Is Robinhood Safe?
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Robinhood is regulated by the SEC, provides SIPC protection for eligible securities, and employs security measures like encryption and two-factor authentication, making it a secure platform for basic investing.
Robinhood’s beginner-friendly interface and no-commission trading make it ideal for new investors exploring stocks, ETFs, and limited cryptocurrencies. Advanced investors may prefer platforms with more features.
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Robinhood the app has introduced countless newcomers to stocks, ETFs, and crypto investing, all through a user-friendly mobile interface. However, many prospective users still ask, “Is Robinhood safe to use?” and “How safe is Robinhood compared to other brokers?”
In truth, Robinhood operates much like any other major brokerage firm—its brokerage services are regulated by the SEC, and it is a member of FINRA. You may still reasonably wonder if Robinhood is trustworthy and if it’s the right choice for your trading needs.
This article explores Robinhood’s safety features, relevant controversies, and the pros and cons of using this app. We’ll also cover how your crypto trades on Robinhood affect your taxes. If you decide to use Robinhood, it’s critical to understand the risks thoroughly before committing any funds.
Learn more about the best crypto exchanges and Robinhood vs. Coinbase.
Robinhood’s safety measures and security features
“Is Robinhood brokerage safe?” is a common question. Robinhood is like other established trading platforms, which is to say subject to regulatory oversight and provides various security layers designed to protect customer accounts:
Regulatory compliance: Regulated by the SEC (Securities and Exchange Commission) and registered with FINRA (Financial Industry Regulatory Authority). Member of SIPC (Securities Investor Protection Corporation), which helps safeguard securities (though not cryptocurrencies) up to certain limits if the brokerage fails.
Data protection: Encryption of sensitive information such as passwords and personal data. Two-factor authentication (2FA) to help prevent unauthorized account access.
Banking safeguards: Cash in Robinhood accounts may be covered by FDIC pass-through insurance if swept into partner banks (limits apply). SIPC coverage for eligible assets if the brokerage experiences insolvency (but this does not apply to the underlying value of your investments, nor to crypto).
Fraud monitoring: Robinhood employs security teams and automated systems to detect suspicious transactions or potential identity theft.
Thanks to these measures, Robinhood is considered secure from a regulatory standpoint, and many users find it reliable for basic stock, ETF, and crypto trading. However, every platform has its own risks, and no broker can guarantee protection against all losses, especially when market volatility is high.
Read about Robinhood Alternatives.
Why did Robinhood restrict GME trading?
One of the events that triggered many discussions around “is Robinhood legit?” took place in early 2021 during the peak of the “meme stocks” frenzy. Robinhood temporarily restricted the purchase of GameStop (GME) shares and certain other volatile stocks. This led to user frustration and accusations that the platform was siding with larger investors.
In reality, brokerage firms must maintain sufficient collateral with clearinghouses to settle trades. During the GME surge, volatility skyrocketed, and clearinghouse requirements rose significantly, prompting Robinhood to limit buying those shares while securing additional capital.
Although the move was lawful, it raised questions about whether Robinhood had adequately prepared for extreme market volatility and whether its commitment to “democratizing finance” stood firm under pressure.
Use our free crypto tax calculator.
Pros of using Robinhood
Despite the GME controversy, many traders—especially beginners—still find Robinhood appealing for a variety of reasons:
No-commission trading: Robinhood helped popularize free stock and ETF trading, forcing many competitors to follow suit.
User-friendly design: Its sleek, minimal interface and quick sign-up process make it easy for those new to investing.
Fractional shares: Purchasing less than one share of high-priced stocks is convenient for investors with smaller budgets.
Basic crypto access: You can buy and sell leading cryptocurrencies, making it a simple entry point to digital assets for those who prefer an all-in-one brokerage app.
See our expert picks of the best crypto loans.
Cons of using Robinhood
While many people trust Robinhood for basic trading needs, the platform isn’t perfect:
Limited functionality: Compared to full-service brokers, Robinhood lacks certain research and analysis tools.
Order routing concerns: Critics say the platform relies on payment for order flow (PFOF), which could affect execution quality.
Restricted crypto withdrawals: In the past, crypto withdrawal was not available at all. Although that has changed, features for digital asset transfers are still limited relative to dedicated crypto exchanges.
Educational tools: While suitable for beginners, the platform offers less in-depth educational content than some brokerages.
Who Robinhood is best for
Robinhood is well-known for its simplicity and streamlined user interface—ideal for people who are entirely new to investing. If you’re dipping your toes into the market and want an easy, accessible way to trade stocks, ETFs, and basic cryptocurrencies, Robinhood the app can be a great start.
However, more advanced investors who need sophisticated analytics, advanced order types, or a wider variety of crypto tokens often prefer a dedicated exchange. If you are exploring various platforms, look at our guide on the best crypto exchange for different use cases and skill levels.
Calculate your crypto gains with our free crypto profit calculator.
Robinhood and your crypto taxes
When you buy and sell cryptocurrency on Robinhood, you must report any capital gains or losses to the IRS. Although Robinhood provides tax documents, keeping an accurate record of all your trades is crucial for proper reporting. Some points to keep in mind:
Taxable events: Selling crypto at a profit or trading one cryptocurrency for another is generally a taxable event.
Capital gains categories: Gains on crypto held for under a year are typically considered short-term (and often taxed at higher rates), while assets held over a year usually qualify for long-term capital gains rates.
Tracking across multiple platforms: If you also trade crypto on a dedicated exchange, you’ll want a streamlined way to consolidate all your transactions. This is especially relevant if you compare Robinhood vs. Coinbase and want a platform to both trade crypto and traditional stocks, which Robinhood supports.
Many users find it helpful to use crypto tax software like ours at TokenTax and/or consult a crypto tax professional to ensure that crypto cost basis, gains, and losses are accurately reported, especially if multiple wallets or exchanges are involved.
See our expert picks of the best crypto wallets.
Is Robinhood safe FAQs
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