State of the Investing Apps 2020: Robinhood v. Webull

Robinhood and Webull represent two of the top names in the free investing app space. By offering low cost trading and a sleek mobile interface, the respective companies have received recognition from Forbes and CNBC.

Both apps are primarily geared toward the tech oriented, millennial market and see the potential to capture this relatively under-invested cohort. That said, the features offered on the two platforms differ substantially from one another as well as from more traditional online brokerage firms like TDAmeritrade or Schwab.

Robinhood

What Robinhood Does Well

Commissions: Robinhood made its name by being among the first investing platforms to offer 100% commission free trading on stocks, ETFs, options, and cryptocurrency. When they first came to online brokerage scene in 2013 with the commission free model this was a very attractive proposition and helped catapult them to over 6,000,000 users. However, since then major online brokers like TDAmeritrade, Schwab and Merrill Edge have moved to offer commission free stock trading so their shine has faded to a certain extent. Still, commission free trading on crypto remains a compelling offer and not something you can find at crypto exclusive exchanges like Coinbase or Kraken.

Ease of Account Opening: Robinhood has made the account opening process very simple and streamlined compared its competitors. Accounts are often approved immediately with little or no “paperwork” required. This helps investors get up and running very quickly and promotes a key part of their technology driven strategy. If you are accustom to working exclusively on a smart phone then you will appreciate this feature.

Integration: The Robinhood mobile app is very slick and user friendly. The design is simple and intuitive and most menus can be accessed easily with a single click.

The app walks you through linking an outside bank account to fund the account. Robinhood also uses instant verification with your bank so you don’t have to deal with the hassle of confirming micro deposits. Once you link up with your bank you can fund almost immediately.

The default account type for Robinhood is what they term an “Instant Account”. The Instant Account allows you to trade up to $1000 instantly after you have initiated a transfer. Generally an ACH transfer from your bank takes between 3-5 days before the cash settles which would typically prohibit you from trading. With the Instant Account you can trade the $1000 limit immediately. This is an innovative feature and not something you’d typically find with an online broker.

Account Minimum: Robinhood doesn’t have one so you can open an account with any amount of money. To upgrade to margin trading you’ll still need to make the regulatory minimum of $2,000, but if you don’t intend to use leverage then this won’t be a factor for you.

Fractional Shares: Robinhood has introduced fractional shares trading to it’s offerings – meaning that you can purchase a of portion Amazon (AMZN) stock for as little as $1 even though the price for a full share is almost $2,000. This allows you to hold a part of the companies you want and build a diversified portfolio even if you don’t have a lot of money to invest.

“High Yield” Cash Management: In 2019 Robinhood introduced a high yield cash management account paying 1.3% annual interest on idle cash. This may not sound like a lot, but most brokers require a minimum amount of cash before you can access a similar rate. The account also offers a Mastercard debit card so you can access the money like traditional checking account.

Crypto Trading: Whether you’re a crypto -truther or not, you have to appreciate Robinhood’s innovative move to bring stock and crypto trading under one roof. Access to both asset classes within a single app is something no major online broker can match.

Where Robinhood Misses

Limited Securities Selection: The biggest drawback of Robinhood is the limited number of available instruments. Currently, Robinhood only offers stock, ETF, options and cryptocurrency investing. This excludes a wide universe of common securities like bonds, mutual funds, preferred stock and CDs.

The lack of mutual fund investments, particularly on the fixed income side represents a significant limitation for investors. The fixed income markets are significantly more fractured than equity markets with many different kinds of instruments including Treasury bonds, corporate bonds, mortgage back securities, asset backed securities, floating rate bonds and international fixed income. The difficulty of indexing these markets is well known. Fixed income is also a relatively less liquid asset class than stocks with large bid-ask spreads where having a dedicated team to work trades is a real competitive advantage. The fixed income space is more amendable to active management then stocks and the lack of available options on Robinhood is a real miss for investors.

The selection of crypto assets is also restricted to only the most liquid instruments with only 6 tradable currencies in a universe of many hundreds which curiously excludes stable coin offerings.

Limited Account Types: Robinhood offers one type of account, single name retail brokerage. Retirement accounts that investors should be taking advantage of like IRAs and Roth IRAs are entirely neglected as are more exotic account types like SEPs, SIMPLES, UTMA/UGMAs and 529’s. Furthermore, simple variations of retail brokerage accounts like Joint or trust accounts are similarly missing.

