Robinhood is a web based brokerage agency that’s attracted fairly a little bit of consideration by providing commission-free buying and selling alongside fractional shares, no account minimums, prompt deposits, and aggressive buying and selling charges.
Whether or not you’re buying and selling shares, exchange-traded funds (ETFs), choices, or cryptocurrencies like Bitcoin, chances are high you’ve heard of Robinhood. You might have additionally heard horror tales a couple of GameStop scandal and outages on the Robinhood platform that have you ever questioning whether or not it’s secure to make use of.
Learn on to be taught whether or not Robinhood is secure for traders and what dangers you settle for if you use this in style brokerage platform.
Is Robinhood Protected for Buyers?
In brief, Robinhood is among the many most secure on-line brokers round at this time. The corporate is a regulated dealer, which means it should observe particular guidelines that preserve traders secure. It additionally employs a variety of security options on its platform to make sure your private data isn’t compromised.
You personal shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ worth doesn’t rise and fall with the inventory market. And so they’re rather a lot cooler than Jeff Bezos.
Get Precedence Entry
Methods Robinhood Is Protected
Robinhood takes a number of measures to be sure to’re secure when utilizing its platform. These measures embrace:
SEC Regulation
All securities traded in the US, together with shares of publicly traded corporations, are regulated by the U.S. Securities and Alternate Fee (SEC). The regulatory physique has strict reporting necessities, making certain that traders have all the information they should make knowledgeable funding choices at their fingertips. Robinhood solely permits customers to commerce shares and ETFs that commerce on public exchanges and are thus ruled by SEC laws.
Cryptocurrencies are the one property you possibly can commerce on the Robinhood platform that don’t fall below the purview of the SEC. Take into account that if you commerce crypto property like Bitcoin and Ethereum, you’re buying and selling in unregulated markets the place the chance is considerably larger.
FINRA Member
Robinhood can be a member of the Monetary Trade Regulatory Authority (FINRA). FINRA was launched in 2007 to make sure brokers act in one of the best pursuits of their purchasers. Securities brokers like Robinhood should register with FINRA with the intention to legally present providers in the US.
FINRA units guidelines designed to weed out unethical actions. These guidelines define who can promote securities and the way they are often offered. The authority periodically checks in on member brokers to make sure compliance with its guidelines. If a dealer is discovered to be in violation of the foundations, they are going to be assessed fines.
As a FINRA member, Robinhood should be clear about its charges and safety processes, including to the extent of security if you work with the dealer.
SIPC Insurance coverage
Checking and financial savings accounts have FDIC insurance coverage that protects clients ought to the banks fall on onerous instances. Though FDIC insurance coverage doesn’t cowl investments, Robinhood and different brokerages are insured via the Securities Investor Safety Company (SIPC).
SIPC insurance coverage covers traders when member brokerages fail. The platform supplies as much as $250,000 in insurance coverage for members with money accounts and $500,000 in insurance coverage to cowl securities investments.
This protection implies that even when Robinhood have been to utterly exit of enterprise, your investments with them are insured.
Safety Measures
Robinhood takes different safety measures to make sure the security of its purchasers’ accounts. Its platform takes measures to make sure data like your checking account quantity, debit card data, and Social Safety quantity are secure of their arms.
- Password Storage. All passwords on the platform are saved utilizing the BCrypt hashtag algorithm moderately than storing them in plain textual content. If somebody have been to someway entry Robinhood’s saved passwords, they wouldn’t have the ability to learn them with out additionally cracking the BCrypt hashtag algorithm’s code.
- Knowledge Encryption. Knowledge is moved utilizing Transport Layer Safety (TLS) encryption. Encryption mixes letters, numbers, and symbols to make it unreadable and practically not possible to decrypt with out the right key.
- Two-Issue Authentication. Customers can allow two-factor authentication. This safety function sends you a textual content message or electronic mail with a novel code with the intention to log into the Robinhood app.
Dangers of Utilizing Robinhood
Though Robinhood is secure to make use of, there are all the time dangers concerned in investing. A few of these dangers are associated to the dealer you select to work with.
Some dangers to contemplate earlier than signing up for a Robinhood account embrace:
Fee for Order Circulation Mannequin (GameStop Controversy)
In early 2021, closely shorted meme shares like GameStop spiked throughout the so-called Massive Brief Squeeze. Robinhood halted buying and selling of many of those unstable shares on its platform. The dealer cited market volatility as their motive for halting sure trades, claiming it was finished in one of the best curiosity of traders.
Customers have been outraged, and a few claimed that the shortcoming to purchase and commerce the shares prevented them from realizing tens and even lots of of 1000’s of {dollars} price of positive aspects from the trades.
