In life, it helps to be as positive as you possibly can about things. But sometimes the world’s evils require good men to act (and mediocre men like me). From an ethical perspective, there are plenty of reasons to avoid Robinhood. From a cryptocurrency trading perspective, there are also many reasons to use other trading platforms than Robinhood that can offer so much more for the same types of fees. If you’re a crypto investor, stay clear of Robinhood to buy your coins. Here are 10 reasons why Robinhood sucks.
- Robinhood encourages trading and gambling, not investing
If you read no further on this article, take this away: Robinhood encourages and rewards gambling, and because of this, the majority of Robinhood traders have lost money. While 12% of all trading activity is from day traders, day traders are only 1.6% of all profitable traders. ‘Day trading’ is too often a guise for gambling, meaning you’re chasing those dopamine hits. It’s fine if people want to do that- we live in a free world after all- but I think people should at least be honest with themselves about what they’re doing. From a psychology perspective, Robinhood works with the system of variable rewards: you keep performing the same action [trading] in hopes of getting a reward, even though it’s unlikely. Social media, Candy Crush, and online casinos operate on the exact same operational principles.
- You can’t transfer your coins you bought on Robinhood off of Robinhood
There’s a reason the majority of crypto veterans rail about actually owning your coins and locking them up in a hardware wallet. While with Binance and Coinbase you can actually send your coins to your hardware or software wallet after you’ve purchased them, Robinhood allows zero of this. If you buy crypto with Robinhood, you will never own your coins. All you have until you transfer a coin to your wallet is an ‘I owe you’ from Robinhood. You’ll never be able to stake your coins for some of the wonderful returns that staking is offering right now. If Robinhood is hacked or freezes trading, there’s nothing you can do to avoid the repercussions.
- You can’t transfer your coins onto Robinhood to sell on Robinhood
Similar to above, this is a huge drawback of Robinhood. If you’re going to go through the trouble of registering an account, you might as well do it to have the ability to sell coins you’ve been holding in your wallets when things go parabolic. Since the crypto space is so volatile, speed is key when you want to sell (and buy, for that matter).
- Robinhood sells your data and orderflow to hedge funds to help them win the zero-sum investing game
In january 2021, Robinhood inexplicably (at first glance) froze trading on several popular stocks that were the subject of a short squeeze. This is one of my favorite cases of corporate malfeasance, right up there with Theranos and Enron. Sadly, Robinhood faced no real consequences for its actions in this episode because of the lack of proof and lying that went on in the congressional hearing. In February of 2021, a fanatical mob of investors on the r/WallStBets thread saw good fundamentals with the GameStop stock, and also saw the stock was overshorted, and decided to go all in. These shorts were made by a lot of the biggest hedge funds in the country. Gamestop’s stock went from just $19 to $345 in a matter of days, and hedge funds lost billions on their shorts. The movement took national headlines, with a narrative that it was a chance to stick it to the man. During all of this hemorrhaging of money from the hedge funds, Robinhood magically decided to freeze trading on Gamestop Stock on January 28th, when it was at all time highs- so if you had bought in to GME at $20, you were unable to sell the stock for it’s high of $345 because RH froze trading. Now, why would they do that? It’s because one of their main revenue streams is selling trading activity data to these same hedge funds that were losing billions on their shorts. A week later in a congressional hearing RH CEO Vlad Tenev dodged questions and lied by omission, as did several of the involved hedge fund managers.
- Robinhood only offers a small amount of different cryptos
In addition to never being able to actually own your coins when you buy on Robinhood, the selection of coins is pretty dismal when compared to Kraken, Binance, Coinbase, or many other exchanges. The four real coins offered on the platform are Bitcoin, Ethereum, Dogecoin, and Litcoin. Of these, Dogecoin made up 62% of Robinhood’s revenue in Q2 2021. I don’t want to knock Dogecoin too bad, but it’s one of those projects that has a lot of value even with its lack of fundamentals and potential use cases. Cardano founder Charles Hoskinson railed against Elon Musk’s support of the coin in a viral YouTube video. The fact that Robinhood is making most of its crypto revenue from a shitcoin should be telling.
- Robinhood is a dictatorship
Typically, when companies go public, a lot of the voting power within the company goes to the new largest shareholders that invest in the company. Afraid that new shareholders might not want to take part in the sketchy practices that Robinhood engages in, CEO Vlad Tenev created a two-tier shareholder structure where he holds 10x the voting power as other shareholders. This was a surprise to no one. This will allow the insiders of Robinhood to continue to pursue regulatory overrun in chase of profit. Another company with a similar share structure that puts all the power in one individual’s hands in Mark Zuckerberg’s Facebook- a platform that makes money by inspiring rage, and was more or less complicit in foreign interference in an election.
- Robinhood routinely breaks the law, knowingly
In the US, private companies often have greater power than our government institutions- and I don’t necessarily think this is a bad thing, up until a point. The penalties levied on financial institutions for malfeasance are often laughable. Sadly, companies will knowingly engage in activity they know is sketchy because there will be little to no repercussions. In my opinion, the only thing that will change this is if this kind of malfeasance is tried in a criminal court and there’s risk of people like Tenev or Zuck or these hedge fund managers to go to jail.
Robinhood’s S-1 (a form companies must file to IPO) contains the word “fine” no less than 47 times, and the form mentions the fact that Robinhood has been and is the subject of ongoing investigations from the Department of Justice.
- It has zero to little customer service
The WSJ highlighted this issue extremely well in their article about RH’s customer service problem. Routine user issues that take other brokerages like Schwab or TD Ameritrade hours to solve takes Robinhood weeks to solve. Did something go wrong with your account? Are you having issues withdrawing funds? It could take up to a month for RH’s customer service team to get around to you. RH has a knack for freezing customer’s accounts- so much so that the hashtag #robinhoodhostage is a social media phenomena. Part of this is growing pains from having so many users and being #1 on Apple’s app store for weeks. But user’s trust has been eroded by this.
- A kid committed suicide because of Robinhood
A 20 year-old from suburban Chicago named Alex Kearns committed suicide after Robinhood falsely showed him that he had lost $730,000 on failed options trades. Due to poor customer service and lack of contact (see above), this wasn’t resolved and this poor kid actually believed he owed that money back. Even so, due to RH’s addictive nature, too many young men (mainly) are getting wrecked with this gambling machine.
- Robinhood’s stock research tools pale in comparison to competitors (this should be a red flag)
Robinhood offers bare-bones research tools on the stock available on its platform, giving an “analyst rating” and a “people also bought” list of equities, along with some brief “about” sections of the companies whose shares you can buy. The detailed MorningStar reports that other brokerages offer their customers for free cost $5/month with Robinhood via their Gold Membership.
I’d hate to come out here and bash Robinhood and call out its evils and not mention the other things it has done- like give young people and people of color access to equities markets that have traditionally been dominated by white men. I’d also hate to criticize Robinhood and not offer a substitute. I would go with Public, which has all of the good features Robinhood has, is seen by many as far more ethical, and has additional research-type features for free. For crypto trading, you’re far better off with Coinbase or Kraken or Binance if you live in the US (although each of these platforms have positives and negatives. Wise crypto traders stay away from Robinhood.