How the Stock-Trading App Robinhood Remains Resilient
By: Bailey Meideros, RBFL Student Editor
In recent years, stock-trading apps have become increasingly popular among young investors. In particular, the stock-trading app, Robinhood, has become the topic of various financial news outlets thanks to its unique features catered to young traders. Robinhood, founded in 2013 by Stanford University graduates Baiju Bhatt and Vladimir Tenev, is a FINRA regulated broker-dealer known for being user-friendly. Not only does the platform have no fees and no minimum requirement, but it also has a game-like interface that makes trading on the app similar to that of playing a game. New members are given a free stock which requires users to scratch off images that look like a lottery ticket. Once the stock is revealed, confetti falls from the top of the screen. These features help to explain why Robinhood’s typical customer is just 31 years old on average. While the platform allows for ease of trading in a fun process, the company has been criticized for luring inexperienced investors, which at times has led to devastating results.
Robinhood’s criticisms don’t end with the concern of its game-like interface. Rather, the stock-trading app has also had technological problems in recent years. In 2018, the platform’s software accidentally reversed direction of option trades, resulting in customers receiving the opposite outcome from what they anticipated. The following year, the app mistakenly allowed people to borrow infinite money to multiply their bets which led to enormous gains and losses. This year, despite the opportunity to learn from history, Robinhood once again faced technological troubles as the platform’s trading system repeatedly crashed resulting in a class action suit against the company. According to the August 24th Amended Complaint regarding the class action, the system underwent 47 outages since March, rendering its customers unable to access their accounts or make any trades.
However, these struggles merely reflect the price paid in aiming to create unprecedented service and access to markets. At the end of the day, these outages will not directly affect Robinhood’s success. Even after Robinhood underwent multiple outages in March, user growth never took a hit. In fact, in late-April, Robinhood continued to have over 50% of the market share of new brokerage accounts. Although the company is criticized for its ease of use, the company is successful for the very reason that it is so easy to use. This allows Robinhood to serve a previously under-served segment of the market—the younger generation. Even among these vocalized criticisms, consumers are continuously willing to assume the risk of using the platform.
Sources:
Amended Complaint, In re Robinhood Outage Litigation, No. 3:20-cv-01626-JD (N.D. Cal. Aug. 21, 2020)
John Divine, How Robinhood Changed an Industry, U.S. News & World Report (Oct. 17, 2019, 3:33 PM), https://money.usnews.com/investing/investing-101/articles/how-robinhood-changed-an-industry.
Nathaniel Popper, Robinhood Has Lured Young Traders, Sometimes With Devastating Results, The New York Times (July 8, 2020), https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html (noting that the app advertises options with the tagline “quick, straightforward, & free”).
Rob Walker, How Robinhood Convinced Millennials to Trade Their Way Through a Pandemic, Marker Medium (June 1, 2020), https://marker.medium.com/how-robinhood-convinced-millennials-to-trade-their-way-through-a-pandemic-1a1db97c7e08.