Investment is a wise choice if you want to increase your money. But then, it involves risk, and you could lose your money when things go wrong.
The fear of losing one’s hard-earned money is the reason most people are skeptical about investing. They prefer to save money where they can easily access it.
Robinhood is a popular private financial services company, which offers to trade on stocks, options, and exchange-traded funds (ETFs) without commission.
The company also offers cryptocurrency trading, thus making investing easier for people of diverse age groups and incomes.
Continue reading to learn more!
Is Robinhood Safe On Social Security?
Yes, Robinhood is safe. It’s under the United States Securities and Exchange Commission (SEC).
The SEC prosecutes civil cases against individuals and companies. These include cases of fraud, sharing false information, or doing insider trading. However, it doesn’t protect your investment from loss or from actions that your brokers take.
Robinhood is a member of the Financial Industry Regulatory Authority (FINRA). The FINRA is a self-regulatory organization (SRO). The SEC controls SROs, but they are not with the government. Broker-dealers that are members of FINRA are under their rules and regulations. It includes testing and licensing of agents and brokers. Also, it protects investors from an open disclosure of products.
Another protection is the Securities Investor Protection Corporation (SIPC), not-for-profit cooperation, which protects investment accounts. So, when the broker goes bankrupt or has a financial issue, the invested money is protected.
Advantages Of Using Robinhood
No fees for trades:
This places them at a level above other brokers. However, some other brokers have started offering free trade. But Robinhood gets credit for changing the industry.
Accessible to anyone:
In addition to zero commission trades, it doesn’t require a minimum deposit and gives a fractional share. It doesn’t have a minimum for investing in cryptocurrency. It makes it easy to invest in all stocks without much capital.
It takes a few minutes to open an account. You can move from downloading the app to trading in less than an hour. When you make deposits of less than $1, 000 you can start using it immediately. You can easily understand the charts and other pieces of information, and it makes trading easy.
The app is intuitive:
Savings have a high yield:
A cash management account that now pays 0.30% annual percentage yield (APY). Also, it automatically transfers cash that is not invested into savings. Its cash management account gives access to more than 75,000 ATMs.
Gives free stock:
It gives you free stock if you’re a new member. Also, there’s a little chance that the stock it gives you will be worth between $50 and $200. You can get a free stock when you refer new people.
Disadvantages Of Using Robinhood
The platform for trading is poor:
The app and website have delayed stock quotes. It has large spreads between buying and selling orders for cryptocurrency transactions compared to some other platforms. Its practices for payment for the order can stop you from getting the best trade prices. You can’t place some trades types.
Customer service is limited:
They don’t have phone or live chat support. That’s discouraging because a lot of the people using the platform are young and inexperienced. Sometimes, emails are not responded to on time.
Meager research capabilities:
They offer less information than other investment platforms. Furthermore, basic research tools have limited customization. For instance, you have less customization for candlestick charts. Also, it doesn’t have trading analysis tools.
Attract inexperienced investors:
The reason is that there’s no trading fee and account minimum. People can easily open an account. So, this feature and its easy-to-use feature can attract people who avoid research and trading education.
Enhance frequent trading:
Since the app is intuitive, the shareable charts of your portfolio performance can tempt you to trade too many times each day. It even shows sweet animation when you complete a trade. This can tempt some persons to trade more often.
Why Robinhood Needs Social Security Number
It feels great to set up a Robinhood account. But have a company request for your social security number (SSN) can be worrying. SSN is a very sensitive number that shouldn’t get into the hands of the wrong person.
Anyway, here are reasons why Robinhood needs your SSN.
They need it for record-keeping purposes:
The SEC requires brokerage firms to get personal identification information from people who open an account. The information is your name, birth date, address, government ID, net worth, SSN, and so on. It’s not needful legally that the brokerage firm records your SSN if you don’t provide it. But they must make an effort to get it.
Because of automation in opening accounts, you can’t finish the account setup without providing your SSN. Since their customer service is poor, you will have a hard time contacting them for this.
It helps to curb money laundering:
The U.S. Department of the Treasury and the SEC implemented the rule for customer identification. It requires financial institutions to get your SSN before they let you open an account. Also, it requires brokerage firms to have processes to verify people’s identity opening a new account.
Furthermore, they should also check if the person is on a government list of suspected or known terrorists. The rule is to help in preventing money laundering, which is the primary means of funding terrorist organizations.
You’re not legally needed to provide your SSN if you don’t want to (from a record-keeping perspective), but the customer identification rule makes it legally required. Therefore, brokerage firms will not let you skip this requirement because it’ll make them break the law and receive a penalty from the government.
It helps them check investment suitability:
Industry organizations like the FINRA advises brokerage firms to collect your details. It allows the broker to help you reach your financial goals.
The organizations recommend brokerage firms collect your personal information. So that they don’t recommend to you an investment that is not suitable for your risk profile, they derive your risk profile from your personal information.
All brokers in the United States ask for SSN:
All brokerage firms in the United States will ask you for your SSN before opening an account. It is a result of government regulations. So, they do everything they can to keep your details safe.
What You Need To Open A Robinhood Account
To open a Robinhood account, you’ll need to meet the requirements:
- You have to be 18 or older;
- You need to have a valid Social Security Number (SSN).
- You need to provide your legal residential address within the United States. However, there may be exceptions for military personnel that are actively serving abroad.
- You must be a United States citizen, a permanent resident, or have a valid U.S. visa.
Things You Should Never Do With Robinhood
Don’t buy stocks in real-time
You often don’t get the exact price when you purchase stock in real-time. It happens because of the delay between when you place the order and when it processes. Instead, use other kinds of order such as limit order, stop limit order and stop loss
Don’t forget to add enough money in advance
Sometimes, you may see a stock you need to buy immediately. But if you don’t have enough funds, you will miss such an opportunity. It takes about 3 days for funds transferred from your bank account to the Robinhood app (except in Robinhood instant) to drop. So it’s better to add enough money to your Robinhood account.
If you don’t work on being patient, you will lose a lot of money. The market is volatile, so you must be patient enough to follow the market before buying or selling. Also, be patient not to withdraw the money you’re supposed to invest.
Don’t track your stocks every day
It is important, especially when you want to hold your stock for at least a year. So, it will be better to check the monthly value of your portfolio. If you check it daily, normal fluctuations may freak you out. You might end up selling because of fear.
Don’t depend on it for research:
Robinhood only gives limited information about stocks. So, use other sources like Yahoo stocks for your research.
How Robinhood Generates Revenue
Even though Robinhood gets zero commission from trades conducted, they generate revenue from other sources. Let’s look at them.
Interest on cash
Robinhood gets income interest from the difference between what you’re paid on idle cash and what the company can earn on customers’ cash balances. Other brokers generate revenue this way too.
Payment from market order flow
Some brokerage firms get income by receiving payment from market makers who direct the customer’s equity and options orders to trading venues.
Stock loan programs
When the stock in your account is loaned out to another trader, they generate revenue. However, Robinhood retains all the revenue it gets from loaning out your stock.
When you’re using Robinhood Gold, you pay $5 per month. You pay this fee whether you’re using margin or not.
It is safe to use Robinhood for investments. But you need to be able to invest wisely. Also, do effective research to know when to buy or sell your stock.
But as you advance as an investor, you will need to use another broker because of the limitations in using Robinhood.