Is Robinhood a Pyramid or Ponzi Scheme? Deep Analysis with Case Points

So, whenever you want to start a trading or to invest in stocks you need to go through trading strategies, the risks involved in trading, the market view, and experts consultation. And when you get the green signal from every aspect, the second thing you need to consider is a brokerage service. You need to identify which broker can give you the best returns, what is the fee structure, which investment tools they offer, etc.

And Robinhood is the one that ticks all the boxes. Moreover, it allows you to invest in stocks, ETFs, crypto, options, gold, etc that too with zero commission.

So, I think till these points your inner thoughts of earning urge you to start trading as soon as possible.

But wait..!!!

As simple and attractive as things look on the outside, they are as complex and difficult on the inside. And the same goes with trading.

Due to the popularity of trading and investing, many new brokers are entering the market and showing people that this business is very innovative and profitable. But along with all this, many such brokers are very dishonest and use dishonest ways to deceive traders with their hard-earned money and may even run away with your money. That means before investing or starting trading you need to identify scam brokers.

So, in this article, we will talk about one of the famous brokerage apps Robinhood. If you are thinking of investing with Robinhood then is it right to invest with Robinhood? Is Robinhood a pyramid scheme? Or is it a fraud? We will find answers to all these questions to provide you with the best results which you have been googling for some days.

Let’s dive right in.

Check it out: Ultimate Guide to Remove Pattern Day Trader Status in Robinhood

Is Robinhood a Pyramid Scheme?

No, Robinhood is not a pyramid or Ponzi scheme. It is a financial services company that was founded in 2013. It allows investors or traders a commission-free investment program. Robinhood has its app with the help of which investors can buy or sell stocks.

As per the article published in Investopedia about Ponzi schemes. Ponzi’s term is derived from a fraudster named Charles Ponzi in 1919. He used to make promises of high returns from low risks to investors. It is a system that relies on steady cash flows from new investments to provide returns to start-up investors.

But in the case of Robinhood. Nothing goes like that. Robinhood is completely clear with its terms and conditions and secondly, it is not Ponzi or not a scam because it provides a commission-free business without promising a rapid return of money on the investment.

And Robinhood makes it clear on its website that they will charge only for the premium plans customers opt for. And their premium membership includes Robinhood Gold. That includes additional access to research reports and market data besides some more attractive features and all it costs is $5 per month.

Not only this but also to keep its customers safe and as a part of their policies, Robinhood guarantees its customers up to $500,000 for their securities as members of the Securities Investor Protection Corporation (SIPC). Together with this Robinhood also guarantees up to $250,000 on cash claims that are secured by insurance.

Robinhood is overseen by the Securities and Exchange Commission (SEC) as a securities brokerage firm. Now you can understand how reliable Robinhood is. If any of the Robinhood users got affected by the unauthorized activities, Robinhood will provide full reimbursement for the damage caused as a part of their account safety assurance.

Is Robinhood a Scam?

No, Robinhood is not a scam. It is a technology-rich service that Robinhood has given to investors.

Ever since technology is growing, we are seeing that technology is being used in every business. Then how does the finance sector lag behind? And Robinhood took advantage of it in the best possible way. Provided better services to the customer by combining finance with technology.

It is a bit natural that people sometimes get skeptical about these platforms because of lots of unknown features. But when it comes to Robinhood you need not worry. To date, Robinhood has proven its services to more than 10 million customers even at the time of the epidemic.

If we think deeper we will see that it is the best platform to learn about the stock because of its commission-free feature. You need to pay any amount if you want to learn or start an investment as a beginner. Even these days Robinhood is very popular among the young generation. Sometimes it left some skeptical points that this app is attracting those who haven’t any knowledge or training to enter the trading industry.

The Allegations Against Robinhood

  • In December 2020 Massachusetts security regulators filed a lawsuit against Robinhood. They alleged that Robinhood uses a gaming strategy of investment that attracts young people for investment. They don’t have any security controls to protect beginners or inexperienced investors or traders.
  • Some educators alleged that Robinhood is an addiction due to its cash management feature that allows its users to have a Robinhood-branded MasterCard debit card. Investors can use this to withdraw from around 75000 ATMs. Since it has a lot more to offer, users have to face a problem of waiting lists which allows users to go above their current position by tapping 1000 times a day.
  • Some allegations have been made on Robinhood regarding the celebratory interface in the app, which confetti decreases with each transaction. The reward feature in the app exposes addictive behavior which is “difficult” to stop, especially for young people.
  • Robinhood has faced another hurdle where they have faced the wrath of shareholders after restricting trading. The hurdle caused by their risk management decision. These include video gaming consoles and GameStop stocks, a retail gaming venture for devices such as the Nintendo Switch, PlayStation, and even Xbox.

Customers who have been denied access to the app service, which they allege are “changing the market for the benefit of the people and financial institutions,” have been prompted to file a class-action lawsuit.

After this action, Robinhood announced it would resume “limited acquisitions” with these shareholders.

Is Robinhood a Legitimate One?

Robinhood is based on the idea that there should not be any commission in investment. Lots of large brokerage firms have been generating money through those commissions. But when it comes to Robinhood they have clearly stated that the company earns most of the revenue through various other ways such as stock loans, Gold membership, etc. Together with this they also receive income from their other supplementary charges listed in their financial fee schedule.

And yes Robinhood is a legitimate business but not for the epileptic. Even Robinhood is a brand that anyone can opt for. There is still a lot to learn behind the idea of ​​investing in stocks, including some terminology and the impact of liquid markets on your ownership.

Even customers can get the basic knowledge of investment with updated educational material on the Robinhood website. You must check it out before entering the investment world, it would be worth it for you.

Can Anyone Open his Account on Robinhood?

To create an account with Robinhood you must be 18 years of age. You must be a US citizen with a legal residence address and a valid Social Security number.

Before entering into this you must understand the tactics of the stock market because there are a lot of things that can cause a fall which can have a direct impact on the stocks you buy, especially stocks from large stockholders.

Final Thoughts

Robinhood is getting popular day by day because of its attractive plans, memberships, and easy interface with a learning module. But it is still facing a mixture of excitement and doubt as investors decide whether it is a platform that can be used on almost all levels. Although Robinhood provides equal opportunities to all social classes.

Now everything is in your basket. It’s your time to decide if it is the right place for your money to invest or if you need other ways to boost your monetary power.

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