Is Robinhood Safe for Investors? (2024)

Robinhood is considered safe for investors. It's a member for the Securities Investor Protection Corp. (SIPC), is regulated by the SEC, and has additional financial protection per customer up to certain amounts for cash and securities. Learn more about why Robinhood is considered safe and then decide if it's the right investment app for you.

Key Takeaways

  • Founded in 2014, Robinhood charges no commissions or account minimums, making it a user-friendly application for a new generation of investors.
  • Despite the simple user interface that demystified trading for many, some investors questioned if the platform was too good to be true.
  • Robinhood is regulated by the U.S. Securities and Exchange Commission (SEC) and maintains membership in the Financial Industry Regulatory Authority (FINRA).
  • Investment accounts with Robinhood are covered beyond just standard Securities Investor Protection Corp. (SIPC) coverage.
  • Robinhood offers additional SIPC coverage of up to $1.5 million for cash and $10 million for securities per brokerage customer after SIPC coverage is exhausted.

Is Robinhood Safe?

Robinhood (HOOD) is a popular financial services company with 10.3 million monthly active users (MAU) as of November 2023. It’s considered a safe option for investors’ securities and cash for various reasons:

  • Robinhood is a member of the Securities Investor Protection Corp. (SIPC). This means that any loss of an investor’s securities (e.g., stocks and bonds) and cash held by Robinhood is protected up to $500,000 in the event the firm fails or goes out of business. This includes up to $250,000 protection for cash holdings. SIPC insurance does not protect investments from losses caused by market fluctuations.
  • Robinhood is also regulated by the U.S. Securities and Exchange Commission (SEC) because it’s a registered broker-dealer.
  • Finally, Robinhood offers added financial protection per customer account of up to $1.9 million for cash and $50 million for securities.

Keep reading to learn more about Robinhood, its safeguards for investors’ securities and cash, and the challenges it has faced in the past.

How Does Robinhood Work?

Robinhood is a financial services company that facilitates individuals to trade cryptocurrencies, exchange-traded funds (ETFs), individual stocks, and options. It offers commission-free trades and services similar to any other brokerage company. For a monthly fee, it can also invest your uninvested funds in a brokerage cash sweep fund offering interest on the funds.

Robinhood disrupted the financial technology industry by charging commission-free trades. It launched in December 2014 with a waiting list of more than 500,000. Company founders Vladimir Tenev and Baiju Bhatt, both Stanford physics graduates, believed that Robinhood would motivate a new generation of would-be investors with their mobile platform. Its mission was to make the financial markets more accessible, primarily by offering zero-fee trades, no account minimums, and an easy-to-use mobile app—even if some were skeptical. Robinhood now offers its platform on iOS, Android, and most web browsers.

In 2016, it launched a premium trading platform called Robinhood Gold. This service offers investors premium features for a $75 annual fee and allows them to trade on margin up to $1,000, bigger instant deposits, and access to professional research and Level II market data. Investors interested in premium features can sign up for a 30-day free trial.

There’s no doubt that Robinhood has won a loyal following, and the company is backed by major players such as Google Ventures, Index Ventures, and Andreessen Horowitz. But is it safe? Here’s what you should know.

Robinhood’s Protections

As noted in Investopedia’s review of the platform, Robinhood was an exciting platform that attracted new, mostly retail investors who wanted to trade in small quantities. Despite the simple user interface that demystified trading for many, some investors questioned if the platform was too good to be true.

Luckily, Robinhood, like all brokerage firms that handle securities, is regulated by the Securities and Exchange Commission (SEC). The SEC’s primary compliance mechanism is prosecuting civil cases against individuals and companies that commit fraud, disseminate false information, or engage in insider trading. The SEC doesn’t offer individual investors any protection, and it doesn’t insure against loss or otherwise protect investments from actions that brokerage firms may take.

Robinhood also maintains membership in the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization (SRO) in which most brokerage firms voluntarily participate. SROs are overseen by the SEC but are not part of the government. Brokerages that are FINRA members submit to the organization’s rules and regulations, which cover testing and licensure of agents and brokers, and a transparent disclosure framework that protects investors.

$1 billion+

What Robinhood claims to have saved their users in commissions and fees.

Other Protections

Investment accounts with Robinhood are covered by the Securities Investor Protection Corp. (SIPC), a nonprofit membership corporation that protects money invested in a brokerage that files for bankruptcy or encounters other financial difficulties.

