Robinhood Review – Forbes Advisor

Robinhood appears to offer new investors a platform specifically designed to lower the barriers to markets, courtesy of its bare-bones interface and industry-leading low basic trading fees.

But here’s the problem with Robinhood: It makes trading so easy that it practically turns it into a game. This tends to drive active trading, or buying and selling stocks rapidly to turn a quick profit. Due to the amount of risk and huge potential of loss involved with active trading, most experts instead recommend almost all investors opt for passive investing, or buying and holding low-cost index funds long term to grow wealth.

Robinhood also lacks many of the educational resources offered by the best online brokerage platforms for beginners. Taken together, these aspects of Robinhood may give new investors the wrong idea about how trading and investing should work.

There have been tragic outcomes associated with Robinhood’s approach. In June 2020, a 20-year-old college student named Alexander E. Kearns took his own life after seeing an unexpected negative balance of over $730,000 on his Robinhood app. It is thought that the negative balance was associated with a complicated options trading strategy deployed by Kearns that used margin—and that it may have only been temporary losses on paper that would have rectified as soon as trades were settled, although this fact may have been unclear on the platform.

Robinhood pledged major changes to their interface after Kearns’s death, although reviews of their response have been mixed at best.

This has not been Robinhood’s only high-profile controversy. In early 2021, Robinhood was a central player in the Gamestop saga, and CEO Vlad Tenev was called to testify before Congress about how Robinhood may have exacerbated the drama. Then in November 2021, the company disclosed that hackers had accessed the names and email addresses of millions of Robinhood customers, calling into question the company’s security procedures. What’s more, Robinhood has been fined more than $130 million by the Securities and Exchange Commision (SEC) and FINRA, a brokerage governing body, for misleading and harmful practices to customers.

These facts, combined with the poor performance of its customer service and educational resources, lead us to not recommend Robinhood for beginner investors—although investors of all experience levels may also find the platform lacking.

Intermediate and advanced investors wont’ find sorts of tools and resources they would want for more sophisticated trading strategies. Would-be cryptocurrency investors may want to avoid Robinhood due to its limited roster of available coins and lack of a wallet feature that would allow users to transfer crypto offline to a more secure location.

Finally, retirement investors will find little to like on Robinhood. The platform does not offer individual retirement accounts (IRAs), which provide tax advantages for those saving for retirement.