Is Robinhood Safe?

Wall Street Survivor

It is no secret that fintech is dominating the financial industry.

Think about the many investment apps, online exchanges, and online brokerages.

You can trade everything from stocks, exchange-traded funds, and cryptocurrency.

Robinhood is one of the fastest-growing and lowest cost investment options.

Founded by Baiju Bhatt and Vladimir Tenev…

…Robinhood has seen significant growth since its inception in 2013.

The company reports over 6 million users to-date.

In fact, Robinhood recently surpassed one of the most well-known exchanges, E*Trade.

But with the recent popularity of fintech, we must ask the question…

…are these apps, websites, and exchanges safe?

More importantly, is Robinhood safe?

What are the risks involved with Robinhood?

What should you consider before choosing any fintech platform?

You will find the answers to all of this and more!

Simply read on…

What Is Robinhood?

Robinhood is a fee-free investment and stock-trading app.

The company allows users to invest in stocks, ETFs, cryptocurrency, and more.

The app sports a commission-free model that provides users access to trade securities at no cost. Robinhood began exclusively on Apple products but has since rolled out Android versions, as well.

One thing to know is that Robinhood is for the people.

That is why there are no account minimums and no fees to trade with Robinhood.

Both features are a rarity in the fintech space.

You can trade several things, including cryptocurrency and even options trading.

But just like any brokerage, you must qualify to trade options.

Robinhood also offers Robinhood Gold, a premium account that gives you access to margin.

So, what makes Robinhood so popular?

Robinhood is famous for its commission-free trading, plentiful investment options, and an intuitive platform.

All of this is great…

…but, is Robinhood safe?

You are about to find out!

Is Robinhood Safe?

Robinhood is a securities brokerage.

Securities brokerages are regulated by the Securities and Exchange Commission (SEC).

In addition, the company has several other safety measures in place to protect your money and data.

So, how is your MONEY protected?

Your funds on Robinhood are protected up to $ 500,000 for securities and $ 250,000 for cash claims.

You can sleep easy, knowing that your money is safe.

As you can image, Robinhood operates under plenty of regulation and protection.

But remember, Robinhood is not subject to the scrutiny as a bank.

The imposed regulations and insurance make Robinhood safer to use…

…but there are other factors to consider when looking at the app’s safety.

And while Robinhood provides the benefits of commission-free trading, the app is not without its dangers.

So, what are Robinhood’s safety measures?

Financial Regulation

Since Robinhood is a securities brokerage firm, the company is regulated by the SEC.

Furthermore, the app is a voluntary member of the Financial Industry Regulatory Authority (FINRA).

FINRA is a self-regulatory body that many brokerages participate in.

As you may recall, your money in Robinhood is protected by the Securities Investor Protection Corporation (SIPC).

The SIPC protects up to $ 250,000 for cash claims and $ 500,000 for securities.

Despite the regulations and security measures put in place…

…there are concerns regarding the format and layout of the app.

These concerns could pose more of a danger to beginner and novice investors.

Unfortunately, several reports suggest that Robinhood may be harmful to new and novice investors.

Marketing to New Investors

This may not pose the most significant security concern…

…but the layout and model of Robinhood may pose a threat.

What kind of threat?

The kind of threat that threatens new and/or inexperienced investors.

Is that you?

Well, if you use Robinhood, there is a good chance you fall into that category.

The app primarily markets itself to new and young investors.

And many people believe that this is precisely the issue.

Some even believe Robinhood is geared toward day traders.

The app heavily emphasizes the high-frequency trading of individual stocks.

On the other hand, Robinhood does not offer mutual funds or exchange-traded funds.

That’s right – Robinhood encourages individual stock trading.

This “encouragement” is not bad in and of itself.

However, newer investors can get into hot water playing this game.

For example, when you sign up, Robinhood promotes stocks like:

The above are “flashy” stocks.

Who doesn’t want to own shares of their favorite, high-profile company?

But as a new investor, you may need safety over flash…

…and there are significantly “safer” investments on the market.

The safer options include mutual funds, exchange-traded funds, and bonds.

In addition to individual stock trading, the app also promotes cryptocurrency.

Are you the next Bitcoin millionaire?

Probably not.

However, investors’ lacing experience turn to Robinhood to pursue the cryptocurrency riches.

But let’s not forget the extreme volatility that comes with cryptocurrency.

What do I mean by volatility?

In one month (beginning January 2018, Bitcoin fell by sixty-five percent!

If you invested $ 100 in Bitcoin at that time…

…you would have been left with a whopping $ 35.

Long story short, you are primed to fail if you don’t know what you are doing!

For this reason, new investors must be careful because Robinhood’s suggestions are not the “best.”

New investors should not be jumping in and out of the market.

Instead, new investors should get their feet wet with more secure, long-term investments.

