Is Robinhood Stock Trading App a Scam? Is Robinhood Safe, Insured, and Legitimate Broker?

Is Robinhood a scam or a fraud? Is Robinhood safe and legitimate investment firm? Robinhood BBB rating, stock trading app complaints. Is Robinhood FDIC/SIPC insured?

About Robin Hood Financial

Robinhood Financial offers investing with absolutely no commissions to the user. The broker and its biggest competitor, Webull, allow everyone from the kid looking to break into the stock market to the grizzled investor with thousands to invest the opportunity to do so at no cost. So is Robinhood app a scam? Read on to find out.

Is Robin Hood Safe and Legitimate Brokerage Firm?

Being a broker of all types of securities, Robinhood Financial is regulated and monitored by the Securities and Exchange Commission (SEC). The SEC's goal is to ensure that all publicly traded securities and the firms offering these securities adhere to the laws and rules governing the stock and bond markets.

Robinhood Financial is a member of the Financial Industry Regulatory Agency (FINRA). According to FINRA's website, the agency is "an independent, not-for-profit organization authorized by Congress to protect America's investors by making sure the securities industry operates fairly and honestly." This means member firms such as Robinhood are willing to submit to scrutiny of their operations, comply with FINRA's rules, and promote market transparency and investor education. In this respect, Robinhood is as safe and as legitimate as any other brokerage in the country.

Is Robin Hood a Scam?

Scam is a loaded term because one person's cry of "Scam" is another person's claim of "Buyers beware." Unscrupulous people are found in all businesses, and scams are certainly more prevalent where large sums of money are involved, such as investing.

Checking several online complaint-oriented websites showed that Robinhood Financial overall has a positive reputation with individual investors from that perspective.

Is Robin Hood SIPC/FDIC Insured?

The quick answer is "yes": investor accounts are insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account. This means that if Robinhood were to go bankrupt or fail for some reason, SIPC guarantees each account up to that limit, with $250,000 of investors cash protected within that account. This is very similar to FDIC rules. What SIPC does not guarantee that any investment will generate a positive return, so investors are always at risk for a company they own stock in to fail and render their investment worthless.

Is Robinhood FDIC insured? No. FDIC insurance applies only to bank accounts. Since Robinhood does not offer any banking services, it is not insured by FDIC.

Robin Hood BBB (Better Business Bureau) Rating

Robinhood Financial has a "B" Better Business Bureau rating. In the past 3 years, there are 276 Robinhood complaints on the website. The firm's BBB page lists 22 negative reviews and 2 positive reviews on the company. See all the details on Better Business Bureau website.

Our Own Opinion

Robinhood Financial right now is not much more than a smartphone app. Since most of online brokers now offer $0 commission stock and ETF trades along with impressive suites of services, it makes no sense to use Robinhood anymore. We would much rather invest with two major $0 commission brokers - M1 Finance or Ally Invest - and take advantage of everything these companies offer.

Robin Hood Review

Robinhood Trading rating

For more information about the Robinhood online trading account take a look at Robinhood Investing Review.

Robin Hood Financial Pricing

Let’s start with the basics. Robinhood charges no fees or commissions on any trade made through its trading platform. With its completely online system, Robinhood requires very little overhead compared to the traditional stock brokerages. With zero fees and commissions, Robinhood allows users to start trading quick and easy, and allows users who would normally be turned off by the high fees charged by traditional brokerages to break into the market. Robinhood also has no minimum balance requirement like many brokerages meaning users can ease their way into trading with a very low barrier to entry.

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Robin Hood Features

Robinhood is very barebones when it comes to trading though. It does not offer investment advice, so be extremely careful when placing trades. Robinhood requires users to do their own research prior to trading with little more than a basic data table with highs, lows, volume, market cap, and only the P/E ratio. Do not expect sophisticated charts, trading tools, and research from Robinhood.

What Robinhood lacks in complexity, it makes up for in a simple and easy to use mobile platform. Everything is done entirely through the mobile app including bank transfers, buying and selling stocks, and all account settings.

Robinhood trading scam

How Robin Hood Makes Money?

So by this point you’re probably wondering how Robinhood makes money. Well according to their website, they make money in two distinct ways:

1. Collecting interest from customers who choose to upgrade to a margin account.

2. Accruing interest from customers’ uninvested cash balances at no charge to the customer.

Nearly all traditional brokerages do the same things and therefore there is little difference between Robinhood and the Schwabs of the world in this regard.

Is Robinhood app legit

Trading On Robin Hood

Moving on to the actual trading on Robinhood. It’s incredibly simple and easy. The lack of huge amounts of data actually can be refreshing to stock traders that do their own research. Buying a stock is as simple as logging in, searching for the ticker of the stock you’re looking to buy, putting in the number of shares, and swiping up.

For the more sophisticated investor, Robinhood offers multiple types of trades in order to maximize returns. Set stops on stocks you already own so you aren’t forced to monitor the market constantly while sitting in your desk job cubicle, and make either market or limit buy orders so you get into a stock at the right time.

Robinhood stock scam

Robin Hood IRAs

Robinhood Financial does not offer any IRA accounts at this time.

Robin Hood Investing Drawbacks

For Robinhood’s incredible value offered, there is a good amount of drawbacks, especially for the very sophisticated trader. While you can trade over 5,000 individual stocks through Robinhood’s platform, these types of securities are currently ineligible for trade:

  • Foreign domiciled securities*
  • OTC equities
  • Preferred Stocks
  • Warrants
  • Mutual Funds
  • Bonds and fixed income trading

*Certain foreign domiciled securities are tradable on Robinhood. These include the securities of companies domiciled in Canada and Israel that trade above $5.

You also cannot expect to be a day trader on Robinhood as you cannot buy and sell a security on the same day more than four times in a five trading day span.

Robinhood also limits trades of stocks it deems “highly volatile.” While this isn’t normally an issue for the average investor, you may want to do some digging into the stocks you intend to buy and sell on the platform to see what requirements Robinhood has for them.

Is Robin Hood Safe Conclusion

Overall, Robinhood allows stock traders of all skill sets to trade fee and commission free. If you are looking for an easy way to break into the stock market, or are a savvy investor who is tired of paying high fees for your trades, then give this broker a try. And rest assured: Robinhood app is legitimate and not a scam.