Internet Technology Explained

10 Reasons Why You Shouldn’t Invest With the Robinhood App

Dan Price Updated 01-07-2020

Following its launch in 2013, Robinhood quickly became a popular way of investing in stocks and exchange-traded funds (ETFs). However, it’s no longer the golden boy of millennial investing. Indeed, you could even argue that Robinhood is flat-out bad.

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Here are several reasons why you may not want to invest with Robinhood.

1. Free Trades Are Now Commonplace

Robinhood’s big selling point used to be its commission-free structure. The free trades came at a price in other ways (some of which we’ll explore shortly), but users figured that the monetary savings were worth the tradeoffs.

But Robinhood is no longer the only show in town. Since its arrival, several major brokers have followed suit and now also offer free trades. Today, you can get free trades with TD Ameritrade, Fidelity, Charles Schwab, E*TRADE, Interactive Brokers, and many more. It means you need to question whether some of Robinhood’s other major shortcomings are still acceptable. In practice, they are probably not.

2. Major Downtime Problems

2020 has been one of the most remarkable years in market history. At the time of writing, we’ve already seen a record-breaking selloff and recovery, including moves of more than 10 percent on a single day, and summer has barely begun.

We don’t want to go into a lesson on investing, so suffice to say that during periods of such extreme volatility, it’s vital that people can access their accounts. Positions can move quickly and investors need to be able to reliably secure profits or cut losses.

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It’s not good, therefore, when a broker is inaccessible on some of the most volatile days of the last 50 years. But that’s what happened to Robinhood. Not once. Not twice. But three times.

Worse still, all the outages occurred in the space of one week in early March during the most unpredictable days of the COVID19 crisis. It cost people millions of dollars in positions they could not close. And Robinhood’s response? A “goodwill” payment of $75. It is now facing multiple lawsuits over the issue.

Users can no longer maintain any reasonable faith in the service being available when they need it most. That alone is enough reason to switch broker.

3. Delayed Stock Quotes

If you read Robinhood’s FAQs or independent reviews of the service, you will see that the app has real-time quotes.

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That’s only half true. Yes, your orders will always be completed at the real-time price, but the charts and data you see on screen are often delayed. This will prevent you from getting in and out of trades in the most efficient manner.

There are a few factors at play. Most notably, Robinhood uses the same provider as sites like The Motley Fool, Seeking Alpha, and StockTwits for its quotes. It’s cheap, barebones, and limited to a handful of exchanges. Robinhood does this to save money.

If you have an account with another broker, open the same stock on both apps and you’ll see the differences for yourself.

4. Terrible Crypto Product

We’re not here to debate the merits of crypto as an investment class. But we do understand the appeal of being able to do your stock trading and crypto trading in the same place. On paper, that’s something that Robinhood offers; it launched its crypto trading service in 2018.

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But the crypto platform has some shocking drawbacks. The drawbacks are so severe that we’d strongly urge all users to look elsewhere for your crypto needs.

  • Coin withdrawals are not available. If you own Bitcoin, you cannot transfer it out of Robinhood to your own private wallet.
  • Robinhood does not supply you with access to your wallet or your wallet address.
  • You do not hold the private keys for your crypto assets. An oft-repeated (and accurate) piece of advice in the crypto world is that if you don’t have the private keys, you do not own the coins.

All three of these problems directly fly in the face of proper crypto security advice.

On a more simplistic level, Robinhood’s selection of crypto is also extremely limited. Only seven coins are available: Bitcoin, Bitcoin Cash, Bitcoin SV, Ethereum, Dogecoin, Ethereum Classic, and Litecoin.

5. Payment for Order Flow

Given the free trades, how does Robinhood make money? Sure, there’s Robinhood Gold, but the signup rate is nowhere near enough to warrant the $8 billion company valuation.

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The answer is via a practice called payment for order flow. It means that instead of searching for the best price for a given stock, Robinhood is instead selling your data to high-frequency trading (HFT) firms for massive profit. The HTF firms add the data to their algorithms to better understand the flow of retail money. It is they who are Robinhood’s real customers.

A blog post on Seeking Alpha in 2018 revealed the truth after the author spent time studying Robinhood’s SEC filings:

E*TRADE makes $22 per $1,000,000 traded, which sounds like a small number until you realize they cleared $47,000,000 last quarter from this. But off an identical $1,000,000 in volume, Robinhood gets paid $260 from the same HFT firms. If Robinhood did as much trade volume as E*TRADE, they would theoretically be making close to $500 million per quarter in payments from HFT firms.

As the old saying goes, if you’re not paying for the product, you are the product.

(Note: To learn more about payment for order flow on Robinhood, check out the article on our sister site, Blocks Decoded.)

6. Robinhood Gold

And speaking of Robinhood Gold… For those who don’t know, Robinhood Gold is a subscription service that introduces a few extra features for $5 per month.

