Trading Cryptocurrency with Stock-Trading App Robinhood – Is it Safe?
Robinhood is one of the relatively newer digital coin exchange platforms that allow any cryptocurrency investor to invest in and trade cryptocurrencies using a dedicated mobile application. Launched back in 2013, the app was only meant for trading conventional securities back then such as stocks or ETFs. In February 2018, however, the company came up with Robinhood crypto stocks and expanded its portfolio further by offering cryptocurrency investment opportunities to the investors.
The crypto exchange is not just accessible at crypto.robinhood.com but you can also trade using Robinhood app on your iOS or Android device as well. However, as crypto trading has just arrived at Robinhood, you’d need some insights into it as a beginner investor. So, let’s explore it more in detail.
Which cryptocurrencies can you trade with Robinhood?
To begin, the Robinhood app allows for buying and selling of Bitcoin and Ethereum and gives you access to real-time market data for both these cryptocurrencies. However, these are just the top traded cryptocurrencies around that are traded on a large scale. Besides these two, the app also extends support for real-time market data related to Bitcoin Cash, Dash, Bitcoin Gold, Dogecoin, Lisk, Litecoin, Ethereum Classic, Monero, NEO, Qtum, OmiseGo, Stellar, Ripple, and Zcash. Sometime soon, however, you can expect Robinhood to support the buying and selling of some of the altcoins listed above as well.
How does it work?
Whether you are based in Singapore or in the US, you can use standard Robinhood interface for accessing all the crypto trading features offered by the Robinhood application. You can find cryptocurrencies, ETFs, stocks, and options alongside each other within a single app. As you can use the app on your iOS and Android phone, you can invest in your desired assets from, literally, anywhere.
With Robinhood providing price alerts and news related to 14 different cryptocurrencies already, you can have everything at your fingertips before you start trading with this application.
Ordering cryptocurrencies with Robinhood is quite straightforward as well. As you launch the crypto feature of the app, you’re allowed to instantly transfer a maximum of $1000 from your bank account linked with the app. You may even be able to transfer more funds later on as well.
And, as soon as the money is deposited to your account, you can begin trading your desired cryptocurrency.
Is it safe to trade cryptocurrencies with Robinhood?
Like any other brokerage that deals with securities, Robinhood is also regulated by Securities and Exchange Commission of the US. The SEC oversees the securities market for ensuring fair dealings and transparency. They primarily prosecute civil cases filed against individuals and companies committing any kind of fraud, engaging in activities like insider trading, or disseminating false information. Remember, however, that SEC doesn’t protect individual investor – you’re not insured against any losses or get any protection for your investment otherwise against the actions taken by the brokerage firm.
Besides being regulated by SEC, most of the brokerage firms participate voluntarily in the self-regulatory organizations such as Financial Industry Regulatory Authority or FINRA. SEC oversees such organizations but they aren’t regarded as government organizations. Robinhood is a member of FINRA and, as a member, it has to submit to rules and regulations of the organization that covers testing as well as licensure of brokers and agents. Besides, there’s a transparent disclosure framework in place as well which is aimed at offering protection to investors.
In addition, the Securities Investor Protection Corporation covers all the investment accounts maintained with Robinhood. The SIPC is a non-profit membership corporation which protects an investment in brokerages that face financial problems or file bankruptcy. SIPC was formed under the Securities Investor Protection Act and it has a very narrow focus. It doesn’t have any authority for investigating or regulating the members as the sole reason for its existence is the restoration of investor funds held by the brokerages that are facing financial issues.
Are there any risks associated to cryptocurrency trading through Robinhood?
For most of the investors, any risks that may exist are not linked to regulatory frameworks that cover their accounts with Robinhood. However, some risks do exist and they are of a different nature.
For example, the minimal and sleek design of the Robinhood app may lead you to make uninformed and hasty decisions, especially if you are a beginner. Furthermore, the app makes it harder for the investor to build and manage a diversified investment portfolio. According to most of the reviewers, Robinhood doesn’t give you a practical solution when it comes to tracking 3-4 positions and can result in overweighting the portfolio with a couple of equities. Besides, the app doesn’t offer any dividend reinvestment program at present. The app only allows trading of ETFs and stocks excluding mutual funds and bonds. Here again, you have to risk tilting your investment portfolio towards just one asset class only.
When it comes to convenience, the app does not offer any integration with various other tools being used today for financial management such as Quicken or Mint. That means you can’t conveniently track all your holdings and get an overall financial status outside Robinhood app. Furthermore, the application doesn’t provide you with the option of having an IRA account linked to it which means, as an investor, you have to let go of tax savings as well as other long-term benefits
To sum it up, Robinhood may still be an appropriate tool for a particular class of investors when the time is right. They can trade cryptocurrencies and have a close eye on important market data. There is ample protection available as well to, at least, kick start your cryptocurrency trading career. However, if you’re a long-term investor, you may still find IRA accounts registered with some mainstream broker to be a lot better solution for you. Nevertheless, if you’re interested in keeping yourself aware of all the latest happenings in the world of cryptocurrencies, you’d still like to check out Robinhood and look at all its merry investors. So, the decision is all yours!