As Robinhood has change into more and more well-liked amongst buyers and merchants, the query of whether or not or not it’s a secure platform for buying and selling has come beneath scrutiny.
Many individuals have requested, “Is Robinhood actually secure?” With its easy-to-use interface and fee free trades, Robinhood has change into one of the well-liked inventory buying and selling apps lately. However questions stay about how safe and dependable it’s when in comparison with conventional brokerages.
On this article we’ll check out what makes Robinhood secure and discover the dangers related to utilizing the app.
What’s Robinhood?
Robinhood is a inventory brokerage that gives commission-free buying and selling by its cell app and web site. It was based in 2013 by two Stanford roommates, Baiju Bhatt and Vlad Tenev, who needed to make investing less complicated and extra accessible to everybody.
Robinhood permits customers to purchase, promote, and maintain shares, ETFs, choices, cryptocurrencies, and extra with no fee charges.
In addition they provide academic sources to assist customers be taught the fundamentals of investing. Robinhood has change into well-liked amongst younger buyers trying to get into the inventory market with out spending some huge cash on charges.
Is Robinhood regulated?
Robinhood is an SEC-registered broker-dealer and member of FINRA and SIPC, that means that it adheres to a algorithm and rules established by these organizations. Their CRD # 165998 which could be discovered on their FINRA BrokerCheck agency abstract.
These protections assist safeguard buyers’ funds and securities within the occasion of a brokerage agency’s failure or different monetary losses.
Along with this safety, Robinhood additionally follows business greatest practices reminiscent of Know Your Buyer (KYC) procedures and Anti-Cash Laundering (AML) legal guidelines by verifying buyer identities earlier than permitting them to commerce.
What about SIPC?
Robinhood’s membership in SIPC supplies safety for patrons towards broker-dealer chapter, with protection of as much as $500,000 in money and securities.
SIPC stands for the Securities Investor Safety Company. It’s a nonprofit company that gives safety to buyers towards theft, fraud, and different errors by their broker-dealers reminiscent of misappropriation of funds or securities. Backside line if Robinhood had been to go bankrupt, SIPC would step in to assist out their buyers.
Along with this safety, Robinhood has applied measures to watch suspicious exercise and defend customers from monetary loss because of fraudulent exercise. These measures embody fraud screening procedures designed to establish unauthorized trades and suspicious behaviors.
Is Robinhood Secure to Use?
Whereas the protection of any funding platform relies on quite a lot of components, Robinhood has taken a number of steps to extend its safety and enhance buyer help.
New updates embody issues like improved danger disclosure, further customer support channels, and instruments to assist clients make extra knowledgeable selections.
Robinhood has improved its customer support help with further channels reminiscent of on-line chat, e mail and telephone help. This enables clients to simply get assist after they want it most.
Moreover, the corporate has applied measures to higher monitor suspicious exercise and try to guard customers from monetary loss because of fraudulent exercise. In the end, it’s as much as particular person customers to determine in the event that they really feel snug utilizing the platform or not.
How Does Robinhood Make Cash?
Robinhood makes cash in a number of methods. The first income for Robinhood is the curiosity they earn on buyer funds held in Robinhood accounts.
In addition they earn cash by choices buying and selling charges, margin curiosity, Gold subscriptions, and rebates from market makers.
Robinhood capitalizes on the explosive progress of retail investing by providing commission-free trades whereas nonetheless making a revenue off its customers.
Robinhood additionally makes cash from retailers, reminiscent of when clients purchase merchandise with their Robinhood debit card.
Moreover, they generate income by partnerships, reminiscent of referral charges and commissions for referring customers to different providers.
Lastly, Robinhood additionally presents in-app upgrades that give customers entry to extra superior buying and selling choices and analytics instruments. They disclose on their web site the alternative ways they generate income.
