Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Is Robinhood safe? Experts weigh in on using the commission-free investing app

Is Robinhood safe? Experts weigh in on using the commission-free investing app

Robinhood is an app and web interface that allows users to buy, sell, trade, and invest in stocks and other investments (like cryptocurrency) without paying commission fees.

According to Douglas Boneparth, a certified financial planner and the president of the investment advising company Bone Fide Wealth, Robinhood is "geared toward the next generation of investors."

Yet that forward focus has led to the company being investigated for "gamifying" investing. The company is facing active lawsuits and increased regulatory scrutiny, in part because it restricted trading during the GameStop stock saga in 2021.

Robinhood's rise has been rocky, leading many to wonder whether it's safe to use.

The short answer? "Trade at your own risk," Boneparth says.


Is Robinhood safe?


When setting up an account with Robinhood, users give their personal information — such as their age, net worth, income, and Social Security number. According to Nickolas Sanchez, a certified financial planner at Financial Architects, this is an entirely normal process to trade stocks under SEC guidelines.

"This isn't a Robinhood-specific requirement," he says. "If you want to invest, even at the most reputable firms, you are going to have to give underlying personal information."

The Securities and Exchange Commission requires these details to avoid fraud and especially risky investments. And just like any other brokerage firm, Robinhood must abide by the fair practice regulations set by the SEC, including providing proof of fair dealings. Otherwise, they face being hit with fines or civil lawsuits.

Additionally, Robinhood is a member of the Securities Investor Protection Corporation, which offers financial protection if a brokerage firm were to fail. The SIPC can replace up to $500,000 for both securities and cash, including a $250,000 limit for cash only, in missing customer property.

So if Robinhood went bankrupt, as an investor on that brokerage platform, your funds could be transferred to another brokerage firm or refunded to you. But investments in cryptocurrency are not protected by either the SIPC or Robinhood.

Finally, Robinhood ensures its users that their passwords and "sensitive details" are encrypted. Once you verify your banking information, Robinhood says it will "never access them again." The app also offers two-factor authentication via SMS text message and third-party authentication apps for additional security protection.


The risks of using Robinhood to buy, sell, and trade stocks


Anyone can sign up and create a trading account with Robinhood within minutes, without any real training on the stock market or educational resources on how investing works. That, according to Boneparth, may be a disservice to its users.

The financial expert pointed to the case of 20-year-old Alexander Kearns, who died by suicide after thinking he lost $730,000 on Robinhood.

"Sure, Robinhood will tell you if you go to their website they have blogs and articles about investing, but that's no different than any other brokerage," Boneparth says. "At the end of the day, Robinhood is a business. They don't have a fiduciary obligation to their clients. They facilitate a service."

He adds that there are no risks specifically inherent to Robinhood's platform, yet advises his clients to bounce investment ideas off their personal investment advisor.

Sanchez agrees, telling Insider that the minimalistic design of the app, coupled with the commission-free trading feature, may "incentivize a lot of activity," which could pose a risk to one's portfolio.

"One school of thought is that the best approach to investing — and there's really no right answer — is to buy and hold stocks in quality companies that you believe in, that you trust, and that you use," Sanchez says.


The bottom line


In short, Robinhood is safe to use, but don't get caught up by the allure of free trading. Treat Robinhood like any other broker, and be careful with how you spend your money.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
President Trump Diagnosed with Chronic Venous Insufficiency After Leg Swelling
CEO Resigns Amid Controversy Over Relationship with HR Executive
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
Tulsi Gabbard Unveils Evidence Alleging Political Manipulation of Intelligence During Trump Administration
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Trump Announces Coca-Cola to Shift to Cane Sugar in U.S. Production
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Air India Pilot’s Mental Health Records Under Scrutiny
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
Moonshot AI Unveils Kimi K2: A New Open-Source AI Model
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Bitcoin Reaches New Milestone of $116,000
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
×