The Truth About The Free Stock Robinhood Offers For Signing Up

Robinhood Markets Inc., or Robinhood for short, is a stock trading app that has the distinction of being at the forefront of providing commission-free trades. That is, the buying and selling of stocks and other investments like exchange-traded funds, or ETFs, without paying a per-transaction or per- share fee. The company was founded in 2013 by Vladimir Tenev and Baiju Bhatt (pictured), two entrepreneurs who previously developed high-frequency trading platforms for Wall Street.

Though founded in 2013, the Robinhood app actually didn't officially launch until March 2015. Like its namesake hero from English folklore who stole from the wealthy to give to the poor, Robinhood's mantra is "to build a financial product that would give everyone — not just the wealthy — access to financial markets."

Nowadays, there's a multitude of platforms that offer free stock trades, so to continue to incentivize investors to open new Robinhood accounts, the company offers traders one free share of stock as a bonus upon new-account approval. Also, the page describing the promotion touts that free share of stock could be worth up to $200. That almost sounds too good to be true, so let's dive into the fine print.

What are the odds of receiving a $200 stock?

Indeed, Robinhood adds one free share of stock to new accounts immediately after approval. Yet, users can't sell that share for a period of two trading days after being awarded it, so your free share is subject to market fluctuations. At the time the free share is awarded, Robinhood promises a value ranging between $2.50 and $200, which is quite a discrepancy.

Per Robinhood's fine print, "... There is an approximately 98% chance of the stock bonus having a value of $2.50-$10, an approximately 1% chance of the stock bonus having a value of $10-$50, and an approximately 1% chance of the stock bonus having a value of $50-$200, based on the price of shares at the time of purchase."

So, upon a closer examination, there's only a 1% chance of receiving a free share of stock with a value of $50 or greater. That said, Robinhood doesn't have any minimum deposit amount for opening a new account. Investors could literally open the account with a penny — which costs 2.72 cents to make — and receive a free share of stock guaranteed to be worth at least $2.50. Though it's debatable if the opportunity cost of an investor's time to establish a new account is worth the small payback.

Other apps offer free stock, too

Whether you're a new investor looking to jump start your investing journey or a seasoned veteran who's seeking a new platform, know that Robinhood isn't the only commission-free trading app that awards free stock just for opening a new account. In fact, there are several today. Though the full scope of these offers might be too broad for this article, let's take a look at a couple.

On Moomoo, investors earn five free shares of stock by depositing $100 into a new account. If $1,000 or more is deposited, you'll receive 10 more free shares. In the fine print, it's disclosed that the free shares of stock can be worth between $2 and $2,000 each. Further, your average account balance must remain at $100 (or $1000) or more for at least 60 days after opening an account to receive full ownership of the promotional stocks.

For a slightly different approach, there's Besides offering fee-free trades for common investments like stocks and ETFs, investors looking for alternative asset classes can purchase real estate, art, and more using the app. Public has some frequently rotating promotions, like a free $3 to $300 stock for maintaining a new account for at least 90 days with a minimum $20 balance. Public also offers investors a cash bonus of $150 to $10,000 for transferring existing brokerage accounts over to Public and keeping the new account for at least 12 months.

In summary, while Robinhood's sign-up offer of a single free stock isn't the most lucrative offer available, it's perhaps the best for low-rollers and has the fewest strings attached.