Should You Trust Robinhood After Its Hack?
Trading digital assets go beyond picking a particular coin and storing it in a wallet or adopting a trading strategy. This is because even if you are the best of the best in terms of trading, there are some red flags you should look for. In this case, it is the broker or crypto exchange that you want to carry out your trading on. Choosing a or exchange to trade on boils down to the choice of respective individuals. However, there are certain things that users must be watchful about when picking the right exchange. Robinhood has been in the news in the last few days for some not-so-good reasons. In this article, we will be looking into Robinhood to decide if you can trust it or not.
What is Robinhood?
Robinhood Markets Inc. is a financial technology company that allows its users to carry out commission-free trading. Founded in 2013, the company provides users across the financial sector with brokerage services. Its headquarter is located in Menlo Park, California. Traders who intend to carry out their trading activities on the platform can use mobile or web-based websites.
Robinhood affords traders options to trade digital assets, stocks, American depository receipts, options, exchange-traded funds, among other financial services. However, some users in specific locations are prohibited from using the platform for crypto trading.
What are the investment options on Robinhood?
Robinhood allows its users to invest in a wide range of financial instruments, as mentioned above. Ranging from stocks to crypto and ETF, traders have the freedom to choose which asset to put their money on. Below are some of the assets traders can invest in on Robinhood.
Robinhood allows all users to hold stocks, and this is made possible by its zero minimum account balance on the platform. However, traders who intend to buy fractional shares will need to hold a minimum balance in their wallets. Fractional shares here mean that a trader can choose to purchase a part of a company’s stock using the minimum balance of $1. Asides from that, traders who intend to carry out their trades on the platform will find their web and mobile platform easily navigable. Robinhood will also gift you a free stock when you sign up for an account with the company.
Robinhood allows traders to carry out options trading without charging any commissions. One noticeable edge is that traders will not need to pay pre-contract fees as most brokers charge close to $1. Robinhood has also eliminated the tiered fees charged by other brokers on its platform. With the tiered payments, traders who trade actively will pay lower fees, while less active traders will pay very high fees. However, it should be noted that carrying out options trading on Robinhood is highly risky.
Robinhood’s commission-free trading covers traders of digital assets on the platform. Robinhood affords traders with many digital assets with Bitcoin, Ethereum, and Dogecoin the headline assets. To purchase crypto on the platform, traders would need to deposit funds in their brokerage account. However, one major spoiler is that traders cannot transfer digital assets in and out of the platform.
This means that you cannot pay for services with the crypto in your Robinhood account or send them to another person. This means that all digital assets will be on your Robinhood account pending when you convert them to fiat for withdrawal. Although Robinhood has mentioned that it is looking at the prospect of adding wallets to its platform, there is no indication that it will happen soon.
Like other trading apps, Robinhood has become a household name in the financial market. This is due to the mouth-watering offers that the broker provides clients. Although much can be said regarding that, Robinhood is not as shiny as most people portray it.
GameStop and Dogecoin Issues
In the early parts of this year, the brokerage app was in the news for the wrong reasons. In what spiraled into a series of bad publicity, traders of Dogecoin were not able to execute trades using the digital asset. Before then, Robinhood stopped traders from buying GameStop (GME), a high-flying stock at the period. At the period, Gamestop was seeing massive gains as more investors were purchasing the stock.
The Dogecoin fiasco happened twice, with the second one coming when the digital asset touched a new all tie high. Traders who wanted to purchase the asset were not allowed because their transactions could not be executed. Although Robinhood was able to restore purchasing ability two hours after, traders faced the same woes after that.
At the period, Robinhood mentioned that it never intentionally restricted users from purchasing the token, as was the case with GameStop. The GameStop fiasco coupled with the Dogecoin issue put Robinhood in the bad books of most traders, with regulators looking into the exchange for market manipulation.
Like the first two bad publicity that occurred towards the beginning of the year, Robinhood recently entered the news for another bad reason. On November 9, a report went across the media that the brokerage had suffered a massive breach. In the attack, the illicit actors were able to steal email addresses and names belonging to about 7 million. However, some 310 users of the platform will be worried as the hackers were able to get the majority of their details, including date of birth and zip codes.
In its statement, Robinhood mentioned that the hackers could not get their hands on more information like social security numbers, debit card information, and bank accounts. The company also pointed out that no account on the platform lost funds. Although the company has tried to calm its users down, hackers can do so much damage with the details they stole. For instance, they can send phishing emails to compromised emails and spoof messages containing malware.
Giving a vivid detail into how the hack occurred, Robinhood claimed that the hacker targeted a support staff and socially engineered the said person by phone. With this, the hacker compromised most of the support systems and stole the details belonging to users. A previous hack that occurred in 2020 saw about 2,000 users lose the funds in their accounts.
Should You Trust Robinhood?
As it stands, Robinhood is not a very trustworthy brokerage to carry out trading activities on. This is echoed by its F rating of the brokerage platform on Better Business Bureau. Asides from Better Business Bureau, Investopedia rates Robinhood on a 2.3/5, which is less than average. These ratings consider specific issues that the companies have had with either the public or the platform.
The majority of the voters are still angry about the missed opportunity to invest in GameStop during the period that it was making its huge climb. Another issue with Robinhood is that it does not provide major statistics of its platform that will aid traders in comparing payments for order flow. The final blow is the recent hack showing how porous the platform is and how traders must always be watchful when carrying out their activities.
However, traders who intend to trade on brokerage apps must carry out a great deal of research before choosing. With major news regarding Robinhood not encouraging, traders might want to look to other platforms to carry out their stock trading activities.