Before 2021 the stock market and wall street have been nothing more than an abstract idea for ordinary people. But then, in January 2021, a bunch of Redditors came into the picture and changed the game (pardon the pun) with the whole Gamestop fiasco. Now more and more people are interested in getting involved in the stock market. You can even trade from the comforts of your own home with the help of various platforms. This article is a comparison between Robinhood vs. TD Ameritrade- two such brokerage platforms.
What is Robinhood?
Launched in 2013, Robinhood is still a relatively new player in the investment world. It claims to be a commission-free trading platform that aims to make stock trading simple and accessible for the masses. The platform has seen a recent spike in its growth, especially after it had found itself smack dab in the middle of the Gamestop scandal back in January.
Robinhood offers little or no customer service. Therefore, it is better suited for veteran investors who have former experience with such platforms and didn't require assistance from brokers or any other service tools offered by full-service brokerages.
The number of investment options offered by the platform is also limited. You can trade stocks along with exchange-traded funds (ETFs). But you cannot trade or invest in bonds, mutual funds, or other forms of investments. However, you can invest in Bitcoin and other cryptocurrencies through Robinhood.
What is TD Ameritrade?
Based in Omaha, Nebraska, TD Ameritrade, the electronic brokerage company that Joe Ricketts found in 1971, is a part of the Toronto Dominion Bank, hence TD.
TD Bank is the ninth-largest bank operating in the United States. The connection between TD Ameritrade and TD Bank is a lucrative one. Because of this connection, TD Ameritrade offers fully functioning investment brokerage services, and you can avail of their banking services through TD Bank. Its parent organization is the Charles Schwab Corporation. Moreover, TD Ameritrade isn't just an electronic platform. They also offer in-person advising at their many, many branches.
Day-Trading Vs. Investing
There are many forms of trading and investing in the stock market. But to understand Robinhood and TD Ameritrade in detail, you need to understand two main types first.
Day-Trading
Day-traders actively trade for the first 2 hours after the market has opened and during the final hour before the market closes. Day-trading is much more stressful than long-term investing. Your day-trades and steady gains can sum up over time and make you an abundance of money that you can reinvest in different places or cash out on.
Investing
Investing is a long game. You are continuously adding to your position, hoping that it will grow into a large return over time. Your investments don't require constant scrutiny from you. You can check in every once in a while. Remember the basic rule of Finance- the higher the risk, the greater the return. Because investments yield higher returns, they also pose more significant risks.
Robinhood vs. TD Ameritrade
Now let's look at the differences and similarities between Robinhood vs. TD Ameritrade.
Fees
There are four main types of fees that investors should be looking out for when using trading platforms-
Trading fees
Trading fees are any fees that are attached to every trade you make. It can either be a flat fee or a "spread." A spread is the difference between the buying and selling price of an asset and is often charged by the broker.
Trading Commissions
The broker will charge a trade commission as a percentage dependent on each trade's amount or value.
Inactivity Fees
Yes, sitting idle will also cost you money. Brokers can charge you inactivity fees for not trading.
Miscellaneous fees
Any other type of fees not mentioned above falls under this category. For example, you might be charged a fee for taking money in and out of your brokerage account.
The table below is a list of trading fees charged by Robinhood vs. TD Ameritrade.
Robinhood has made a name for itself by charging investors nothing to make trades on its service, which is vastly different from the traditional fee structure for trading platforms. Instead, Robinhood makes its profits by charging a spread, which is the difference between an asset's buying and selling price. Singularly, this generates little over pennies per transaction, but the millions of transactions occurring on the platform all add together to contribute to the company's total gain.
On the bright side, this makes Robinhood almost entirely free. It doesn't charge its investors any trading fees, inactivity fees, or ask for any commissions. Neither does Robinhood require a minimum investment of any amount, nor does it charge any annual fees for account maintenance or other miscellaneous charges. It does, however, offer $5 per month for an upgrade to Robinhood Gold. Robinhood Gold allows you to borrow money to make trades and offers advanced tools.
TD Ameritrade, like Robinhood, requires no minimum deposit from you to start trading. And following in Robinhood's footsteps, TD Ameritrade has also dropped its online trading fees to nothing.