Even within single name retail brokerage the options are limited. For example, Robinhood does not offer Transfer on Death (TOD) registration on its accounts. TOD registration is important for estate planning purposes and allows the account owner to name heirs for the account should something befall them. Without this option surviving family is forced to enter probate court to claim the assets.

No Customer Support: While Robinhood has clearly invested in making their products user friendly, most investors still expect over the phone customer service. Robinhood does not publish a phone number and service inquires are conducted exclusively through email and chat. While email and chat are adequate for addressing simple problems sometimes you just need to talk to a live rep if you have a complicated problem or if you lose access to your account.

Order Management and Clearing: In 2019, Robinhood moved to add their own clearing services – meaning they handle their own order management and settlement. While this move was clearly motivated by a desire to reduce costs it was not without its pitfalls. Using an established clearing house to manage orders offers better liquidity, order execution and infrastructure; all of which are very important in volatile markets. On March 3, 2020 Robinhood’s site and app experienced a system wide outage after receiving a surge in orders. Consequently millions of customers were prevented from accessing markets during one of the a largest sell-offs in Wall Street history.

Final Take on Robinhood

Webull

What Webull Does Well

Commissions: Like Robinhood, Webull supports 100% commission free trading for stocks and ETFs. Options trading is materially commission free. Webull does indicate that some small fees are levied by FINRA, the SEC and the OCC on each options trade, but these charges are fractions of a penny in most cases; call it 99% free options trading!

Webull also offers a sophisticated order entry system thereby allowing the trader to precisely build entry and exit points including limit, stop-loss and take-profit orders.

The trade station is really a pretty slick offering that you can customize in essentially any way you like all included for free when signing up!

Margin: As a trader focused offering, Webull offers margin accounts and the ability to sell short. Intraday they offer up to 4x leverage and 2x leverage overnight. You will still be required to maintain the regulatory minimum account balance of $2,000 in order to qualify for margin and of course stay within maintenance so as to avoid a margin call.

Customer Support: Webull has taken proactive steps to ensure that its clients know how to navigate and use their platform. The website offers an exhaustive FAQ that provides answers to hundreds of common questions that users might have. They also have a 24/7 support line to assist users with more complicated questions. I don’t think this is a trivial concern when choosing an online broker. The ability to work directly with someone who knows the system and can work through an issue cannot be replaced by email or chat bots.

Take the example of a 401(K) rollover. Let’s say you left your job and want to rollover your old 401(K) into an IRA so you trade it. If you’ve never done this before you’ll likely have some questions: “Do I need paperwork to start the rollover?”, “Where can my company send the check?”, “How long does it take?”. Your 401(K) probably represents a significant portion of your total assets. It’s good to know that your broker cares enough about your life savings that they at least offer a live person that you can speak with to help navigate the process correctly!

Where Webull Misses

Limited Securities Selection: Like its counterpart, Robinhood, Webull’s biggest drawback is the limited number of instruments available to trade. Currently, Webull supports trading for stock, ETFs and US listed options. Fixed income and mutual fund investing is not supported on the platform. While you have some access to fixed income instruments through ETFs, indexing to the fixed income market is notoriously difficult and often you can only access the most liquid issues (i.e. Treasuries) in a meaningful way.

No Cash Management: Webull does not offer any saving or cash management features as part of its offerings. Increasingly, online brokers are helping investors better manage and access their cash by introducing bank like products with functions similar to savings or checking accounts. Savings facilities will typically come in the form of a “high yield” cash account that pays interest on idle cash; this is model Robinhood has adopted. Most will also offer a debit card linked to your brokerage account for spending or making withdrawals at an ATM.

Webull does not offer any of these cash management features. Coupled with the inability to access the money market through mutual funds there aren’t many options for investors to earn interest on idle cash.

Also, without a debit card the only way to access funds is to make an explicit withdrawal via ACH or wire. In the case of ACH it could be days before the cash is available in your bank account.

Final Take on Webull

All things considered, Webull is a solid platform. The technical and charting capabilities can hold their own with any established house. The news, fundamental data and stock screener provide good customization and complement technical analysis.

These things not withstanding, I’m not convinced that what Webull offers would entice someone to switch from trader exclusive platforms like Interactive Brokers or thinkorswim. Webull lacks the depth of instruments that you can find on more sophisticated platforms which will fail to entice the experienced trader. That being said, if you are a new trader and want to experiment with a small set of instruments using solid tools on a user friendly platform, then Webull will fit your needs well.