What are info labels?
At Robinhood, we want to help you make informed investing decisions. With this in mind, we’ve created labels to help flag to you if there’s the potential for greater risk when investing in certain securities. Robinhood now flags certain complex financial products (e.g., leveraged exchange-traded funds), companies that have filed for bankruptcy, and stocks that may have experienced recent elevated volatility.
You’ll see a rectangular banner at the top of your screen if an asset has been flagged temporarily, like a company that has experienced recent elevated volatility or a company that has filed for bankruptcy. For securities with permanent characteristics, you’ll see a yellow, oval-shaped label next to the security’s name (e.g., “Leveraged” for a leveraged exchange-traded fund).
These labels are designed to help you take note of certain securities that may introduce more investment risk.
Complex financial products include exchange-traded products that are:
These products are risky and generally are for the short-term investor, and are typically not for the ‘buy-and-hold’ investor. Some advanced traders hold them for one day; beyond that time period, they may increase your risk even further. These products are volatile, can cause considerable losses, and may not be for all investors. You can read more about a specific product in its prospectus, or learn more about these products on FINRA’s website.
Robinhood labels companies that have filed for bankruptcy. You may still be able to place a trade for a company that has filed for bankruptcy. While it’s possible for a company to emerge from bankruptcy, shareholders are likely to suffer heavy losses, or to find that their shares become worthless. You can read more about what happens to your shares in bankruptcy at the Securities and Exchange Commission website.
Robinhood flags stocks that have experienced recent elevated volatility. Elevated volatility may be a caution sign and could mean that there’s more research to be done on the company’s performance, expectations, or other factors. An investor may consider the stock’s 52-week high and low, as well as recent earnings reports. It might also be worth reviewing any recent announcements by the company.
To determine whether a stock has experienced recent “elevated volatility,” we take a stock’s daily return and compare that to its daily returns over the last year (or 252 trading days). If a stock’s most recent daily return lies six standard deviations outside of its historical performance (higher or lower), then we would flag it as having experienced elevated volatility. Note that stocks with under a year of trading history will not be flagged.
Robinhood performs the elevated volatility calculation once around the middle of the trading day (we compare the price at that time with the last closing price) and once at the end of the trading day (we compare the closing price with the previous closing price). “Closing price” is the price at which a trade was last executed during a trading session. Labels are scheduled to be removed 24 hours after their most recent flag.
ADDITIONAL DISCLOSURE
The alerts are created using information from third party data providers. Robinhood does not guarantee their accuracy or timeliness. Given that some data may not be available for selected securities, or the delay in having the alerts publicly posted, Robinhood cannot guarantee that all flags will be posted for all alert conditions.
Robinhood’s goal is to flag complex financial products (like leveraged and/or inverse ETFs and ETNs), but this is not exhaustive, as there are other complex products other than these which are not flagged at this time. The alerts are provided for informational purposes only and are not a recommendation of any security or investment strategy, nor are they a recommendation to avoid, or sell a security. You should not buy or sell any security without first determining if it is appropriate for your portfolio or investment strategy. All investments involve risks, including the loss of principal.