However, TD will be charging you anywhere between 0.30% to 1.25% per year to manage your portfolio. The managed portfolio option also has other requirements and a much more complicated fee structure than Robinhood. Some of these requirements and fees include-
- Select Portfolios, $25,000
- Essential Portfolios Robo advisor, $500
- Personalized Portfolios, $250,000
However, for simple online-trading, TD Ameritrade and Robinhood both charge you nothing for most services. With TD Ameritrade, you may be charged a small fee of $0.65 for its options per contract feature. Beyond this, there is little difference between the fee structure of the two platforms.
Features and services
The main difference between Robinhood vs. TD Ameritrade lies in the depth of services and tools each platform offers.
Range of Offerings
Robinhood is a streamlined trading platform with a focused app. Therefore, the types of investment options are much more limited at Robinhood than at TD Ameritrade. As mentioned before, at Robinhood, you can trade stocks along with exchange-traded funds (ETFs), options, and cryptocurrencies. It does offer a wide range of cryptocurrencies to its users, including Dogecoin (DOGE), Bitcoin SV (BSV), Bitcoin (BTC), Litecoin (LTC), Bitcoin Cash (BCH), and Ethereum Classic (ETC).
Alternatively, the trading options available at TD Ameritrade are much broader. The options available are typical of all asset classes you'd expect from a large broker. They offer everything from long and short bond stocks to mutual funds, ETFs, bonds, options, Forex, and futures. You can access cryptocurrency through TD Ameritrade but only by Bitcoin futures.
Order Types
Robinhood allows you to place market, stop limit, limit, trailing stop limit, and trailing shop orders on both their mobile and desktop platforms. Conditional orders aren't supported on Robinhood.
The selection of order types offered at TD Ameritrade is much more comprehensive than Robinhood. Along with the usual order types mentioned above, TD Ameritrade also allows you to place conditional orders like OCO (one-cancels-the-other) and trailing stops. Both platforms offer you the ability to select a tax lot before placing an order.
Research Facilities
At Robinhood, you can pull up an individual page that gives the asset's necessary trading information (such as its current price), five years of pricing records, and basic statistics such as trading quantity. But this is the extent of information the platform offers. There are no investing-related tools, screening, and calculators on Robinhood. The charting, too, is pretty basic. Though, you gain access to Morningstar research with Robinhood Gold. Such limitations on Rabonhood's end are quite deliberate- it has been designed to cater to users with little or no experience in trading. The goal is to ensure people don't become overwhelmed by too much information from the get-go.
TD Ameritrade provides many research facilities. This is because TD Ameritrade is a full-service brokerage that happens to have a web and app-based trading platform too. The platform's research facilities include ETF, robust stock, fixed-income, mutual fund, and options screeners. Besides the basic research amenities, TD Ameritrade also offers technical analytics such as extended pricing history and candlestick charts, and market analysis reports. You can also use the platform's tools to compare the performance of various assets, asset classes, and much more. Along with all of these tools, you also get idea generators, calculators, new offerings, and plenty of other technical indicator tools and studies.
Portfolio Analysis Services
Unlike TD Ameritrade, Robinhood is not a full-fledged brokerage company. So, the portfolio analysis tools offered by the platform are also limited to viewing unrealized gains and losses, total portfolio value, margin information, buying power, tax reports, and dividend history.
Conversely, TD Ameritrade clients can access margin and real-time buying power information, realized and unrealized gains, and internal rate of return. You can also obtain tax reports directly from the website. Because TD Ameritrade is a brokerage company, it offers all the typical brokerage services, i.e., clients can get advice on their portfolio. The platform provides two advising forms- Robo-advising (AI finds accounts based on specific metrics) or in-person advising (the client speaks to an actual person who is an investment advisor). However, unlike in the case of Robinhood, a lot of these extra services and amenities from TD Ameritrade will cost you extra money.
Blog Post/ Education
Robinhood posts educational articles that are easy enough to understand but difficult to navigate as there is no search box. The daily Robinhood Snacks' 3-minute podcast provides some thought-provoking commentary, but there are no webinars or videos.
On the other hand, TD Ameritrade offers a robust selection of educational content, including glossaries, articles, webinars, and videos. It has over 500 webinars a month and hosts 1.5k live events a year.
Security
Both Robinhood and TD Ameritrade accounts come with SIP coverage, which shields investor's funds from a broker failure.
Robinhood uses encryption to protect sensitive information such as your Social Security number. Both the website and mobile application communicate with servers using transport layer security (TLS) protocols. None of the online banking credentials you enter are stored, and you can further restrict access to the mobile app through various security measures such as TouchID, custom pin, or FaceID. The platform offers two-factor authentication too.
