Free trades sound great, until you realize the price you pay for “free” could be thousands of dollars. Robinhood sparked the outrage of its users this week after it throttled their ability to buy shares of GameStop and other red-hot stocks amid a market frenzy. While Robinhood’s app may glitter, its lack of automated tax-saving options may cause you to lose out on a lot of gold. A recent study, published in The Financial Analysts Journal, found that utilizing tax-loss harvesting strategies increased after-tax returns by 0.82 percent per year. The inability to easily specific lots could cost investors different amounts depending on their trading patterns and volume, but it is easy to see how the costs could add up. Robinhood’s Omission Could Cost You Thousands Taxes are a huge component of investment returns, and it’s an area where investors have some control,” Bill Mulvahill, a CPA and money manager at Trailhead Planners, told The Journal. Most allow you specific which lots you want to sell and then execute such trades seamlessly. For developer replies, this mechanism is unnecessary and very annoying. Each request is assigned a case number and handled individually.” It can then take up to 30 days for Robinhood to let you know if your request was successful.Ĭontrast this experience with what’s available at traditional brokerage firms. You quickly get a 'Request was throttled' and are notified of a 30-60 seconds waiting period before being able to submit the answer. Customers need to go through their transaction history and “email customer service with six datapoints, including dates and prices, before the trade settles two days after the trade date. Protesters demonstrated at the New York Stock Exchange on Thursday to protest Robinhood and establishment Wall Street firms amid the GameStop stock chaos. Robinhood does offer a manual workaround that allows investors to specify lots, but the process is cumbersome and ridiculously slow. This means she would be left with a profit taxed at the higher short-term capital gain rate, a potentially sub-optimal outcome. Using the “First In, First Out” approach, Robinhood would sell the trader’s share that was bought for $400 less than a year ago. Let’s go back to the Tesla example for a moment. This means that your longest-held shares are recorded as having been sold first when you execute a sell order.” But, as The Wall Street Journal notes, “in the fine print of trade confirmations sent to customers after they’ve sold shares, Robinhood does offer the option of specifying lots. On its website, Robinhood simply states, “Robinhood uses the “First In, First Out” method. Not only does Robinhood not allow for automated lot selection, but it also conveniently omits information that customers do have a way, albeit manual and cumbersome, to sell specific lots.
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