Robinhood Markets: Were You Approved for a Risky Trading Strategy?

Regulator FINRA says Robinhood did not offer enough oversight for risky options trading strategies.

What is an Option?

Options are investment contracts that give investors the “option” to buy or sell shares at a certain price, referred to as the “strike price.” When you buy an option, you purchase either a put option or a call option. Both put and call contracts have strict deadlines. Once the deadline arrives, investors can either exercise their option or let it expire.

How Do Investors Lose Money on Options?

If you spend $1,000 on a call option, only to have the price of the stock plummet, you could easily lose your $1,000. Investors should only gamble with money they are prepared to lose.

FINRA $70 Million Fine for Robinhood

In June of 2021, Robinhood Financial LLC agreed to pay a $70 million FINRA fine following allegations that the brokerage misled investors and approved ineligible traders for risky strategies. FINRA also alleged that Robinhood had harmed investors due to its technical faults and trading blackouts in March 2020. This is the largest fine ever levied by FINRA.

Why Did Robinhood Approve Inexperienced Investors for Options Trading?

Options come with significant risk and are only suitable for sophisticated investors who have enough money to tolerate substantial losses. Robinhood relied on an algorithm, referred to as “option account approval bots” to approve customers for options trading. FINRA alleges that these bots approved investors who obviously could not tolerate the risk.

What Should I Do If I Lost Money Because of Options Trading on Robinhood?

If you were approved for a risky options trading strategy using the Robinhood app, you may be able to recover your losses through FINRA arbitration. Experienced securities lawyers like Jonathan Kurta can evaluate your case for free, and only get paid if they win you a FINRA arbitration award. Get in touch today — call 212–658–1502 or email jkurta@kurtalawfirm.com.

Jonathan Kurta is a founding partner at Kurta Law, a national law firm representing investors who lost money due to broker misconduct. kurtalawfirm.com