-transaction-fee (NTF).
Source: Company websites.
Notably, Robinhood doesn't charge a commission on any trades, and that also applies to ETFs. However, it doesn't offer the ability to invest in mutual funds. E*TRADE waives commissions on a select list of ETFs in addition to no-transaction-fee investments on more than 2,500 mutual funds. Ultimately, depending on the funds you want to invest in, either broker may better suit you.
Account minimums
You don't need to be rich to open a brokerage account. Robinhood does not have a minimum initial deposit requirement, whereas E*TRADE requires that its customers deposit at least $500 to get started.
Realistically, investors may want to start with more than the bare minimum. For practical purposes, to actually make an investment, you'll need to have enough capital to buy at least one share of a stock, ETF, or mutual fund and cover the commission cost.
Furthermore, we should note that brokerages often reward their customers for making larger deposits. Learn more about special offers for IRA accounts, as well as traditional brokerage accounts. These bonuses and commission-free trades can be worth as much as $2,000 or more, so it pays to see if you qualify.
Trading platform
We at The Motley Fool firmly believe in the principles of making long-term investments for years, rather than days or weeks. For long-term investors like us, the important thing is that we can just make a trade when we need to, and virtually any trading platform can handle that basic requirement. Much like debates over the best superheroes, we tend to think personal preference and opinion underlie preference for a trading platform.
There is just one important difference between E*TRADE and Robinhood that may be important to you: Robinhood is a mobile-only platform, which may be a roadblock for people who don't have, or do not want to use, a smartphone or tablet to manage their investments.
We prefer to take the long view rather than be slaves to our trading accounts. Image source: Getty Images.
International stocks and ADRs
If you want to diversify your portfolio with foreign stocks, E*TRADE and Robinhood both allow for some limited investments in international companies. E*TRADE customers can trade American Depositary Receipts (ADRs), but the brokerage does not allow for trading directly on foreign markets.
Robinhood allows investors to trade certain foreign-domiciled securities. Its clients can buy "securities of companies domiciled in Canada and Israel that trade above $5," according to its website.
Of course, both brokerages allow you to buy and sell ETFs that hold foreign stocks, and E*TRADE offers access to mutual funds. If you prefer funds to individual stocks, the ability to access international stock exchanges might not be an important difference between these two brokers.
Research quality and tools
Generally speaking, we tend to think that investors can benefit from having access to proprietary and third-party research. In the worst case, many services are a free benefit, so there isn't anything to lose from research that you don't use.
E*TRADE offers analyst reports from S&P Capital IQ, Morningstar, and Thomson Reuters, just to name a few benefits it offers its clients. Robinhood doesn't currently offer research capabilities, which is a trade-off that comes with its no-commission business model.
Mobile app
If the ability to trade on a mobile device is important to you, you'll be pleased to find that both brokerages have that capability. Here's how each broker's users and clients rated their iOS and Android apps (as of 12/14/2016).
Source: Relevant app stores.
Robinhood vs. E*TRADE: Free stock trading vs. a wider selection
Depending on your needs, either broker could be a good pick. Robinhood has a clear advantage on trading costs given its no-commission business model, but it doesn't currently offer research or the ability to trade options or invest in mutual funds. E*TRADE offers plenty of free research and access to mutual funds, but you'll pay a commission on most trades.
To be clear: The Motley Fool doesn't endorse any particular broker, but we can help you find the broker that is the best fit for you. Visit Fool.com's Broker Center to compare several brokerage accounts all on one page, or see the IRA Center for a comparison of brokerage firms on features and benefits specific to retirement accounts.
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