Some traders blamed Robinhood’s cost for order movement actions, via which market makers pay the platform to route orders via them. Many of those market makers are the very hedge funds that have been being damage by the Massive Brief Squeeze. Customers recommended the hedge funds that pay Robinhood had a hand within the brokerage stopping trades on these closely shorted shares. After all, these allegations have been by no means verified.
Contemplating this occasion, some traders imagine that if one other battle is waged between the hedge fund Goliaths and the retail-investing Davids, Robinhood is more likely to stand on the aspect of the Goliaths.
Outages
In mid-2021, FINRA slapped Robinhood with $70 million in fines surrounding outages on its platform. In line with the San Diego Union Tribune, the positive was the most important of its variety ever imposed by the regulatory physique.
FINRA mentioned the positive was the results of deceptive and false data coupled with hurt suffered by traders because of system outages from 2018 via 2020. The deceptive data needed to do with how Robinhood displayed buyer account balances and shopping for energy and whether or not clients might place trades on margin. The system outages FINRA cited locked clients out of their accounts throughout instances when giant swings have been happening out there.
As a result of clients have been locked out of their accounts when the market was on a downswing, they took vital losses because of the shortcoming to promote, and when the market was on an upswing, they didn’t have the chance to faucet into the pattern.
Overly Simplified Interface
Robinhood was constructed to be one of the crucial intuitive platforms obtainable. The platform isn’t convoluted with tons of instruments. As a substitute it presents solely what most traders, particularly novices, want proper the place they want it.
The issue is that the simplicity of the buying and selling platform makes inventory buying and selling appear straightforward — an insinuation that couldn’t be farther from the reality.
Making trades really easy could encourage new traders to make uninformed choices. A lot of the detailed inventory data obtainable on different platforms is just nonexistent in Robinhood’s interface.
Though the platform is a good choice for long-term, basic research-oriented traders, its simplicity can simply lead novices down the trail towards short-term hypothesis and uninformed buying and selling choices.
Restricted Performance
As talked about above, Robinhood is an easy-to-use, easy platform. Though that has its perks, there’s additionally a little bit of a draw back. It may be troublesome for traders to handle a well-diversified portfolio with a number of positions on such a easy platform as a result of it lacks the technical and basic evaluation instruments to watch such a portfolio effectively.
The Robinhood app additionally doesn’t function integration with in style money administration apps like Mint and Quicken. This could make it troublesome to get a whole image of your monetary state of affairs.
Verdict: Ought to You Open a Robinhood Account?
There aren’t any one-size-fits-all options on the planet of finance and investing. With that mentioned, Robinhood is the proper low-cost investing app for the correct investor. You need to take into account opening a Robinhood account if:
- You’re a New Investor. New traders shouldn’t deal with day buying and selling and different high-risk funding ideas. As a substitute, they need to deal with the fundamentals, which is precisely what the Robinhood platform appears to be designed for. Its low value construction and intuitive interface make it straightforward to create an account and get began even when you don’t have a lot cash to speculate but.
- You’re In It for the Lengthy Time period. Robinhood doesn’t present the technical instruments that almost all energetic short-term merchants would must be profitable. Nonetheless, it’s a terrific place for traders who deal with long-term funding alternatives. In case you analysis the basics of your investments beforehand and may resist the urge to hop out and in of trades, Robinhood will work properly for you.
Though Robinhood is a do-it-yourself-style platform, you don’t must go at it alone. There’s no disgrace in looking for the assistance of a monetary advisor if you want an expert’s assist or steering.
Alternate options to the Robinhood Investing App
Robinhood is a good choice for some traders however isn’t the best choice for everybody. In case you really feel the platform doesn’t match what you’re searching for in a reduction on-line dealer, there are many different choices to select from. Among the hottest Robinhood alternate options embrace:
- E*Commerce. Based in 1982, E*Commerce has been on the forefront of technological innovation in on-line investing and buying and selling. The platform presents all of the instruments energetic merchants must be profitable whereas that includes comparable advantages to Robinhood, like free inventory buying and selling and no account minimums.
- TD Ameritrade. TD Ameritrade is a longstanding monetary service supplier with a long time of expertise. The corporate presents the thinkorswim buying and selling platform, which was constructed by merchants for merchants and comes with all of the technical evaluation instruments you could possibly ever need. It additionally supplies comparable advantages to Robinhood, like free inventory buying and selling and no account minimums.
- Charles Schwab. Charles Schwab is one other on-line dealer that provides entry to free inventory buying and selling and no account minimums. Analysis is the place the corporate shines, which means you’ll have extra data when making funding choices when you use this platform.
Remaining Phrase
The inventory market is all about balancing threat and reward, together with the dangers of investing and dangers created by the dealer you select to speculate with. Though Robinhood does have a couple of blemishes on its document, the corporate has additionally change into one of the crucial in style low cost brokers on-line at this time.
That type of recognition wouldn’t exist if the corporate didn’t take energetic steps to maintain its clients secure.
