Luis Pazos 
As Robinhood gains popularity among investors and traders, concerns about its safety have arisen. Many are asking, "Is Robinhood really safe?" Its user-friendly interface and commission-free trades have made it a top choice for stock trading, but doubts about its security and reliability compared to traditional brokerages persist. This article explores Robinhood’s safety features and the risks involved in using the app.
Robinhood is a stock brokerage that offers commission-free trading via its mobile app and website. Founded in 2013 by two Stanford roommates, Baiju Bhatt and Vlad Tenev, the platform aims to make investing simple and accessible for everyone. Users can buy, sell, and hold stocks, ETFs, options, cryptocurrencies, and more without paying commission fees. The app also provides educational resources to help users learn about investing.
Robinhood is an SEC-registered broker-dealer and a member of FINRA and SIPC, adhering to established rules and regulations. Their CRD #165998 is available on the FINRA BrokerCheck firm summary. These memberships help protect investors’ funds and securities in case of brokerage firm failures or financial losses. Additionally, Robinhood complies with Know Your Customer (KYC) procedures and Anti-Money Laundering (AML) laws, verifying customer identities before they can trade.
Robinhood’s SIPC membership further secures customer accounts, covering up to $500,000 in cash and securities. SIPC, a nonprofit corporation, protects investors against theft, fraud, and other broker-dealer errors. In the event of Robinhood’s bankruptcy, SIPC would assist investors. Robinhood also monitors suspicious activity with fraud screening procedures designed to identify unauthorized trades and unusual behaviors.
While the platform’s safety depends on various factors, Robinhood has taken steps to enhance security and customer support. Recent updates include improved risk disclosures, more customer service channels, and tools to help users make informed decisions. New support options such as online chat, email, and phone support make it easier for customers to get help when needed. The company also monitors suspicious activity to protect users from financial fraud. Ultimately, users must decide if they feel comfortable using Robinhood.
Robinhood’s main revenue sources include interest earned on customer funds, options trading fees, margin interest, Gold subscriptions, and rebates from market makers. The platform profits from offering commission-free trades while earning from these other sources. Robinhood also makes money from merchants when customers use their Robinhood debit card and through partnerships, referral fees, and in-app upgrades for advanced trading options and analytics tools.
Despite its popularity, Robinhood has faced scrutiny over customer service and risk disclosure practices. In December 2020, the company settled with the U.S. SEC for $65 million over false advertising and pricing misrepresentations. Additionally, Robinhood faced backlash after a 20-year-old customer committed suicide, allegedly due to the company’s risky trading practices and lack of support. Robinhood later compensated his family and improved their customer service plans. In March 2021, they settled a lawsuit with Massachusetts regulators for $26.5 million over claims of promoting frequent, high-risk trading. In June 2021, FINRA fined Robinhood $57 million and ordered $12.6 million in restitution to customers, marking the largest financial penalty ever imposed by FINRA.
Overall, Robinhood is an SEC and FINRA-regulated platform that employs various security measures, including two-factor authentication, encryption, and regular security audits. While they have had issues, no major security breaches have compromised financial information. However, investors should be aware of the platform’s history and evaluate if they are comfortable using it.
Robinhood is generally considered safe for trading, with SEC and FINRA regulation and multiple security measures in place. Although a data breach in July 2020 affected a small number of users, no financial information was compromised. Robinhood’s FINRA BrokerCheck profile lists nine disclosures, including the high-profile GameStop incident in January 2021.
