Robinhood Review 2017

Good to know about Robinhood

Subpar execution quality

As mentioned previously, Robinhood's execution quality is 95.62%, slightly below average. This may not make a difference for casual investors, but if you're doing a lot of day trading with a lot of money, you may want to look into brokers with higher execution quality — in particular, brokers that don't accept PFOF at all, such as IBKR Pro.

Is Robinhood safe?

Robinhood has not had any known major security incidents since 2021. But given the broker's checkered past, investors must determine for themselves whether Robinhood is safe enough to use.

How is Robinhood insured and regulated?

All investment comes with a risk of loss, but Robinhood carries several types of insurance that would protect customer funds in the event that Robinhood or its partner banks became insolvent.

Robinhood carries Securities Investor Protection Corporation (SIPC) insurance, which protects up to $500,000 per account, with a cash sublimit of $250,000. It has also purchased additional SIPC coverage which protects up to $50 million per account, including up to $1.9 million in cash ^[0].

Uninvested cash in Robinhood's cash sweep program and spending accounts is also covered by FDIC insurance, which protects up to $250,000 per account.

The broker is also regulated by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which police it for violations of securities laws and industry standards — although it's worth mentioning that over the years, Robinhood has been penalized several times for such violations.

Trust, safety and reliability

Robinhood has made efforts to reassure investors about the safety of its platform — including a guarantee that it will reimburse 100% of direct losses due to unauthorized account activity that isn't the fault of the customer.

However, Robinhood has been the subject of serious complaints and lawsuits over the years, which potential users shouldn’t ignore:

• On Jan. 18, 2024, Robinhood agreed to pay a $7.5 million fine over charges from Massachusetts securities regulators, who argued Robinhood used gamification tactics and in-app experiences like confetti and emojis to encourage riskier trades and strategies^[0]. While the issue was settled in 2024, we should note Robinhood had already discontinued some of these features, such as confetti, in 2021, after the case was initially filed.

• On Nov. 8, 2021, Robinhood announced a data security incident that revealed personal information for a portion of account holders, including email addresses, full names and, in limited cases, dates of births and ZIP codes. The company said it doesn't believe bank account, debit card or Social Security information was affected, and no customers experienced a financial loss.

• In June 2021, FINRA announced that it had fined Robinhood $57 million, and ordered it to pay approximately $12.6 million to thousands of customers who suffered “significant harm” at the hands of the brokerage. FINRA said millions of customers had received false or misleading information from Robinhood, and millions were affected by system outages during the March 2020 market volatility. What’s more, FINRA found that algorithmic bots had approved thousands of customers for options trading, even if those users weren’t eligible or had red flags in their account that would have prevented them from taking part in the advanced trading strategy. The $70 million total marked the largest financial penalty ever levied by FINRA.

• In Jan. 2021, the app came under fire for its decision to restrict trading during the extreme market volatility surrounding GameStop and other heavily shorted stocks. And while the market conditions led other brokerages to take precautions, Robinhood’s restrictions were more expansive. The brokerage has since beefed up its capital holdings, compliance and risk management procedures and customer support team in an effort to make sure these extraordinary restrictions aren't necessary in the future.

• In Dec. 2020, Robinhood was charged by the SEC for misleading customers. The SEC found that “Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices,” and that in aggregate, those inferior prices deprived customers of $34.1 million, even after accounting for savings from Robinhood’s commission-free trade offering. Robinhood agreed to pay $65 million to settle the charges.

• Also in Dec. 2020, the Commonwealth of Massachusetts accused Robinhood of aggressively attracting inexperienced investors to its platform and using gamification techniques to manipulate customers. The complaint also stated that many Robinhood users were given access to advanced — and risky — options trading products, even when they identified as having no or limited investment experience. In Aug. 2020, Robinhood announced plans to hire hundreds of new customer support representatives.

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Is Robinhood right for you?