The Robinhood app has become one of the most popular investment apps in the U.S. in recent years. It added over three million new users in the first quarter of 2020 and is credited with the significant rise in day trading and market upswings in recent times.
Despite the recent Gamestop controversy surrounding Robinhood, the company still has a healthy user base and valuation in 2021.
It is easy to understand why the app is so attractive. It offers commission-free trading that lets you buy and sell stocks, exchange-traded funds (ETFs), options, and even cryptocurrencies.
Is Robinhood Available in Canada?
Unfortunately, Robinhood Canada is still far from becoming a reality right now. The company tweeted that it plans to expand to Canada, but it has not yet taken any action.
Although Robinhood announced that it was launching in Australia in 2015 and the U.K. in 2019, the company scrapped the expansion plans.
Robinhood is only licensed to sell securities in the U.S. to U.S. citizens and residents and will not permit anyone who is not a legal U.S. resident to purchase or sell securities through its application until it is approved to engage in the securities and investment business by the appropriate regulator(s) of a foreign jurisdiction.
However, it does not stop U.S. citizens and legal residents from using Robinhood outside the U.S.
The app is technically supported in all countries except North Korea, Syria, Iran, Cuba, and the Crimea region of Ukraine – but only to U.S. citizens and legal residents.
Robinhood Canada Alternatives You Can Consider
The Robinhood app is unique in many ways. There are no identical versions like Robinhood Canada available right now. However, we do have some viable alternatives that might be on par with, if not better than, Robinhood for Canadian investors.
Canada is home to several trading platforms that offer low-cost solutions to self-directed investors. Wealthsimple Trade and Questrade are two trading platforms available in Canada that compare very well to Robinhood.
1. Wealthsimple Trade
Wealthsimple Trade is the best Robinhood Canada alternative to consider if you are looking for a trading platform that offers commission-free trades. Wealthsimple Trade is the closest thing to Robinhood for Canada because it is the first—and, currently, only—commission-free trading platform in Canada.
Wealthsimple Trade is an investing app for self-directed investors made by Wealthsimple, Canada’s top robo-advisor. You can buy and sell thousands of U.S.-listed and Canada-listed stocks in commission-free trades using Wealthsimple Trade.
It also offers registered and tax-advantaged accounts like the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), so you can invest, grow, and even compound your wealth in a tax-sheltered account.
Reasons to Choose Wealthsimple Trade
Wealthsimple Trade offers several attractive features besides commission-free trading and access to registered accounts, including:
- Zero minimum account balance requirement to sign up with the platform. You can sign up for free and start investing with very little money.
- You can trade using taxable and registered accounts.
- It offers a sleek and intuitive user interface that is easy to use.
- You can also trade cryptocurrencies through Wealthsimple Crypto.
Drawbacks of Wealthsimple Trade
Wealthsimple Trade is an excellent alternative to Robinhood for investors in Canada, but it has a few drawbacks that you should know, including the following:
- Margin accounts are not available; neither are accounts like the RESP, RRIF, and LIRA.
- It offers limited asset types. You cannot trade bonds, options, or foreign exchange (FX) through the platform.
- Some less liquid stocks are not available on their platform
- It offers limited market data, and stock quotes can be delayed by up to 15 minutes.
Wealthsimple Trade vs. Robinhood App
Both platforms offer commission-free trades for thousands of stocks, but a few key differences set them apart. You cannot trade fractional shares or options on Wealthsimple Trade, unlike the Robinhood app.
Wealthsimple Trade is an ideal platform for beginners who are getting started with self-directed investing. Its commission-free trades and overall low-cost structure allow investors to save substantial money as they trade.
Learn more about Wealthsimple Trade in my detailed review.
Questrade is the best self-directed trading platform available to Canadian investors and is ideal for an alternative to Robinhood in Canada. As the fastest-growing online brokerage firm in Canada, it boasts more than 200,000 new accounts each year and over $25 billion in Assets Under Management (AUM).
Questrade does not offer commission-free trades like Wealthsimple Trade or Robinhood. However, its overall bare-bones fee structure makes it an attractive platform to consider. Questrade was founded in 1999 as a discount broker, and it has recently become one of the country’s most popular trading platforms.