  • Margin investing.
  • Access to professional research such as Morningstar reports.
  • Level II market data.
  • Larger instant deposits (rather than waiting for money to clear).

Sounds reasonable. But here’s the catch—any broker worth its salt will make all that stuff available for free on its respective platform. It really isn’t worth $5 per month. Robinhood Gold just feels like a way to eke more cash out of inexperienced investors who think that by subscribing they will become better traders.

They won’t.

7. Poor Customer Service

Robinhood’s customer support is notoriously bad. Users complain of waiting weeks for an answer in the app’s Help section, lengthy queues to speak to someone on the phone, no responses to emails, and a general lack of urgency in responding to important issues.

In ordinary circumstances, poor customer service might be forgivable in a free app. However, when large sums of money are involved, clients deserve better. Given the company’s value, we’re sure they could hire a few extra reps easily enough.

8. Lack of Account Types

Robinhood only offers standard, individual investing accounts. You cannot open a joint account, trust account, custodial account, Individual Retirement Account (IRA), or any other type of tax-efficient savings account. Therefore, it’s not a good option if you’re investing for long-term goals, for a child, or as a couple.

Ideally, you should always max out your savings in non-taxable accounts before using taxable products.

9. Lack of Investment Types

Robinhood only lets you invest in four types of assets: US exchange-listed stocks and ETFs, options contracts for US exchange-listed Stocks and ETFs, cryptocurrencies, and American Depository Receipts (ADRs) for 250 global companies.

It might sound like a lot, but you’re missing out on access to many other types of investments, including over-the-counter equities, foreign stocks, mutual funds, bonds, fixed-income assets, and Forex.

Perhaps most concerning is the lack of bonds. Spreading your investment across multiple asset categories is one of the best ways to reduce risk to your portfolio, but at the very least you should hold a mix of equities and bonds.

10. Unimpressive Watchlist Features

A watchlist is a customizable list of stocks that you want to keep an eye on. They are an essential part of planning your investments; they let you quickly see whether specific parameters have been hit, and consequently, whether it’s a good time to buy your desired asset.

Most brokerages’ watchlists are feature-rich. For example, you can create multiple lists for different stocks, opportunities, or ideas. Normally, you can also sort your watchlist in various ways such as by price, volume, bid price, and other key indicators.

Robinhood doesn’t offer any of those features. You can’t even sort your list alphabetically (though at least you can reorder your list manually). The lack of watchlist features makes the app unsuitable for serious stock research.

Remember, if you don’t research stocks thoroughly before purchasing, you’re not investing. You’re gambling.

Should You Avoid Robinhood?

Robinhood is definitely a great way for new investors to get their feet wet in the stock market.

However, it’s important to know that Robinhood’s free trades come at a price, and in a lot of situations Robinhood is an unsuitable investment broker. Once you’ve built up some knowledge and feel confident, it’s worth opening an account with a traditional discount brokerage elsewhere.

If you’d like to learn more about investing, check our articles on the best investment apps for absolute beginners The 5 Best Investment Apps for First-Time Beginners Want to start investing? Have no idea where to begin? Here are the best stock and investment apps for beginners. Read More and virtual stock market games that will teach you the basics 5 Virtual Stock Market Games That Help You Learn How to Invest Looking to practice and learn about investing? From simulators that feel incredibly realistic to user-friendly games, here are five stock market games that will prepare you for the real thing. Read More .

Related topics: Investments, Money Management, Personal Finance.

Affiliate Disclosure: By buying the products we recommend, you help keep the site alive. Read more.

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  1. Ronnie Spadola
    October 23, 2019 at 8:44 pm

    Sounds like the person who wrote this is the competition. So at the end they say if you like to learn more check out OUR articles. The comments are all ads for others. Like wtf is going on? No one has any integrity anymore. Its so funny. Same people going around lecturing the rest of us on how great they are.

  2. Margaret
    September 24, 2019 at 6:32 pm

    I use Robinhood for speculative trades where I am not investing much money. I can buy $10 worth of a little company's stock without the brokerage fee. If I had to pay, say, $3 to buy $10 worth of stock, I would lose too much to the brokerage. Otherwise, I am not very happy with Robinhood. I find that on the desktop/browser-based version, my stock transaction history does not show ALL of my transactions, only most of them. Since I must balance my own records at least daily, this has undoubtedly cost me sometimes when I did not realize a particular trade has executed. To be fair, I do get emails every time a trade executes, but it is more convenient to look in the history online. Besides, the emails often do not contain enough details about the trade. The phone app is more reliable about showing the history, but the phone app crashes frequently when I try to look at stock options, especially if the options have high trading volume. From a software design perspective, they did some user interface stuff really well, but when you get to the options screen, there is a fatal design flaw (which I suspect has something to do with the app crashing so much there): I get to wait while the screen scrolls up and down, up and down all by itself until the program figures out how to display the options closest to the current stock price. Besides the fact that it is very slow to settle around the current price, why whould I, as the user, be watching all this? It should figure out the current price and list of options for that expiration date BEFORE it shows me the screen, and they really need to optimize performance here.

