With more and more retail investors (people like you and me) getting involved in the stock market, the need to patronize trustworthy brokers has become very important. Since all is now mostly online, you may want to know if you own the stocks you purchase via a brokerage firm. But what about Robinhood, to be specific?
Do you actually own stocks on Robinhood?: Yes, you own the stock you buy through Robinhood as soon as your order is executed. Robinhood does not engage in contract for difference trading (CFD), and the transactions you make through them clearly are of a broker-dealer nature.
What Is a Broker-Dealer Transaction on Robinhood?
A broker-dealer is a person or firm that performs a dual function of buying and selling securities for themselves, as well as on behalf of its customers.
This dual function is basically that of an agent coupled with that of a principal. A broker-dealer carries out orders for their client and is frequently paid a fee for such service.
However, they also trade on their own accounts to make a profit.
Robinhood is a broker-dealer firm and is not entitled to the stocks of its clients. Every one of their customers owns stocks when they buy through their platforms.
Robinhood can only choose to do what it will do with stocks when operating on its own account as a principal.
But when acting on behalf of their clients, they are solely acting as agents and are not entitled to the stocks of their users, nor do they co-own the stocks.
Does Robinhood Issue a Certificate of Ownership?
Most brokerage firms of today no longer issue certificates of ownership for owned securities.
This is because most of these firms intentionally dog away with paper certificates since ownership of a stock can easily be proven through electronic records. Robinhood is no different.
If you like to keep a record of things, Robinhood usually updates its customers through emails on important account information as well as other important documents. These updates include monthly account statements, changes in portfolio value, and even payments of dividends.
You can also view your monthly statements of account as well as annual tax forms directly from the Robinhood app. You can view all confirmations on trades for orders you executed.
What if You Want To Be Issued a Certificate of Ownership?
If you really want to be issued a certificate of ownership, you can go directly to the issuer (which is the company you bought the stocks from) and request that it be mailed to you.
This process is, however, tedious and time-consuming. Another option is to go through the brokerage firm which will normally charge you a fee for this service, sometimes as high as $300 for just a paper.
It is however unclear if Robinhood charges a fee for this service, seeing that they present themselves as a commission-free brokerage firm (meaning that – they do not charge their customers any commission for opening an account and even the maintaining of the account.
They do not also charge a commission when customers transfer stocks in and out of the app).
Speaking of which…
Can a Person Transfer Stocks In and Out of Robinhood?
Robinhood allows for the transfer of stocks via the Automated Customer Account Transfer Service (ACATS). This platform allows customers to transfer all of their stock from Robinhood to any other desired brokerage firm, and it also allows for stocks to be transferred into Robinhood.
You can decide to transfer some of your stocks out of Robinhood or you can also choose to transfer all of your stocks out of Robinhood. This is further proof of the absolute ownership you have over your stocks on Robinhood.
What Does Contract For Difference Trading Mean?
A contract for difference (CFD) is basically an agreement between a buyer and a seller where the seller agrees to pay the buyer the difference between the present value of an asset (stocks in this case) as at the time of entry into the market.
CFDs enable investors and traders to profit from the market without actually owning the assets in question.
How Does Contract For Difference Trading Work?
Companies that engage in contract for difference trading (CFDs) basically allow users to make bets as to whether the price of a security will go up or whether it will fall.
If the company notices that the price of the security went up, they will offer such security up for sale. They buy at a lower price and sell at a higher price. This mode of trading is basically like the one done in FOREX.
Contract for difference trading is a risky endeavor. You can make a profit but suffer some significant losses as well. Also, the stocks under CFDs are not actually owned by you.
Robinhood does not engage in contracts for difference trading because it is illegal in the US for brokerage firms to engage in CFDs. The stocks you buy on Robinhood are actually yours.
Verdict: Do you actually own stocks on Robinhood?
Individuals who purchase stocks on Robinhood have the absolute ownership of the stocks and are in no way co-owners with Robinhood.
Neither does Robinhood have a stake in the value of their stocks no matter how small. They only act as a middleman to help you purchase stocks.