Questrade allows Canadians to buy and sell stocks, ETFs, and other investment assets to build their own portfolios. Questrade allows only commission-free ETF purchases, but you have to pay trading fees when selling ETFs. It charges a commission of $0.01 per stock, but the minimum fee is $4.95, and the maximum fee is $9.95 per trade.
Reasons to Choose Questrade
- You can open several accounts with Questrade, including RRSP, TFSA, Registered Education Savings Plan (RESP), Locked-In Retirement Account (LIRA), margin accounts, cash accounts, and more.
- You can hold USD cash and trade using USD on Questrade, allowing you to save a substantial sum in currency conversion fees that come with Wealthsimple Trade. You can also trade a more comprehensive selection of securities, including bonds, stocks, options, FX, precious metals, and more.
Drawbacks of Questrade
Questrade is one of the best discount brokerage firms in Canada, but it has some drawbacks that you should know, including the following:
- You have access only to limited commission-free trades with Questrade. Also, you can only buy ETFs without commissions. Selling ETFs and trading other securities through Questrade may come with much lower fees than other trading platforms, but you do not get a truly commission-free trading experience.
- You need to have a minimum account balance of $1,000 to begin trading with Questrade. Wealthsimple Trade and Robinhood let you start trading with as little as $1.
Questrade vs. Robinhood App
If you consider trading fees alone, Questrade might not be the best alternative to Robinhood in Canada since you will have to pay commissions to trade stocks. However, the $4.95 minimum fee per trade is far more affordable than with other discount brokerage firms in Canada.
Questrade also does not allow trading for fractional shares like Robinhood and even requires a minimum $1,000 account balance to begin trading. However, Questrade could be a better overall alternative to Robinhood.
Not only does it let you save substantial money through registered accounts; you can also get access to several other assets. Furthermore, it offers an excellent customer service experience.
Learn more about Questrade in my detailed review.
Robinhood Canada Alternatives: Which One to Choose?
Questrade and Wealthsimple Trade are ideal alternatives to Robinhood Canada. You can never go wrong with either platform. Deciding which one to choose depends on which platform works better for you.
You Can Choose Questrade If:
- You don’t mind paying bare-bone fees for trading stocks and other securities.
- You want to invest in account types other than the popular ones.
- You are interested in investing in a wide range of diversified securities, including American stocks.
You Can Choose Wealthsimple Trade If:
- You prefer commission-free trades for ETFs.
- You do not have an interest in investing in options, FX, or other asset classes.
- You want to open a TFSA or RRSP account for trading.
Robinhood was founded in 2013 by Vladimir Tenev and Baiju Bhatt, two former students and classmates from Stanford University. Their goal was to democratize finance by making investing accessible and easier for everyone.
As the pioneer of commission-free trading in the U.S., Robinhood offers a trading app and a website where users can buy and sell stocks, ETFs, options, and cryptocurrencies.
It is currently registered with the U.S. Securities and Exchange Commission (SEC) and is regulated by the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC).
The app has become quite popular over the years in the U.S. Since its inception in 2013, Robinhood grew its user base to 13 million as of 2020.
Before Robinhood came along, anybody who wanted to begin investing would need to open an account and deposit thousands of dollars. Investors also had to pay $5-$10 per trade in commissions to become self-directed investors. However, Robinhood came along and changed the landscape.
With Robinhood, anybody in the U.S. can now start investing with a $0 opening balance and trade without worrying about commissions. The successful model introduced by the Robinhood app became so popular that other brokerages in the U.S. also dropped their commissions and moved to a zero-trading fee structure.
Main Features of Robinhood
The Robinhood app has several features that make it an attractive platform among self-directed investors. Knowing its features will help you understand why many Canadians would like Robinhood Canada to become a reality.
The promise of commission-free trades is the most attractive feature of the Robinhood app. It offers you access to free stock, ETF, options, and cryptocurrency trades. The platform also does not charge any commissions for buying and selling these assets.
The lack of trading fees or commissions can provide you with significant savings, whether you are a low-volume investor or an active trader making several trades per quarter.
User-Friendly Mobile App
The Robinhood app is available on iPhone, Apple Watch, and Android devices. Its user interface is highly intuitive, making it easier to navigate even for newbies. All it takes is a few clicks to get to where you need to go on the app.
You can also trade through Robinhood’s web-based trading platform.
