Wednesday, June 23rd, 2021

Is Options Trading with Robinhood Safe?

July 22, 2020 by Jim Walker  
Filed under Options Trading Education


Ten million people, mostly millennials trade stocks, options, and cryptocurrencies using an online app through Robinhood Markets. This convenient setup is available with no fees and allows trades using a smartphone. Our concern is if option trading with Robinhood is safe. For those who make considered and intelligent trades, this can be a good setup. For those who become addicted to the app and repeated trades it can be dangerous.

Positive Features for Trading Options with the Robinhood App

Because you trade using a mobile device, it is possible to set up trading alerts and limits and be notified throughout the day without having to sit at your trade station or laptop all day. The lack of fees is a good thing too. However, it turns out that Robinhood was caught routing orders to companies that pay for order flow. Thus you are not always guaranteed the best price or timing for your trades. Another issue that emerged in 2019 was that Robinhood was storing client info in plain text in their system making it easily available to hackers.

Is Options Trading with Robinhood Safe?

For options traders who simply take advantage of the convenience and simplicity of trading with their Robinhood app, it seems that options trading with Robinhood is safe. The problem is that many brand new traders have become addicted to fast trading with the Robinhood app. They are unaware of the taxes that will be due if they do not properly set up their trading tax status. And, they treat options trading like a trip to the casino, doubling down on their losses only to see their savings, or money they borrowed, evaporate.

Trading on Robinhood at Multiples to Other Online Systems

The New York Times documents devastating results for young traders using this addictive app. Their often inexperienced investors trade risky products and at a more rapid pace than with online trading and investing platforms like E-Trade or Charles Schwab. As successful traders know, trading profits emerge from properly chosen and timed trades and not from trading frequency. The Times interviewed individuals who took out second and third mortgages on their homes to trade and continued to lose everything. These folks report being unable to sleep when they fell into a trading frenzy.

The Robinhood App Can Be Safe and Efficient

Investors and traders who do their homework and simply use the app to get alerts about price changes will execute the trades that they wish without having to sit at a trade station all day long. But, this means many fewer trades that some are currently making on the app today. Smart traders will take the time to use standard trading tools like moving averages, company financials, and the rest in deciding what to trade and when to execute their trades. The trick seems to be to ignore the glitz and glitter offered by the app and to focus on your options trades and the overall profitability of your work. Smart traders will always win in the end and those who are driven by an uncontrolled urge to trade will lose badly.

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