You don’t have to lend out your share of stocks on the Robinhood app, even with their assurance that this is a safe passive income stream. Institutional investors may be able to overlook any loss that occurs, but it will be harder for amateur investors.
There are many ways to make extra income, but the risk of default for disabling the margin investing or stock lending feature Robinhood offers outweighs the profits. However, if you don’t specifically request that Robinhood discontinue share lending on your behalf, you may be liable for risks that arise.
Do you want to learn how to turn off Robinhood share lending? Read on for more details about this feature and how you can disable it should you not want to participate.
What is the Robinhood App?
If you haven’t heard, there is a way to invest in stocks, options, ETFs, and cryptocurrencies hassle-free. With Robinhood, small and institutional investors can buy into initial public offerings or IPOs.
It is open to all sorts of traders – active, margins, and options traders. You can trade cryptocurrencies like Bitcoin and Ethereum with zero charges. More than 13 million users are investing, buying, and selling crypto or dabbling in other financial market types with the Robinhood app.
These services are at no commission, which is probably why Robinhood has many users. Furthermore, the user interface is more straightforward, another selling point. You don’t have to be tech-savvy to buy into an Initial Public Offering (IPO) or invest in Dogecoin. And you can bring just about any amount, with no commission.
Is Robinhood Stock Lending a Good Idea?
It depends. Before we get into that, let’s discuss why there is something like Robinhood stock lending in the first place.
It is a stock lending program where big-time investors and other market participants borrow high-demand shares from the Robinhood app. The reason for this is so that they can short it for massive returns.
The best kinds of stocks are those with low market availability because those are the options more likely to be in demand. You can enable the stock lending feature if you have some of them in your portfolio.
You will earn 15 percent of your stocks’ weighted average rebate rate within that 24-hour timeframe. A stock lending dashboard allows you to check or track the extra income you earned for that trading day. However, the downside is the risk of default. Fear sells, and the media needs publicity.
Besides, people have lost funds to lending features like this in the past. So, it is understandable when there is doubt about deviations from the typical stock-selling income. Although everyone loves passive sources of income, sometimes the risk can outweigh the benefits.
Can I Turn off Stock Lending on the Robinhood App?
Yes, you can turn off stock lending on the Robinhood app if you don’t want to participate in the program. Your online brokerage company cannot loan out your shares without your permission, and once you request that they exclude you, they will.
In the same vein, if you want to reactivate the feature, you can also do so. But we recommend understanding the terms and conditions associated with this sort of stock loan feature. If you believe that the risks involved with stock lending on the trading app are far too grave for you, keep reading to see how to turn off the share lending Robinhood feature.
How To Turn Off Robinhood Share Lending Feature?
So, you have concluded on disabling your stock lending feature on the Robinhood app. The process is relatively easy and only involves a few steps:
- Launch the app on your mobile phone.
- At the bottom right corner of the screen, you will see the tab labeled “Account,” click on it.
- Hit the “settings” tab and choose “Robinhood Gold” from the options displayed.
- You will see “Margin Investing,” which you can disable from the “disable margin investing” section.
There is a catch to disabling share lending on Robinhood. If you are not a Robinhood Gold member, you cannot turn off the share lending Robinhood Feature.
To qualify for the membership, your account must be greater than $2,000. So, if your account is below this amount, you will be subject to stock lending once you use the trading platform.
This means you have no say as to whether Robinhood uses your shares or not. However, you can request an instant payout for any sales made to your portfolio, so you won’t even know anything is happening.
But if you are still wary of the stock lending feature because of the borrower default risk, you can deactivate it. You won’t qualify for instant cash out anymore. You will have to disable your Instant Settlement feature. Instant Settlement allows you to get immediate cash out for the stocks you sell as opposed to the typical waiting period of two days.
This switch turns your account into a cash account, with delayed withdrawal periods. Robinhood will no longer be loaning your shares to short-selling investors, but you will be temporarily unable to increase your portfolio by buying more shares. But, it is important to note that you can always withdraw your funds on demand.
How to Turn Robinhood Share Lending Back On?
Just in case you decide you want to turn share lending back on the brokerage app, we have got you covered. If you are using the app, locate the tab labeled “Account.” It unveils three horizontal lines, which represent the “Menu” button; this is what we need.
Next, locate “Investing” and hit “enable stock lending,” You will qualify to lend your stocks for more passive income.
Can You Tell Your Broker Not to Lend Your Shares?
Before answering that question, let’s talk about shorting or short selling. It is a method used by hedge funds, individual investors, or other bodies that trade the financial market.
