Robinhood Outages Shouldn't Hurt Anyone But Robinhood

I've heard a lot of complaints in the past couple weeks as Robinhood has experienced several major outages. This has left people unable to trade. Everyone views big moves in the market as a missed opportunity to take the profitable side of a trade. It's understandable that people are upset.

What's special about Robinhood?

Robinhood attracted a lot of new investors and traders to the market, primarily with the lure of free trading. The majority of these users have not traded a stock before, have not traded through other volatile periods, and have limited alternative options.

Robinhood is still a young company who has seen extraordinary growth. They were not around for the financial crisis, the flash crash, or other periods of extreme strain on the system. So it could be that their systems have not been stressed tested yet the way that other platforms have been. It's probably too early to say.

What can you do about it?

Robinhood is no longer unique, as every other broker offers free trading and an easy-to-use app. There's Schwab, TD Ameritrade (recently bought by Schwab), Fidelity, E*Trade (recently bought by Morgan Stanley), Interactive Brokers, and many others.

Everyone should have at least two brokerage accounts. Even the best will have system problems from time to time... that is a given. Maintaining multiple accounts gives you a form of insurance for when things get bad. You might even get exposed to other products or services that you like.

But what about...?

Let's say you bought AAPL stock at Robinhood, but don't own it at Broker #2, then Robinhood goes down but you want to sell it. If you've enabled option trading on your account, you can always buy put options for downside protection. Or if you own an ETF like SPY, you can buy an inverse ETF like SDS.

You trade crypto on Robinhood, but these other brokers I mentioned don't. Fair enough. Then open an account with a crypto broker or one of the exchanges, though be aware that the exchanges often have inferior prices to what you'd get at Robinhood or a broker who offers best execution order routing.

Conclusion

If being able to trade at any moment is important to you, then you need a back-up way to access the market. You should never find yourself in a position where one failure (which can and will happen) leaves you financially exposed.

Despite the outage, Robinhood and other brokers offer great services that make it possible to easily and cheaply trade financial instruments. They know that outages and customer service issues can lead to a loss of revenue. That's part of business, so hopefully they feel the pain from this one and improve their product offering for the future.

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