    • alan janssens
      November 28, 2019 at 10:01 am

      Robinhood Web Based platform for OS or Windows. How bad is the charting? Time and Sales?

  3. Rob
    September 8, 2019 at 6:07 am

    Robinhood gives you lower dividends on the same shares than if you'd bought the shares through a normal share trading platform that chargers you for making a trade. So if you were investing for the long term then you are better off going elsewhere.

  4. CC
    May 28, 2019 at 10:29 pm

    You can hold invest in a mix of bonds and stocks... just invest in bond ETFs. Bond portfolios on other brokerages are serious investments of often tens of thousands + dollars each? Clearly not Robinhood's target

  5. Poor service
    March 21, 2019 at 9:05 pm

    There is another reason: Their platform is not reliable. They close people's account all of a sudden and people can't access their funds and their support is not helpful. What kind of business are they running?

  6. Low quality website
    March 20, 2019 at 7:50 am

    Lack of integration with other apps, how is that a major negative and that's your first argument?

    • Umesh T
      December 28, 2019 at 3:06 am

      You need to go out and use more financial apps. You have no idea what it means to have different tools and have them integrated.

  7. Anne Marie
    February 19, 2019 at 6:06 pm

    I was happy with RH until there were 2 unauthorized transactions on my account, one to sell a performing stock (sold and gone) and the other a $4000 transfer from my savings account (I was able to cancel the transfer and am keeping a watchful eye on my account). 6 days later I am still dealing with emails from anonymous RH "customer service" reps asking me to provide duplicate information, my account number and other personal information via email. I have asked for someone to call me each time I email them, only to be ignored and it has resulted in RH deactivating my account?? I don't claim to an investing expert by far and I get that this is low-budget/no frills trading, but come on, extenuating circumstances require a bit more hands on to resolve these serious issues.

  8. BRENDA Strickland
    December 26, 2018 at 5:15 pm

    Robinhood will not release my late husband funds!! Even though my attorney has contacted them. They closed his acct yet continue to charge a monthly fee for the gold level he chose. Ridiculous

  9. Michael
    November 26, 2018 at 9:48 pm

    Just wanted to chime in and say I'm very happy with Robinhood, and, like others have noted, Personal Capital and Robinhood work seamlessly together. Based on this article, MUO could benefit from stricter editorial standards.

  10. dragonmouth
    October 23, 2018 at 2:16 pm

    An uninformed article.

    Robinhood is designed for those that dabble in the market, not for serious traders/investors. The latter use sophisticated software which often costs hundreds of dollars. For what and who it is designed, Robinhood does a good job.

    • PMR
      March 13, 2019 at 3:42 pm

      I'll expand on this comment...

      Robinhood is designed for the MAJORITY of investors - those of use who drop $$ in to an account on a regular basis, want the ability to invest small amounts of savings in a variety of stocks, but not pay the fees that make this impossible at other brokerages. I make about 4x the average US income. I max out my retirement account and I put some $$ in to a savings account for short-term stuff. The $1500 a month I have left to invest in the market would be largely gobbled up by fees if I wanted to invest in a few securities each month. Assuming a $8 transaction fee - I'd be paying 2% of my 1500 if I wanted to buy 4 stocks. Who would do that to themselves? If I loose money then I take an even bigger hit when I sell. That'd be 4% or more total!!! Hell, I'm only hoping to make a decent 8% return, why start out in the hole?

      **Naturally, this doesn't apply if your NOT the typical investor - but most of us are just trying to find a better alternative to the savings account of the past. Robinhood is great for that.

  11. James
    October 21, 2018 at 5:17 am

    Did someone from eTrade write this article? Half of it is completely false. Robinhood does actually give you interest. Do your research next time before you spew nonsense and slander.

  12. Joe
    October 20, 2018 at 4:33 pm

    Robinhood is much worse. They say they are fee free but they charge a mysterious extra on each quote. I inquired about it twice, said they would get back to me but never did.

  13. Sw
    October 19, 2018 at 3:39 pm

    Wow this article is horrible! Tsssk tsssk for posting such a poorly educated review! BTW do your homework before u provide such advice. Personal Capital works just fine and there are tons of tools available if someone really needs advanced charting ect... You really missed the boat on how to properly review this app and company. After reading this I really hope u don't provide trading advice!

  14. JP
    October 19, 2018 at 11:16 am

    How recently have you done any research for this article? Robinhood has been linked to my Personal Capitol account and automatically updates itself for the past several months with no issues. Maybe you should investigate things a bit further and ensure you are not providing false information?

    • Jason
      October 19, 2018 at 2:24 pm

      Also, it isn't Robinhood job to integrate with mint, etc. They provide a very easy to integrate set of API's, if financial trackers don't support it then it is because the financial trackers doesn't have good developers. ?