Robinhood, a mobile-only online brokerage that charges commission-free trades, debuted in December 2014 with a waitlist of over 500,000 people. With over 10,000,000 users by the end of 2020, many people are beginning to wonder, ‘Is Robinhood safe?’ The company’s founders, Stanford physics graduates Vladimir Tenev and Baiju Bhatt, felt that their mobile platform would inspire a new generation of retail investors; they had a simple vision in their head that their mobile platform would be able to make financial markets more accessible by providing no-fee trades, no account minimums, and an easy-to-use mobile app.
Robinhood has turned the investment industry on its head. You may now buy a half-share or other fraction of your favorite stocks, such as Apple, Amazon, or Netflix, and get a free share of stock (up to $225) when you register an account. Even with this kind of offer, one cannot be sure of how much of their given information and services are reliable.
How are Robinhood Customers Protected?
On their website, Robinhood has given some pointers about the safety of their customers and account holders. Some of the things included there have two-step verification, passwords, and encryption. Along with that they have given their users a ‘reliable’ source – SPIC – through which the customers can be sure enough about the safety concerns about their personal information (RobinHood, 2022). But that is something every other website and application offers to their clients and customers, so what is unique about their protection system?
The Pros & Cons of Robinhood
| Pros | Cons |
| No account minimum | No retirement accounts |
| Streamlined interface | No mutual funds or bonds |
| Cryptocurrency Trading | Limited customer support |
| Do not need to pay anything | Premium packages are not for everyone |
| Premium gives you more options | Does not provide services outside the US |
| Do not need to go to a bank to collect your earnings | Besides the ‘Free of Cost Investment Plans’, they do not have any reliable marketing strategy |
Is Robinhood Safe?
Yes, Robinhood is safe to use as an investment platform. However, there are some items to be aware of before using Robinhood for investment purposes.
It may be tempting to newer investors who do not have a large sum of money to invest using Robinhood. It’s a low-cost method to get your feet wet in the stock market because there are no trading or commission costs, account minimums, or account maintenance fees. The app’s gamified approach to investing, on the other hand, makes it far too easy to trade quickly and frequently. According to a November 2020 study by behavioral finance specialists, Robinhood users trade nine times more frequently than users of other low-cost brokerages like E*Trade. Other research has demonstrated that passive investment, commonly known as buying and holding, builds more wealth over time than aggressive trading decisions. As a result, Robinhood’s ease of use may work against you (Gebel, 2021).
Robinhood does not provide either Roth or regular IRAs. These accounts are popular among financial gurus because they serve to protect you from taxes while you invest. Other bargain brokerages allow you to make all of the same investments that Robinhood does, but only within a tax-advantaged retirement plan).
Final Verdict
All in all, Robinhood is safe to use despite its bad publicity and checkered past.
Last year, Robinhood failed to keep the information of its clients safe and led to a huge flux in identity theft. A data breach exposed the personal information of more than 7 million Robinhood users. Since then, they have tried their best to recover the lost clients and improve their security.
Nobody lost their money despite the breach. The developers are running a system that is vulnerable to all kinds of cyber thieves like any financial app would be, but the thieves were unable to steal any money. Yes, the information was lost, but all information that is on databases such as Robinhood’s is vulnerable to such thieves as they will always try to hack into these financial systems.
References
- Boyle, M. and Olson, S., 2021. Is Robinhood Safe for Investors?. Investopedia. Available at: https://www.investopedia.com/investing/is-robinhood-safe/
- Davis, C., 2022. Robinhood Review 2022: Pros, Cons and How It Compares – NerdWallet. NerdWallet. Available at: https://www.nerdwallet.com/reviews/investing/brokers/robinhood
- Gebel, M., 2021. Is Robinhood safe? Experts weigh in on using the commission-free investing app. Business Insider. Available at: https://www.businessinsider.com/is-robinhood-safe
- Gravier, E., 2021. Robinhood customers worried about the data hack: An identity theft protection service can help. CNBC Select. Available at: https://www.cnbc.com/select/robinhood-data-hack-how-to-protect-yourself-from-identity-theft/
- Robinhood. 2022. How you’re protected. Available at: https://robinhood.com/us/en/support/articles/how-youre-protected/
- Lam, J., 2022. Robinhood Review 2022: An Investing App to Avoid. Time.com. Available at: https://time.com/nextadvisor/investing/brokerage-reviews/robinhood-review/
- Maclay, K., 2019. Is Robinhood Safe? Is Robinhood Legit? (Here Are The Facts). Wall Street Survivor. Available at: https://www.wallstreetsurvivor.com/is-robinhood-safe/
- Pagano, M., Sedunov, J. and Velthuis, R., 2021. How did retail investors respond to the COVID-19 pandemic? The effect of Robinhood brokerage customers on market quality. Science Direct, 43, pp.1-12.