Robinhood is considered safe for investors. Its a member for the Securities Investor Protection Corp. (SIPC), which is overseen by the SEC, offers extra financial security for each client for cash and securities up to a certain amount. Find out more about the reasons why Robinhood is regarded as safe, and then choose if it’s the best investing app for you.
Robinhood, a popular online brokerage platform, has been the subject of much debate and controversy regarding the ownership of shares purchased through its platform. This article aims to provide a comprehensive understanding of this topic, addressing the following key questions:
- Do you own the shares you buy through Robinhood?
- Can Robinhood take your stocks?
- What happens to your stocks when you transfer them out of Robinhood?
- What are the fees associated with transferring assets out of Robinhood?
Do You Own the Shares You Buy Through Robinhood?
Yes, you own the shares you buy through Robinhood. This is a common misconception that has been circulating online. Robinhood is a clearing broker-dealer, meaning it facilitates the purchase and sale of securities on behalf of its customers. However, the shares themselves are held in your name and are not owned by Robinhood.
Can Robinhood Take Your Stocks?
No, Robinhood cannot take your stocks. As mentioned above, you own the shares you buy through Robinhood Robinhood does not have the authority to seize or sell your stocks without your consent. However, there are certain situations where your stocks may be liquidated, such as:
- Margin calls: If you use margin to purchase stocks and the value of your portfolio falls below a certain threshold, Robinhood may issue a margin call, requiring you to deposit additional funds or sell some of your stocks to meet the margin requirement.
- Account closure: If you close your Robinhood account, your stocks will be liquidated and the proceeds will be deposited into your bank account.
- Inactivity: If your Robinhood account is inactive for an extended period of time, your stocks may be liquidated and the proceeds will be turned over to the state.
What Happens to Your Stocks When You Transfer Them Out of Robinhood?
If you decide to transfer your stocks out of Robinhood, they will be transferred to the brokerage of your choice through the Automated Customer Account Transfer Service (ACATS). This process typically takes a few days to complete. Once the transfer is complete, your stocks will be held in your new brokerage account and you will no longer have access to them through Robinhood.
What are the Fees Associated with Transferring Assets Out of Robinhood?
Robinhood charges a $100 fee for transferring assets out of your account. This fee is debited from your Robinhood account’s available cash balance. If your cash balance is insufficient to cover the fee, it will be debited from your outside brokerage account, contingent on that firm’s policies.
In conclusion, you own the shares you buy through Robinhood and Robinhood cannot take your stocks. However, there are certain situations where your stocks may be liquidated, such as margin calls, account closure, or inactivity. If you decide to transfer your stocks out of Robinhood, they will be transferred to the brokerage of your choice through ACATS. Robinhood charges a $100 fee for transferring assets out of your account.
Additional Information
- Robinhood is a member of the Securities Investor Protection Corporation (SIPC), which protects investors against the loss of securities and cash in the event of a brokerage failure.
- Robinhood is also a member of the Financial Industry Regulatory Authority (FINRA), which regulates the securities industry.
- For more information about Robinhood, please visit their website at www.robinhood.com.
Frequently Asked Questions
- What is ACATS?
- How long does it take to transfer assets out of Robinhood?
- What happens to my fractional shares when I transfer out of Robinhood?
- Can I cancel a transfer request?
Disclaimer:
This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.
Robinhood’s Ongoing Challenges
Brokerage companies such as Robinhood come with inherent challenges. For instance, payment for order flow (PFOF), which the SEC is examining, is one of Robinhood’s primary revenue streams. Under this arrangement, brokerage firms are paid for any trades made by clients that go through market makers. The payments are generally fractions of a penny per share. Thus, even though it might not seem like much, the sum increases when several trades are diverted. Businesses like Robinhood would lose a sizable source of income if they were outlawed.
Along with service disruptions and outages, Robinhood has also seen high volumes of simultaneous orders placed by numerous users, a phenomenon that was frequently observed in trades involving extremely volatile names. Customers complained as a result, and in June 2021, Robinhood was forced to pay the largest-ever FINRA penalty of $70 million to compensate for the losses incurred as a result of these outages. FINRA had fined Robinhood a much less severe $1. 25 million in 2019 for best execution violations.
Other Protections
Robinhood’s investment accounts are protected by the Securities Investor Protection Corp. (SIPC), a nonprofit membership organization that guards investments made in a brokerage firm in the event of bankruptcy or other financial troubles
Congress established the Securities Investor Protection Act (SIPA) in 1970, which led to the creation of the SIPC. The sole purpose of the SIPC is to restore investor funds held by financially troubled brokerages, up to $500,000 for securities and cash or $250,000 for cash only per account. The SIPC lacks the authority to investigate or regulate its members.
Robinhood has what it refers to as “excess of SIPC” coverage in addition to SIPC coverage. Robinhood offers up to $1 through its relationships with specific Lloyd’s of London underwriters. $50 million more for securities protection per customer and an additional $9 million for cash, which is activated when SIPC coverage is depleted
| Robinhood’s Safety and Protections | |||
|---|---|---|---|
| Membership | SEC | FINRA | SIPC |
| Robinhood | Yes | Yes | Yes |