TD Ameritrade has many advanced firewalls in place to keep out any unwanted parties from accessing your personal data. It also has an anomaly detector to detect and weed out any intrusive technology or unusual behavior. All transmission of data between the website and your computer happens through 128-bit encryption. In the event of an unauthorized disappearance of cash or securities, TD Ameritrade offers its Asset Protection Guarantee, and you'll be compensated for any money or securities lost due to unauthorized activity. The Asset Protection Guarantee plan is precisely what most investors look for when selecting a trading platform.
User Experience
Two main points differentiate Robinhood's user experience from TD Ameritrade's- customer service and accessibility.
Customer Service
Robinhood considers itself as a tech company with an interest in Finance. Thus its customer service features are limited to an FAQ section and an email address. It routes all its customer service via the app and website. This works for purely tech-based companies, but clients who are investing through the platform sometimes want to speak to actual human beings and not just bots.
In contrast, TD Ameritrade is a fully-functioning brokerage company with several physical branches and offers a multitude of customer service options. It provides 24/7 phone support and chatbots on Facebook, Twitter, Apple Business Chat, Messenger, and WeChat. And if all else fails, you can always drop by one of their physical branches to voice your concern with the customer service representative there.
Accessibility
Robinhood has been designed with the core concept of accessibility in mind. The company aims to make investing more comfortable and more accessible for ordinary people with little or no prior investment experience. The Robinhood App is its primary interface and is very easy to use. You can quickly navigate through the assets that are listed as menus and grouped with category tags. The category tags allow you to find similar investments easily. Information on any asset is easy to read and straightforward. The overall user-friendly interface ensures that users can easily find what they are looking for.
There are some drawbacks to the ease of use. Because of its minimalistic design, investors can only access limited information about the trade assets listed on the platform. This is also another deliberate move on Robinhood's part. Investors are more likely to take risks and buy/sell assets if they fail to understand the full scope of what they are doing. The bottom of each asset page has a series of prompts that suggest additional assets you can buy. The whole thing is very reminiscent of how a streaming service prompts you into binge-watching by suggesting similar shows. This degree of gamification can quickly warp the genuine risks involved with investing.
TD Ameritrade created its app to make its services more accessible for the general population. However, in its quest to increase accessibility, unlike Robinhood, TD Ameritrade did not oversimplify its user interface. The company has a base mobile app and another app that has been designed with sophisticated investors in mind. Such an app has features that allow you to customize technical analytics and build various data sets, which helps a particular investor type.
The basic TD Ameritrade app has been designed for all types of investors- from veterans to newbies. The app is well designed and offers a customarily intuitive layout. Newbie investors will have no trouble finding standard information about assets (like current trading prices, price history, etc.) on the app.
Like Robinhood, TD Ameritrade's accessibility also has limitations. New investors with no prior experience may be overwhelmed by the amount of information available on TD Ameritrade.
Pros and Cons- Robinhood vs. TD Ameritrade
Now that you've familiarized yourself with the differences between Robinhood vs. TD Ameritrade let's look at a summary of their respective pros and cons.
Robinhood Pros
- Robinhood charges no trading fees or commissions.
- User-friendly interface that is easy to use.
- Designed for people with no prior investing experience.
- Robinhood offers access to various cryptocurrencies for you to invest in.
- Highly accessible
Robinhood Cons
- Limited range of offerings and investment options.
- Robinhood doesn't support conditional offers.
- The selection of tools and research amenities is minimal.
- No in-person customer service.
- Robinhood's interface suffers from oversimplification.
TD Ameritrade Pros
- TD Ameritrade offers a wide range of investment options.
- It is a full-fledged brokerage compahttps://app.storychief.io/podercast/stories/216864/edit#/settingsny and thus offers all the services typical for a brokerage company.
- Has physical branches and offers in-person customer care.
- It was designed for both newbies and veteran investors and provides a wide range of tools and research amenities.
- Has the Asset Protection Guarantee plan.
TD Ameritrade Cons
- The overabundance of information can be confusing for investors with no prior experience.
- A lot of the features require extra payment for access.
- Charges a small commission fee for every trade you make.
The Bottom Line
Both platforms are excellent in their own right and cater to different types of investors. If you are new to the stock market, Robinhood is a great platform to get started. You can start with a small investment and use its user-friendly interface to gain some experience before moving on. Once you have gained enough experience and want to move on to bigger things, you can migrate to TD Ameritrade.