Is Robinhood safe?
Robinhood is a US-based, zero-fee discount broker established in 2013. The company is regulated by top-tier financial authorities, such as the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), which makes it a safe option as a broker.
What protection does Robinhood offer?
Robinhood is a member of the Securities Investor Protection Corporation (SIPC), 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.
In addition to SIPC coverage, Robinhood has a so-called "excess of SIPC" coverage. Robinhood offers an extra up to $1.5 million for cash and $10 million for securities protection per customer, after SIPC coverage is exhausted.
Note that cryptocurrency investments through Robinhood Crypto are not protected by SIPC and that Robinhood Crypto is not a member of FINRA or SIPC, so there is not coverage for those investments.
The risks of using Robinhood for investing
Robinhood is not riskier than any other brokerage firm. If you don't get caught up in the adrenaline of trading and keep a cool head, as with any investment, there is no extra risk associated with this particular platform. Trading can always be risky, research and find a strategy that fits your attitude to risk and risk-taking the best.
When you assess a stock broker it's best to think through the following aspects:
- What authority or authorities regulate the broker? In other words who can you turn to if something goes south?
- How much protection do you have?
- For how long Robinhood has been in operation?
- Is it publicly traded itself?
- How transparent is it?
- How much do they protect your account from unauthorized access?
- What auditor audits the brokerage?
We, at BrokerChooser, think the most important feature is to be regulated by at least one trustworthy authority.
Conclusion: Is Robinhood Safe to invest with?
Robinhood is regulated by top-tier financial authorities, making it a safe option. Investment accounts with Robinhood are covered by Securities Investor Protection Corporation (SIPC), which protects up to $500,000 for securities and cash or $250,000 for cash only per account. It also provides brokerage customers with additional coverage of up to $1.5 million for cash and $10 million for securities per customer, after the SIPC coverage is exhausted.
Robinhood also encrypts its users' passwords and "sensitive details". The Robinhood app also offers two-factor authentication via SMS text message and third-party authentication apps for additional security protection.