If I'm holding 100% securities, a) SIPC offers me no protection from losses, b) I better be making more than 3% return, and c) I would not call that situation "a checking account."
A checking account holds 100% cash (dollars), not securities. That cash is insured by SIPC up to $250,000, just like the cash in your bank account is only insured up to $250,000.
Securities is things like stocks. Stocks are subject to significant gains, but also significant losses. That's the investment risk you have to take. There's no way around it. There can't be a government insurance against it. You can buy "insurance" against losses by purchasing options to sell at a specific price, or you can reduce risk by diversifying your portfolio.
I don't know the details of how securities are valued for recovery in the context of SIPC, but the point is that you will receive (parts of) your securities, not cash. Therefore, if for example you hold Microsoft stock at the time of bankruptcy of Robinhood, you are not entitled to be reimbursed any losses that may have occured as a result of Microsoft's stock price dropping in the meantime. Conversely, you do not owe any gains that the stock price may have made.
Sure it does. The point of SIPC is that if your broker goes under, and you had, say, 100 shares of MSFT and $100 in cash, you get those things even if your broker somehow comes up short. Now, what 100 shares of MSFT is worth in dollars is unrelated to SIPC and depends on the stock market.
The purpose of SIPC is to protect against a breakdown in financial abstractions at one particular level.
SIPC CEO rejects claims of coverage:
https://www.barrons.com/articles/activist-investors-on-the-m...
There's SIPC protection for your cash and securities (stocks etc.) that Robinhood holds for you, up to 250,000$ each. For obvious reasons, the value of a security in dollars fluctuates and therefore such losses cannot be insured. What is being recovered is the securities themselves, not their dollar value at a time of your choosing.
> I don't know how that percentage of cash/securities breaks down at Robinhood, but it's not going to be 100% cash and 0% securities. There is a reason big banks don't offer checking accounts with 3% interest rates. When the return is higher, the risk must have gone up too, somehow.
It's not the cash/securities that Robinhood holds as part of their business, it's the one they hold for you. You may well choose to hold 100% cash or 100% securities.
Actual banks hold only a small fraction of cash deposits in reserve, many of their assets may just as well turn out to be made up of bad loans, bad junk bonds and bad stocks. That's how banks can fail even without a bank run.