Robinhood In-App Features

Robinhood likes when you make trades on their app.

In fact, when you execute trades, the app “celebrates” by throwing virtual confetti at you.

Who isn’t a sucker for confetti?

The app also sends you push notifications when there are changes in stock price.

These features are fine but steadily encourage frequent stock trades.

The confetti and notifications can lead investors to believe they are doing something good.

But is that always the case?

Of course not.

Moral of the story: If you don’t know what you’re doing, don’t get excited about the confetti (because everyone gets it).

Robinhood is not the easiest to maintain a diversified portfolio (which is hard to do without mutual funds, in the first place).

The overall lack of diversification poses risks to many investors.

And, finally, Robinhood does not emphasize education as much as other apps.

The company promotes “learning by doing.”

Learning by doing is an excellent way to learn but may come at a high price!

The Great Banking Controversy

In addition to the above, Robinhood has not always maintained smooth sailing.

Back in the day, Robinhood announced its plans to launch Robinhood Checking & Savings.

These accounts promised an outstanding 3% interest rate.

According to a Robinhood spokesperson, cash in the accounts was insured by up to $ 250,000 by SIPC.

But there was one problem…

…the accounts were not FDIC-insured.

The controversy swiftly ended the bank account idea – for now.

However, the legal implications remain and have many investors concerned.


Because there should be no uncertainty when it comes to regulatory protection.

Could you imagine waking up to the money in your bank account simply gone?

Yes, Robinhood is SIPC-insured, but checking and savings accounts must be FDIC-insured.

From there, Robinhood quickly admitted fault in its ways through the company blog.

The company also announced a re-branding and re-working of the new product.

The new product promised to work closely with regulators and “revamp its marketing materials, including the name.”

Regardless, the controversy has many investors on their toes.

Is the company willing to bend the rules to acquire new business and make money?

That question is undoubtedly a legit one, at this point.

However, one may ask…

…if Robinhood is free, how does the company make money?

Furthermore, how would the company rip anyone off?

These questions are all valid.

Here is How Robinhood Makes Money

It is no secret that Robinhood does not collect fees or commissions on trades.

Why do you think the company is SO popular?

Instead, the company makes money in other ways.

What are these “other” ways?

Glad you asked.

Robinhood makes money on interest, lending, premium accounts, and rebates.

The most widely-used Robinhood services are the free ones…

…but the app offers Robinhood Gold for $ 6 per month.

Robinhood Gold gives users access to up to $ 1,000 of margin.

If you don’t know what margin entails, it is essentially “borrowed” money.

That’s right – users can invest up to $ 1,000 more than they have in cash.

According to Robinhood:

“We generate income on cash, such as customers’ uninvested cash that isn’t swept to our network of program banks. We do this primarily by depositing cash in interest-bearing bank accounts outside of Robinhood Financial.”

Finally, Robinhood makes over 40% of revenue from high-frequency trading and payment from order flow.

This is a practice used by many online brokerages.

Robinhood makes money by processing trades with “behind-the-scenes” parties.

These parties provide the other end to the trade.

So, what is the difference?

Robinhood goes through third-parties rather than processing your order through an exchange.

The third parties that Robinhood uses include the “market makers,” Citadel Securities, Two Sigma, Wolverine, and Virtu.

The Conclusion

Okay, so we spent the last 5-10 minutes of your life “bashing” Robinhood.

But that was never our intention.

Furthermore, Robinhood IS NOT an inherently bad company or brokerage.

With that said, here is the verdict:


Well, the company is safe, with a few caveats.

The level of safety largely depends on your personal experience, knowledge, and goals.

For example, tons of day traders make a killing on Robinhood.


The company keeps costs low for these traders.

In that case, Robinhood is hugely beneficial.

But conversely, for newer traders, Robinhood can get messy.

However, this does not need to be the case (or your personal fate).

So, what can you do to stay safe?

You need to arm yourself with knowledge.

Otherwise, Robinhood has the infrastructure and regulations in place to keep your money safe.

Oh, and Robinhood will keep your data safe, too.

The risks on Robinhood lie more in “user error” than in the app itself.

However, the same could be said for just about any other brokerage.

As the customer, you must perform your own research on the brokerage, tools, and investments.

Like any other service, Robinhood provides you the platform, but your results depend on YOU.

Try giving Robinhood a try…

…but first, learn and understand the basics of investing.

After that, you are good to go with Robinhood.

The company is safe, receives high safety ratings, and is safe for investing.

And when it comes to your money, just be sure that Robinhood is right for you.

Ask yourself the following questions:

  • What are your objectives?
  • How much money can you afford to invest?
  • Do you have an emergency fund?
  • Do you have debt that must be paid-off?
  • Is your retirement plan on track?

If you answered YES to all of these…

…you are ready to get started with Robinhood (or another brokerage).

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