4 Things You Didn’t Know You Could Do With Robinhood
At this point, it’s pretty safe to say that the stock trading app Robinhood has forever altered the brokerage industry. Not only has the service demystified Wall Street for millions of young investors but has also
forced inspired other firms to lower their trade commissions and introduce beginner-friendly features. All the while, Robinhood has made changes and rolled out new functions of their own.
Thanks to the app consistently adding new abilities coupled with the fact that many traders don’t necessarily take the time to explore the platform in-depth, there just might be some things Robinhood is capable of that you may not be aware of. With that in mind, let’s take a look at four lesser-known things that you can do in Robinhood and some other trading apps.
Buy preferred shares ETFs
For all of the things you can do on Robinhood, there are certain assets currently not available for trading. This includes buying preferred shares of stock. However, if you’re interested in the idea of preferred shares, you can purchase shares of ETFs that are made up of this type of asset.
If you’re not familiar, preferred shares are a type of stock offered by some companies and stand in contrast to what are known as common shares (AKA the types of stocks you’re used to). While these types of shares often lack things, such as voting rights, the benefit is that they are higher up in line to receive dividends. Thus, preferred shares are often described as being somewhere between bonds and common stocks in terms of yields.
Anyway, as I mentioned, preferred shares aren’t offered directly on Robinhood. Instead, you might consider preferred share ETFs such as iShares Preferred and Income Securities ETF ($PFF). Even better, this ETF is among those that Robinhood supports fractional share trading for, so you can experiment by adding only a few dollar’s worth of stock to your portfolio.
Automatically reinvest dividends
Speaking of dividends, one great benefit of being a shareholder is that you may occasionally be entitled to a bonus. While Robinhood has always applied dividends paid out from your portfolio to your account, it was only recently that they allowed for these payments to automatically be invested. Called “DRIP” (just short for “dividend reinvestment plan”), this new feature will make it so the app uses dividend payments to buy more of the underlying stock or ETF. You can also toggle this feature on or off for individual stocks in your portfolio.
There are a couple of other things you should know about DRIP. For one, if a stock doesn’t allow for fractional shares, then this feature won’t work. Additionally, the reinvestment will happen the trading day after the dividend is issued, but Robinhood should let you know when the process is complete. Finally, it’s not 100% clear if this feature is yet available to all users but, if it’s not, it should be fully rolled out soon.
Buy and sell spreads
This one actually comes with an asterisk as (at least with Robinhood) you’ll need to go through a couple of steps. Although the app does support the buying and selling of spreads, users will have to unlock this feature by getting experience with general options trading first. Note that it’s not explicitly stated how much experience you’ll need or how many options trades you’ll need to make before qualifying for “Level 3” options trading. But, if you do know your way around puts and calls already, then you can attempt to enable spreads trading by going to the profile tab, tapping “Investing,” and scrolling down to the “Options Trading” section.
Once you do enable this feature, you’ll be able to trade vertical spreads, calendar spreads, iron condors and more. Of course, if you thought I made that last one up, now you understand why Robinhood puts some restrictions on this functionality. Still, if you want a preview of what different types of spreads are and why you might employ them, Robinhood actually offers a nice roundup of different options trading strategies.
Not a Robinhood user? If you haven’t signed up yet just click the button to create an account and get a free share of stock just for signing up.
Vote on shareholder matters
Even though trading apps can sometimes make it feel as though stock trading is just a matter of numbers, lest you forget, buying a share of a company means you literally own a piece of them. As a result, regardless of where you purchase your stock, you’ll be entitled to vote on shareholder matters. Therefore, don’t be surprised if an email shows up in your inbox inviting you to cast your ballot.
You should know that these votes may not be very exciting, with typical topics including the election of board members, appointment of independent auditors, etc. However, the occasional shareholder proposal (which the board may or may not endorse) may be up for voting or perhaps a merger might be on the table. Regardless, you’ll get to have a say in what the company does — as small of a say as that may be.
FYI: just because you can do these some of these things doesn’t necessarily mean you should. Instead, always be sure to do your own research and invest wisely. On that note, hopefully these features can help introduce you to some new aspects of investing.
Also published on Medium.