The SIPC was created by Congress in 1970 under the Securities Investor Protection Act (SIPA). The SIPC has no authority to investigate or regulate its members—it exists only to restore investor funds (up to $500,000 for securities and cash or $250,000 for cash only per account) held by financially troubled brokerages.

In addition to SIPC coverage, Robinhood has what it calls “excess of SIPC” coverage. Through its partnerships with certain underwriters at Lloyd’s of London, Robinhood provides up to $1.9 million more for cash and $50 million more for securities protection per customer, which is triggered when SIPC coverage is exhausted.

Robinhood’s Safety and Protections

Risks Associated With Trading on Robinhood

For most investors, the potential risks involved with using Robinhood aren’t associated with the regulatory framework covering their accounts. For instance, Robinhood is a very sleek and minimal application, and investor tools are rudimentary compared with those of other major brokerages like Charles Schwaband E*Trade. This can lead to hasty and uninformed decision-making, especially for novice investors.

The Robinhood app makes it difficult to manage a diversified portfolio. Most reviewers suggest that tracking more than three or four positions isn’t practical with Robinhood, which leads to overweighing your portfolio with one or two equities—never a good practice. The Robinhood platform permits stock, ETF, cryptocurrency, and options trades.

As a matter of convenience, Robinhood doesn’t integrate with other financial management tools like Mint or Quicken, so there’s no convenient way to track your holdings as a part of your overall financial picture outside the Robinhood app. In December 2022, Robinhood introduced Robinhood Retirement, which is an individual retirement account (IRA) option. They offer a 1% match for every dollar contributed. The benefits of tax savings and long-term benefits of retirement savings plans are thereby extended to their users.

Robinhood’s Ongoing Challenges

There are challenges that are inherent with brokerage firms like Robinhood. For instance, one of the main sources of Robinhood’s revenue comes from payment for order flow (PFOF), which the SEC is reviewing. In this practice, brokerage firms receive payments for any client trades directed to market makers. The payments are generally fractions of a penny per share. So while it may not seem as much, it does add up when multiple trades are redirected. If banned, companies like Robinhood would lose a significant revenue stream.

Robinhood has also experienced service interruptions and outages during large influxes of orders made by multiple users at the same time, which was commonly found with trades of highly volatile names. This not only led to customer complaints but also meant that Robinhood had to pay a $70 million settlement—the largest such FINRA penalty—in June 2021 to cover losses experienced due to these outages. FINRA had fined Robinhood a much less severe $1.25 million in 2019 for best execution violations.

The Bottom Line

For a certain class of investors, Robinhood may be the right tool at the right time. However, for long-term investors, a mainstream broker may be a better alternative. In many cases, you can open a no-minimum account and get commission-free trades on many, if not most, ETFs while still having access to all the data, charts, tools, and educational resources you need to make informed decisions.

Is My Money Safe With Robinhood?

Investment accounts with Robinhood are covered by more than just the Securities Investor Protection Corp. (SIPC), which protects up to $500,000 for securities and cash or $250,000 for cash only per account. In fact, Robinhood also provides its brokerage customers with excess SIPC coverage, which provides an aggregate of $1 billion of coverage—up to $1.9 million for cash and $50 million for securities per customer, should the SIPC coverage become exhausted.

What Is the Catch With Robinhood?

Robinhood was primarily designed for new investors with a simple user interface and commission-free trades. However, more advanced investors will find that trades on the platform can be limiting: Trades tend to be routed based on payment for order flow (PFOF), there is limited research or resources available, and there are no customization options.

Is It Safe To Enter My Social Security Number in Robinhood?

Robinhood’s security team encrypts sensitive details such as Social Security numbers, ensuring that they will be safe from hackers.

Is Robinhood Really Free?

Robinhood offers commission-free trades in stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. A more in-depth fee schedule is listed on its website—for example, regarding regulatory trading fees.

Is Robinhood Safe for Investors? (2024)


Is Robinhood Safe for Investors? ›

Robinhood is a member of the Securities Investor Protection Corp. (SIPC). This means that any loss of an investor's securities (e.g., stocks and bonds) and cash held by Robinhood is protected up to $500,000 in the event the firm fails or goes out of business. This includes up to $250,000 protection for cash holdings.

Is it safe to invest with Robinhood? ›

Yes. Robinhood carries insurance of up to $500,000 for stocks for each user. Cash, on the other hand, is swept into U.S. bank accounts and is covered by up to $250,000 worth of F.D.I.C. insurance.

What is the downside of Robinhood? ›

Robinhood's range of offerings is extremely limited in that it only offers stocks, ETFs, options, and cryptocurrency trading. Robinhood doesn't support mutual funds or fixed-income products, and you can't trade commodities, forex, or futures.