How Robinhood makes cash:
- The charges charged for premium accounts and providers
- Curiosity earned on buyer deposits
- Fee for order circulate, when patrons and sellers are matched with market makers
- Income from credit score merchandise reminiscent of margin lending and margin curiosity
- Promoting information to exterior companies
- Fee-free buying and selling on sure shares and ETFs
Has Robinhood Been in Hassle?
Robinhood has come beneath scrutiny for its enterprise practices, significantly with reference to customer support and danger disclosure.
In December 2020, the corporate settled with the U.S. Securities and Change Fee (SEC) for $65 million associated to allegations of false promoting and misrepresenting their pricing construction.
Robinhood additionally confronted a public outcry after considered one of its clients, a 20-year-old school pupil, dedicated suicide. His household alleged, Alexander E. Kearns, had suffered monetary losses as a result of firm’s dangerous buying and selling practices and lack of buyer help. Robinhood later agreed to pay an undisclosed sum to his household and launched updates to their customer support plans geared toward offering higher help and security measures for customers.
Moreover, in March 2021 the corporate settled a lawsuit introduced by Massachusetts regulators for $26.5 million associated to its seeming “gamification” of buying and selling, which inspired clients to commerce extra continuously and take increased dangers than applicable for his or her degree of expertise or funding targets.
In June 2021, FINRA fined Robinhood Monetary LLC $57 million and ordered the agency to pay roughly $12.6 million in restitution, plus curiosity, to 1000’s of harmed clients for a complete of $70 million.
The sanctions symbolize the most important monetary penalty ever ordered by FINRA and mirror the scope and seriousness of the violations.
In whole, Robinhood has 9 whole disclosures of their report (see screenshots beneath):
Right here’s considered one of their pending allegations on their agency abstract for:
“
FAILED TO SUPERVISE THE REVIEW AND
APPROVAL OF OPTIONS TRADING, TARGETED YOUNGER, INEXPERIENCED
INVESTORS AND SUCCESSFULLY ENCOURAGED THEM TO EXECUTE
TRADES FREQUENTLY, FAILED TO IMPLEMENT POLICES AND
PROCEDURES REASONABLY DESIGNED TO PREVENT AND RESPOND TO
OUTAGES AND DISRUPTIONS, PROVIDED LISTS OF SECURITIES TO
ENCOURAGE CUSTOMERS TO PURCHASE SECURITIES WITHOUT ANY
CONSIDERATION OF SUITABILITY, AND BREACHED ITS FIDUCIARY DUTY.
The Backside Line – Robinhood App is Secure?
There’s no denying that Robinhood is a registered broker-dealer with the Securities and Change Fee (SEC) and is a member of the Monetary Trade Regulatory Authority (FINRA).
In addition they use encryption to guard customers’ private and monetary info, and it presents two-factor authentication for added safety.
However you’ll be able to’t deny the quantity of hassle they’ve received in since they launched their platform. Due to that I’d encourage any new investor to tread fastidiously.
FAQs on Robinhood App Security and Safety
Robinhood is a SEC and FINRA regulated platform and usually thought-about secure to make use of for buying and selling.
Robinhood makes use of quite a lot of safety measures to guard consumer accounts, together with two-factor authentication, encryption, and common safety audits.
Robinhood has not skilled any main safety breaches to this point. Nevertheless, in July 2020, the corporate did disclose a knowledge breach that affected a small variety of customers, however no monetary info was compromised.
Sure, Robinhood has 9 disclosures on their FINRA BrokerCheck agency profile. A type of cases handled the favored meme inventory GameStop in January 2021.
Cited Analysis Articles
- SEC.gov (seventeenth, December 2020) SEC Fees Robinhood Monetary With Deceptive Clients About Income Sources and Failing to Fulfill Obligation of Finest Execution (
- FINRA Orders Report Monetary Penalties Towards Robinhood Monetary LLC (thirtieth, June 2021)
- BrokerCheck Report (n.d.) ROBINHOOD FINANCIAL, LLC
- CNBC Robinhood to pay $70 million for outages and deceptive clients, the largest-ever FINRA penalty (thirtieth, June 2021)
