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Is Robinhood Protected for Buyers Trying to Purchase and Promote Shares?

Robinhood is an internet brokerage agency that’s attracted fairly a little bit of consideration by providing commission-free buying and selling alongside fractional shares, no account minimums, instantaneous 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, likelihood is you’ve heard of Robinhood. You could have additionally heard horror tales a few GameStop scandal and outages on the Robinhood platform that have you ever questioning whether or not it’s protected to make use of.

Learn on to study whether or not Robinhood is protected for traders and what dangers you settle for if you use this in style brokerage platform.  

Is Robinhood Protected for Buyers?

Briefly, Robinhood is among the many most secure on-line brokers round at the moment. The corporate is a regulated dealer, which means it should comply with particular guidelines that maintain traders protected. It additionally employs a variety of security options on its platform to make sure your private data isn’t compromised. 

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Methods Robinhood Is Protected

Robinhood takes a number of measures to be sure you’re protected when utilizing its platform. These measures embody:

SEC Regulation

All securities traded in america, together with shares of publicly traded firms, are regulated by the U.S. Securities and Alternate Fee (SEC). The regulatory physique has strict reporting necessities, guaranteeing that traders have all the info 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 belongings you may commerce on the Robinhood platform that don’t fall underneath the purview of the SEC. Remember that if you commerce crypto belongings like Bitcoin and Ethereum, you’re buying and selling in unregulated markets the place the danger is considerably increased. 

FINRA Member

Robinhood can also be a member of the Monetary Trade Regulatory Authority (FINRA). FINRA was launched in 2007 to make sure brokers act in the most effective pursuits of their purchasers. Securities brokers like Robinhood should register with FINRA with a view to legally present companies in america. 

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 principles, they are going to be assessed fines. 

As a FINRA member, Robinhood have to 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 prospects ought to the banks fall on arduous 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 had 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 protected of their palms. 

  • Password Storage. All passwords on the platform are saved utilizing the BCrypt hashtag algorithm fairly than storing them in plain textual content. If somebody had been to one way or the other 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 almost 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 e-mail with a novel code with a view to log into the Robinhood app. 

Dangers of Utilizing Robinhood

Though Robinhood is protected to make use of, there are at all times dangers concerned in investing. A few of these dangers are associated to the dealer you select to work with. 

Some dangers to think about earlier than signing up for a Robinhood account embody:

Fee for Order Move 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 carried out in the most effective curiosity of traders. 

Customers had been outraged, and a few claimed that the lack to purchase and commerce the shares prevented them from realizing tens and even a whole lot of hundreds of {dollars} value of features from the trades. 

Some traders blamed Robinhood’s fee 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 had been being harm by the Massive Brief Squeeze. Customers prompt the hedge funds that pay Robinhood had a hand within the brokerage stopping trades on these closely shorted shares. In fact, these allegations had been by no means verified. 

Contemplating this occasion, some traders consider that if one other battle is waged between the hedge fund Goliaths and the retail-investing Davids, Robinhood is prone to stand on the facet of the Goliaths. 


In mid-2021, FINRA slapped Robinhood with $70 million in fines surrounding outages on its platform. In accordance with the San Diego Union Tribune, the advantageous was the most important of its form ever imposed by the regulatory physique. 

FINRA stated the advantageous 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 prospects may place trades on margin. The system outages FINRA cited locked prospects out of their accounts throughout instances when giant swings had been happening available in the market. 

As a result of prospects had been locked out of their accounts when the market was on a downswing, they took vital losses because of the lack 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 vital intuitive platforms accessible. The platform isn’t convoluted with tons of instruments. As an alternative it affords 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 simple — 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 accessible on different platforms is just nonexistent in Robinhood’s interface. 

Though the platform is a superb possibility for long-term, elementary 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 tough 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 elementary evaluation instruments to observe such a portfolio effectively. 

The Robinhood app additionally doesn’t function integration with in style money administration apps like Mint and Quicken. This will make it tough to get a whole image of your monetary scenario. 

Verdict: Ought to You Open a Robinhood Account?

There are not any one-size-fits-all options on the planet of finance and investing. With that stated, Robinhood is the right low-cost investing app for the correct investor. It is best to contemplate opening a Robinhood account if:

  • You’re a New Investor. New traders shouldn’t concentrate on day buying and selling and different high-risk funding ideas. As an alternative, they need to concentrate on the fundamentals, which is strictly what the Robinhood platform appears to be designed for. Its low value construction and intuitive interface make it simple to create an account and get began even in case you don’t have a lot cash to take a position 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 have to be profitable. Nonetheless, it’s an ideal place for traders who concentrate on long-term funding alternatives. If you happen to analysis the basics of your investments beforehand and may resist the urge to hop out and in of trades, Robinhood will work nicely for you. 

Though Robinhood is a do-it-yourself-style platform, you don’t need to go at it alone. There’s no disgrace in in search of the assistance of a monetary advisor if you want an expert’s assist or steering. 

Options to the Robinhood Investing App

Robinhood is a superb possibility for some traders however isn’t the best choice for everybody. If you happen to really feel the platform doesn’t match what you’re in search of in a low cost on-line dealer, there are many different choices to select from. A few of the most in style Robinhood options embody: 

  • 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 affords all of the instruments energetic merchants have to be profitable whereas that includes related advantages to Robinhood, like free inventory buying and selling and no account minimums. 
  • TD Ameritrade. TD Ameritrade is a longstanding monetary service supplier with many years of expertise. The corporate affords the thinkorswim buying and selling platform, which was constructed by merchants for merchants and comes with all of the technical evaluation instruments you might ever need. It additionally supplies related advantages to Robinhood, like free inventory buying and selling and no account minimums.
  • Charles Schwab. Charles Schwab is one other on-line dealer that gives 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 in case you use this platform. 

Ultimate Phrase

The inventory market is all about balancing danger and reward, together with the dangers of investing and dangers created by the dealer you select to take a position with. Though Robinhood does have a number of blemishes on its report, the corporate has additionally turn out to be one of the vital in style low cost brokers on-line at the moment. 

That sort of recognition wouldn’t exist if the corporate didn’t take energetic steps to maintain its prospects protected. 



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