How do I get my money out of Robinhood? ›

To withdraw money from Robinhood to your bank account, simply follow these steps: Open the app, go to the menu, select “Transfers,” choose “Transfer to Your Bank,” enter the amount you wish to withdraw, review the details, and confirm.

Is Robinhood available in Canada? ›

Marketed as the investing app for millennials, Robinhood has become one of the most popular platforms for retail investors in the United States. Unfortunately, Robinhood does not work in Canada.

Do I need to file taxes for Robinhood? ›

We're legally required to ensure that all Robinhood customers certify their tax status. For US customers, we're generally not required to withhold taxes on proceeds, such as from sales, interest, and dividends. If you don't certify your tax status, you may be subject to backup withholding.

Does Robinhood charge fees? ›

Investing with a Robinhood investing account is commission free. We don't charge you fees to open or maintain your account.

Why people don't use Robinhood? ›

For instance, Robinhood is a very sleek and minimal application, and investor tools are rudimentary compared with those of other major brokerages like Charles Schwab and E*Trade. This can lead to hasty and uninformed decision-making, especially for novice investors.

Can you actually make money with Robinhood? ›

Yes, some people have gotten rich from Robinhood. For example, one Robinhood user turned $250,000 into $400 million by investing in Tesla stock. However, it's important to note that these are the exception, not the rule. The vast majority of Robinhood users do not make money, and many lose money.

How much does Robinhood charge to cash out? ›

Standard bank transfer: No fee for withdrawals. External debit card account: Withdrawals have up to a 1.75% fee based on the amount being transferred out. You'll see the calculated fee when you initiate the withdrawal, so you'll know the amount up front.

Why can't i take my money off Robinhood? ›

Following a sale in your investing or retirement account for equities or options, the transaction usually needs to settle before you can withdraw the proceeds to your bank account. The settlement period for equities is the trade date plus 2 trading days (T+2), sometimes referred to as regular-way settlement.

Why can't i get all my money out of Robinhood? ›

Why can't I withdraw money from Robinhood? You probably can't withdraw money from Robinhood because your funds are unsettled. You can only withdraw “settled funds”, money that hasn't been transacted with in the last 2 business days. This is known as Robinhood Withdrawable Cash.

Why can't I withdraw Robinhood? ›

If you receive a fractional share of stock worth $10 in your Robinhood account, you can't withdraw the $10 you receive by selling the stock for 30 days. The cash value of the stock is determined by the price of the stock at the time you received it.

Which trading platform is best in Canada? ›

Best Online Trading Platforms in Canada 2024
  • Questrade - Overall best trading platform in Canada.
  • Interactive Brokers - Best for professionals and active traders.
  • Qtrade Direct Investing - Best for long-term investors.
  • TD Direct Investing - Diverse trading tools and great education.
  • CIBC Investor's Edge - Transparent fees.
Apr 16, 2024

What is the best Robinhood alternative in Canada? ›

Alternatives to the Robinhood App in Canada

Three Canadian alternatives are Qtrade, Wealthsimple Trade and Questrade. We specifically recommend 2 of the three, but the best choice for you depends on your needs and your investing strategy.

Why do day traders need 25k? ›

Why Do I Have to Maintain Minimum Equity of $25,000? Day trading can be extremely risky—both for the day trader and for the brokerage firm that clears the day trader's transactions. Even if you end the day with no open positions, the trades you made while day trading most likely have not yet settled.

Is Robinhood good for day trading? ›

Day trading on Robinhood can be an exciting way to potentially profit from short-term market movements. However, the Pattern Day Trader (PDT) rule requires traders to maintain a minimum account balance of $25,000.

What are the best stocks to invest in on Robinhood? ›

So, what are the best Robinhood stocks to buy now or put on a watchlist? At the moment, Microsoft (MSFT), Google parent Alphabet (AMD) and Block (SQ) are standout performers, at least relatively. They are also part of the Robinhood Top 100 Stocks list, the platform's most popular stocks among traders.

How does Robinhood make money? ›

Robinhood makes money in many ways, notably through a system known as payment for order flow. That is, Robinhood routes its users' orders through a market maker who actually makes the trades and compensates Robinhood for the business at a rate of a fraction of a cent per share.

Is Robinhood profitable? ›

We delivered significant profitable growth in 2023,” said Jason Warnick, Chief Financial Officer of Robinhood. “We drove record full-year revenues and substantially higher margins, and in Q4 we had positive GAAP net income.


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