The Robinhood app has created a large influx of retail traders and individuals wanting to dabble in stocks. With zero fees, no minimum deposit and easy access to naked options and margin, Robinhood has become the center of many memes and much criticism.
Today I'd like to go over the many issues that Robinhood creates for those wanting to seriously pursue trading:
- The app itself makes trading too accessible. When entering or exiting a trade is as easy as pulling your phone out of your pocket and pressing a few keys, FOMO and FUD are going to take over. Poor decisions will be made.
- Its' servers are unreliable. Like many companies, Robinhood is suffering growing pains and the website and app glitches or even completely shuts down in times of high volume. Traders get stuck in positions that they need to exit so frequently that the company is facing a class A lawsuit. If a trader uses Robinhood, they must assume the worst, that they are unable to sell. With a 49% win rate, you would only be able to risk 0.5% of capital per trade due to the possibility of a complete loss.
- Robinhood is self described as an app to invest in stocks but only offers personal accounts. Professional traders need corporate accounts for tax benefits and investors need the option for an IRA.
- The UX (user experience design flow) is akin to a game, not a trading platform. The game like visuals trigger emotions that would otherwise be avoided on a traditional platform.
- Limited spreads, limited stock selection and no OTC stocks are available. Little company information is provided.
- Some have criticized Robinhood for selling users trade activity data but as with any other free product,(Google, Facebook, Instagram) the users are the real product and skilled traders need not worry about any perceived "stop hunting".
Robinhood might seem like a great choice for beginners but in reality is a set up for failure due to the direct development of bad habits.