Essentially, it entails putting your shares against another company in the hopes that the value plummets. If the price falls, it is in your favor because you have predicted correctly that there will be a reduction in value. If you believe that the price is going down, you can borrow some shares from the lender, or in this case, Robinhood. Brokerage firms are renowned for facilitating transactions like this.
And chances are, you have already signed an agreement before creating your account, confirming that you are in support of the brokerage firm using your shares for share lending. In real-time situations, it would be a fiduciary breach if the company loans out your shares without permission. Still, the hypothecation agreement you may have signed at the beginning could take that power away from you.
This does not mean you will not get your money back if you decide to turn your shares into cool cash. And yes, you can sell the shares even when Robinhood has loaned them out. So, can you tell your broker not to lend out your shares? You can do it by deactivating the “margin investing” feature on the app or website. We have already shown you how it works – turn off instant Settlement.
What are the Risks of Securities Lending?
- Cash collateral reinvestment risk
- Borrower default risk
Cash collateral reinvestment risk occurs because cash collateral that is invested is not indemnified, unlike the securities you legally purchase on an online brokerage platform. Borrower default risk is also a problem, especially for high-risk takers or investors.
In cases where they become unable to repay the borrowed shares because the market didn’t go in their favor, you are still liable to get your money back because the SIPC has collateralized it. This mitigates the borrower default risk, as opposed to the cash collateral reinvestment risk type.
How Can I Prevent Robinhood from Borrowing My Shares?
By disabling the feature that permits share lending. However, this may disqualify you from enjoying some services on the app, like an immediate withdrawal option.
Disabling the Instant Settlement feature will no longer be mandatorily subjected to share lending. Because of the hypothecation agreement you signed, Robinhood has the power to lend your shares to short-selling customers.
If your shares are scarce and in high demand, the big investment companies and hedge funds will swoop in and borrow them for short selling. They will pay you a fairly reasonable sum for your shares, but you are not inclined to concur if you are uncomfortable.
Why Would You Lend Your Stock?
To be clear, lending your stock can also be profitable and a great source of passive income. So, while we have shown you how to turn off share lending Robinhood, you can easily reactivate your account.
Robinhood is a commission-free brokerage service that connects active investors with passive ones. It creates a win-win-win situation for every party involved – you, the brokerage, and retail investors who want to short-sell.
Is Robinhood Safe for Beginner Investors?
The answer is yes, the Robinhood app is safe for small-time or beginner investors. It is an excellent platform for navigating the world of stocks and digital assets.
That financial world can be daunting, especially for a newbie. Robinhood isn’t going to hold your hands before you invest, but it will create a safe environment to try the waters.
Furthermore, Robinhood has SIPC coverage, which safeguards your money in unforeseen circumstances. The commission is also relatively low, regardless of your account size, which is a bonus.
How Does Robinhood Make Money?
To be clear, stock lending is not the only way Robinhood makes its money. With up to 13 million users, there is sufficient cash for the online financial service to make more money, and your funds will remain intact.
That is the power of funds pooling. Imagine investing a large amount of inactive cash; the leftover sum that investors and related financial institutions aren’t using can rake in high interest.
Another option is payment for the order flow or PFOF. Here, market makers or stock sellers pay online brokers to direct clients to purchase their shares. This is a terrific way to make money, considering that all Robinhood needs to do is list said stock on the platform.
Margin trading helps traders make more money, even though it may expose them to greater risks. However, our risk tolerance levels differ, so some people will risk a lot to gain.
Those are the people margin trading is suitable for. You get to borrow more than what’s in your account and pay an interest rate of less than 3.5% to Robinhood. Furthermore, margin traders must pay a monthly subscription fee of $5 for their accounts to remain valid.
You have just learned how to turn off share lending on Robinhood, a feature many are uncomfortable with. Robinhood has a reputation to uphold, but the risk of default still instills fear in individual investors and traders.
Therefore, if you do not want that share lending feature to affect your money, you can disable it after reading this blog post.
- Is stock lending a good idea?
It depends on your aversion to risk. If you are big on avoiding risks, then stock lending is probably not for you. You will get paid, but what happens if a massive market drop happens and Robinhood cannot bear the losses?
- Why would anyone want to borrow shares?
Short selling. Short selling is a market maneuver that helps insightful investors or traders make even more money. Borrowing shares when the price is high, selling them, and repurchasing them when the value drops as predicted.
Note that these trades occur in large volumes; we’re talking hedge funds here. Losses are usually massive enough to affect small-time users too, so you want to avoid stock lending if you have invested more than you can afford to lose.