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Is Robinhood Secure? – Good Monetary Cents®


As Robinhood has develop into more and more standard amongst traders and merchants, the query of whether or not or not it’s a protected platform for buying and selling has come underneath scrutiny.

Many individuals have requested, “Is Robinhood actually protected?” With its easy-to-use interface and fee free trades, Robinhood has develop into one of the vital standard 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 protected and discover the dangers related to utilizing the app.

What’s Robinhood?

Robinhood is a inventory brokerage that provides commission-free buying and selling by way of its cellular app and web site. It was based in 2013 by two Stanford roommates, Baiju Bhatt and Vlad Tenev, who needed to make investing easier and extra accessible to everybody.

picture of investor holding iphone with Robinhood app

Robinhood permits customers to purchase, promote, and maintain shares, ETFs, choices, cryptocurrencies, and extra with no fee charges.

In addition they provide academic assets to assist customers be taught the fundamentals of investing. Robinhood has develop into standard amongst younger traders seeking 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 may be discovered on their FINRA BrokerCheck agency abstract.

screenshot of Robinhood Finra brokercheck firm summary

These protections assist safeguard traders’ 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 resembling 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 offers safety for purchasers 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 traders towards theft, fraud, and different errors by their broker-dealers resembling misappropriation of funds or securities. Backside line if Robinhood have been to go bankrupt, SIPC would step in to assist out their traders.

Along with this safety, Robinhood has carried out measures to watch suspicious exercise and shield customers from monetary loss resulting from fraudulent exercise. These measures embody fraud screening procedures designed to determine unauthorized trades and suspicious behaviors.

Is Robinhood Secure to Use?

Whereas the security of any funding platform is dependent upon quite a lot of elements, Robinhood has taken a number of steps to extend its safety and enhance buyer assist.

New updates embody issues like improved threat disclosure, extra customer support channels, and instruments to assist prospects make extra knowledgeable selections.

Robinhood has improved its customer support assist with extra channels resembling on-line chat, electronic mail and telephone assist. This permits prospects to simply get assist after they want it most.

Moreover, the corporate has carried out measures to higher monitor suspicious exercise and try to guard customers from monetary loss resulting from fraudulent exercise. Finally, it’s as much as particular person customers to resolve in the event that they really feel comfy 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 way of choices buying and selling charges, margin curiosity, Gold subscriptions, and rebates from market makers.

Robinhood capitalizes on the explosive development of retail investing by providing commission-free trades whereas nonetheless making a revenue off its customers.

screenshot from Robinhood's website on how they make money

Robinhood additionally makes cash from retailers, resembling when prospects purchase merchandise with their Robinhood debit card.

Moreover, they generate income by way of partnerships, resembling referral charges and commissions for referring customers to different companies.

Lastly, Robinhood additionally provides in-app upgrades that give customers entry to extra superior buying and selling choices and analytics instruments. They disclose on their web site the other ways they generate income.

How Robinhood makes cash:

  • The charges charged for premium accounts and companies
  • Curiosity earned on buyer deposits
  • Fee for order move, when consumers and sellers are matched with market makers
  • Income from credit score merchandise resembling margin lending and margin curiosity
  • Promoting knowledge to exterior companies
  • Fee-free buying and selling on sure shares and ETFs

Has Robinhood Been in Bother?

Robinhood has come underneath scrutiny for its enterprise practices, significantly with regard to customer support and threat disclosure.

In December 2020, the corporate settled with the U.S. Securities and Alternate Fee (SEC) for $65 million associated to allegations of false promoting and misrepresenting their pricing construction.

Robinhood additionally confronted a public outcry after one among its prospects, 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 assist. 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 prospects to commerce extra incessantly and take larger dangers than applicable for his or her stage 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 hundreds of harmed prospects for a complete of $70 million.

cnbc headline that reads: Robinhood to pay $70 million for outages and misleading customers, the largest-ever FINRA penalty

The sanctions signify the biggest monetary penalty ever ordered by FINRA and replicate the scope and seriousness of the violations.

In complete, Robinhood has 9 complete disclosures of their report (see screenshots beneath):

screenshot of 9 total disclosures for Robinhood on Finra BrokerCheck

Right here’s one among 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.

screenshot of Robinhood app pending regulatory disclosure on FINRA.org

The Backside Line – Robinhood App is Secure?

There’s no denying that Robinhood is a registered broker-dealer with the Securities and Alternate 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 provides two-factor authentication for added safety.

However you’ll be able to’t deny the quantity of bother they’ve obtained in since they launched their platform. Due to that I might encourage any new investor to tread fastidiously.

FAQs on Robinhood App Security and Safety

Is Robinhood a protected platform to make use of for buying and selling?

Robinhood is a SEC and FINRA regulated platform and customarily thought-about protected to make use of for buying and selling.

What sort of safety measures does Robinhood have in place to guard my account?

Robinhood makes use of quite a lot of safety measures to guard person accounts, together with two-factor authentication, encryption, and common safety audits.

Has Robinhood had any safety breaches previously?

Robinhood has not skilled any main safety breaches up to now. Nevertheless, in July 2020, the corporate did disclose a knowledge breach that affected a small variety of customers, however no monetary info was compromised.

How Robinhood obtained into going bother?

Sure, Robinhood has 9 disclosures on their FINRA BrokerCheck agency profile. A kind of cases handled the favored meme inventory GameStop in January 2021.

Cited Analysis Articles

  1. SEC.gov (seventeenth, December 2020) SEC Fees Robinhood Monetary With Deceptive Clients About Income Sources and Failing to Fulfill Obligation of Finest Execution (https://www.sec.gov/information/press-release/2020-321
  2. FINRA Orders Document Monetary Penalties Towards Robinhood Monetary LLC (thirtieth, June 2021) https://www.finra.org/media-center/newsreleases/2021/finra-orders-record-financial-penalties-against-robinhood-financial
  3. BrokerCheck Report (n.d.) ROBINHOOD FINANCIAL, LLC https://information.brokercheck.finra.org/agency/firm_165998.pdf
  4. CNBC Robinhood to pay $70 million for outages and deceptive prospects, the largest-ever FINRA penalty (thirtieth, June 2021) https://www.cnbc.com/2021/06/30/robinhood-to-pay-70-million-for-misleading-customers-and-outages-the-largest-finra-penalty-ever.html

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