No Minimum Balance Requirement
Unlike traditional brokerages, you also do not need a minimum deposit to open an account with the discount broker. You can trade with whatever cash you have. Opening an account begins with US$0, while trading starts with US$1.
Robinhood lets you purchase fractional shares. If you do not have thousands of dollars to invest in an expensive stock, the platform lets you buy a fraction at a time. You can keep investing more money to gradually build up a sizeable position in your investments while you keep enjoying the returns from the fractional shares.
Robinhood Gold is the premium version of the app. It was designed to cater to active traders who want access to more resources to make more well-informed investment decisions using the app.
The service offers comprehensive research reports, analysis, margin trades, 2.5% annual rate on margin over US$1,000, and much more. The cost is US$5 per month. Subscribing to Robinhood Gold also gives you access to Level II market data and instant deposits with the platform.
Robinhood allows you to open a high-yield savings account that pays interest on any uninvited cash with the broker. It comes with a debit card and Federal Deposit Insurance Corporation (FDIC) coverage for your account balance.
How Does Robinhood Make Money?
Brokerages that facilitate trades typically generate revenue through the commissions and trading fees they charge users. However, you will not need to pay commissions or trading fees with Robinhood.
If you are wondering how the company makes any money with a commission-free account, you are not alone.
There are several ways Robinhood can generate enough revenues to remain profitable while allowing commission-free trades.
Rebates from Market Makers
Also called “Payment for Order Flow”, the rebates from market makers are possibly the most significant contributor to Robinhood’s revenues. Robinhood generated $180 million from this revenue source during the second quarter of 2020.
Rebates from market makers are a practice in which brokerages send their orders to a wholesale market instead of sending them directly to the corresponding exchange. In return, the market makers pay them a rebate for sending the orders.
This has become common among online brokers, but it can lead to a conflict of interest. For instance, a brokerage may sell its order flow to the highest bidding market maker instead of offering the best execution for the brokerage customers’ orders.
Robinhood was slapped with a massive US$65 million fine in December 2020 for not disclosing this revenue stream on its website and failing to do enough to get the best quotes for millions of its customers.
Monthly Fee from Robinhood Gold
The premium version of Robinhood, called “Robinhood Gold”, boasts several features that are worth the low cost of US$5 per month. Robinhood generates substantial revenues, even if only a fraction of its 13 million customers as of 2020 subscribe to Robinhood Gold.
Other Ways Robinhood Makes Money
- Robinhood also generates revenue at 2.5% per annum when users trade on margins above US$1,000.
- It earns through the interest on uninvested cash with the platform.
- The company also generates revenues through its cash management services.
Drawbacks of the Robinhood App
Robinhood has several excellent features that make the investment app so popular among retail investors in the U.S. However, the brokerage firm comes with a few drawbacks that you should know.
Limited Asset Types Available
You can trade over 5,000 stocks, ETFs, options, American Depositary Receipts (ADRs), and cryptocurrencies using the platform. However, many other asset classes are still unavailable with the platform.
You cannot trade mutual funds, preferred stocks, bonds, and other fixed-income securities through the Robinhood app.
Only Taxable Accounts Available
You cannot invest in any tax-advantaged accounts with the Robinhood app. It only allows you to use taxable accounts with the platform. IRA and 401(k) accounts are also currently unavailable on Robinhood.
Customer Support Limitations
There is limited customer support available through the platform. Robinhood does not offer online chat or phone numbers to get in touch with customer service representatives. Robinhood only offers customer support via email or through a form on its website.
You can find answers to many of the most frequently asked questions by checking Robinhood’s well-organized and comprehensive help center.
Despite its drawbacks, Robinhood has become a far better alternative to traditional brokers for people looking to become self-directed investors.
If you are a U.S. citizen or legal resident older than 18, Robinhood is available for you to use in most places worldwide. Unfortunately, self-directed Canadian investors cannot use the platform until the company rolls out with plans for Robinhood Canada.
Robinhood in Canada might be a possibility in the future. While the U.S.-based investment app is currently not available in Canada, there are several excellent alternatives that self-directed Canadian investors can consider.
Questrade and Wealthsimple Trade are two of the top trading platforms. I have used several trading platforms in the past decade, and both of these are stellar picks.
However, the final choice between these two platforms depends on your investment goals and which trading platforms offer features that you find more attractive.