Skip to Main Content
SUBMIT A TIP RECEIVE DAILY NEWS
Menu AdvisorHub
  • News
      • Latest News
          • Brendan Biruk, Leslie Crilley and Dan Rattigan (left to right) of Washington Crossing Financial Group.LPL Reels in UBS Pennsylvania Team with $245 Million Book
          • Ralph Hamers, CEO of UBS Group AGUBS Wealth Americas Profit Hits Record with Fewer Brokers
          • DealsHightower Takes Stake in $830 Million New York RIA
          • Business DealCI Financial Buys Chicago RIA and Asset Manager Overseeing $23 Billion
        • Close
      • Advisor Moves
          • Brendan Biruk, Leslie Crilley and Dan Rattigan (left to right) of Washington Crossing Financial Group.LPL Reels in UBS Pennsylvania Team with $245 Million Book
          • Boca Raton, FloridaRockefeller Lures Two Florida Teams with $9.8 Mln Revenue
          • Morgan Stanley, UBS Advisor movesMorgan Stanley Rehires $3.3-Mln UBS Team in North Carolina
          • Lars Olson of Sanctuary Wealth Partners in Marion, OHSanctuary Hires $435-Mln Merrill Team, Snowden Lures Another from Retirement
        • Close
      • Enforcement
          • Advisor MoneyWells Fargo Recoups $2.5 Million from New Jersey Duo
          • Businessman in prison, fraudWells Fargo Claws Back $3 Million from Jailed Ex-Broker
          • Finra signFinra Fines, Supends Ex-Ameriprise Broker Who Flipped ‘A’ Shares
          • Barred from the securities industry.SEC Puts Nail in Ex-Morgan Stanley Broker’s Career Coffin
        • Close
      • Markets
        • `Nothing Safer Than Cash’: Tech Rout Puts Silicon Valley on Edge
        • ‘Any News Is Bad News’ as Earnings Fail to Save Equity Bulls
        • ‘50 Cent’ Profited From Volatility Jump, Wells Fargo Says
        • ‘Beaten Down’ ETF Is a Way to Play Inverted Curve, BofA Says
        • Close
      • Opinion
          • Opinion-How-Will-The-Coronavirus-Affect-The-Stock-Market-Opinion: Coronavirus – What Advisors Need to Know
          • opinion-investors-conquered-fees-next-up-is-their-own-behaviorOpinion: Investors Conquered Fees but Not Their Own Behavior
          • Investor-Confidence-In-Stocks-Rightly-Declines-Opinion-772x485Investor Confidence in Stocks Rightly Declines: Opinion
          • Opinion-Schwabs-Zero-Commission-Decision-Challenges-Its-Ria-ClientsOpinion: Schwab’s Zero Commission Decision Challenges Its RIA Clients
        • Close
      • Fintech News
          • System outageMerrill Systems Hiccuped on Thursday as Stocks Slid
          • 7 dollar rolls‘The Rock’ Invests in Finance App Acorns, and New Users Get $7
          • TraderHigh-Frequency Traders Love Business With Robinhood
          • EtheriumJay Z, Charles Schwab-Backed Ethereum App Opens Doors to Public
        • Close
      • From the Publisher
          • 2021 PredictionsFrom the Publisher: Sirianni’s Predictions for 2021
          • Josh Rogers – 772×485Seven Questions with Tony Sirianni: Josh Rogers, Founder and CEO, Arete Wealth
          • Phil Hildebrandt — 772×485Seven Questions with Tony Sirianni: Phil Hildebrandt, Principal, CEO of Segall Bryant & Hamill
          • Christian Hyldahl, President of Varium Investment Partners-772×485An AdvisorHub Interview with Christian Hyldahl, President of Varium Investment Partners
          • John Peluso – 772×485Timely interview with John Peluso and AdvisorHub CEO Tony Sirianni
          • Louis Dworsky Coronacrash Interview-772×485Coronacrash Update: Hayden Royal’s Louis Dworsky & Tony Sirianni
          • Stratos_Jeff pic.jpg-772×485Coronacrash Update: Stratos Wealth Partners’ Jeff Concepcion & Tony Sirianni
          • coronacrash ben harrison – 772×485Coronacrash Update: BNY Mellon | Pershing’s Ben Harrison & Tony Sirianni
        • Close
    • Close
  • Deals & Comp
  • Recruiting Wire
  • Breakaway Center
  • Resources
    • resources-home-menuResources Home
    • PRACTICE MANAGEMENT RESOURCESPractice Management Resources
    • Transition ResourcesTransition Resources
    • Fintech ResourcesFintech Resources
    • menu fintechFintech Product Directory
    • Menu-Institute-772×485Institute
    • Boutique Wealth AdvisorsBoutique
    • EventsEvents
    • Asset Manager Hub
    • Close
  • AdvisorHub TV
  • Podcasts
  • RIA Center
  • Virtual Summit
close X
June 19, 2020

Robinhood’s New Traders Ignore Danger Signs to Bet on Stocks

by Bloomberg News
|
Coronacrash, News
|
Robinhood
|
Comments (3)
Share This
SUBMIT A TIP
Robinhood Day Trader

(Bloomberg) — Rich hedge fund managers are talking about it. So are not-so-rich millennials. And fast-twitch gamers, and bored sports fans and — in all likelihood — some 15-year-olds you know.

The “it” is Robinhood Financial’s trading app, which is throwing jet fuel on the speculative fires of coronavirus-era equity markets. Not since the dot-com mania of the 1990s, when starry-eyed day traders dreamed of online riches, has a brokerage platform drawn such a frenzied following. Skeptics warn the hype could set up home-bound novices for disaster.

The rush of newbie investors flocking to Robinhood has sparked controversy over how much they’re influencing markets, and whether it’s appealing to those seeking to gamble at a time when casinos are closed and major sporting events are canceled.

Robinhood drew more scrutiny this week after a young user’s death, which his family has called a suicide based on a note he left.

Alexander Kearns, 20, killed himself after his Robinhood account showed a negative balance of more than $700,000, according to a series of tweets by his relative Bill Brewster. The figure may have been temporary and would have been updated when stocks underlying his assigned options settled to his account, according to Brewster. But Kearns believed it reflected how much leverage he had, according to the note, which was provided to Bloomberg by his family.

Robinhood is reviewing its “options offering to determine if any changes may be appropriate,” a spokesperson said in a statement, adding that the company was “deeply saddened” by Kearns’s death and expressed its condolences to the family.

Trading Losses

Some responses to Brewster’s posts show traders grappling with losses in the value of their holdings, while others have highlighted that even teenagers seem to be dabbling in the app.

“They’re not super finance-savvy,” Brewster said of Kearns’s family in a phone interview this week. “I don’t even know that they would have known the questions to ask.”

Robinhood’s popularity reflects one aspect of modern investing culture, said Alex Caswell, a wealth planner at RHS Financial. It fits into a community that includes everything from Reddit’s Wall Street Bets forum “where everything is seen as one big casino” to FinTwit (financial Twitter), and Barstool Sports’s Dave Portnoy livestreaming his day trading to millions of fans.

“There is a culture that has been built around Robinhood,” Caswell said. “That culture doesn’t necessarily just come from the fact that Robinhood exists, rather Robinhood makes that culture easier to exist.”

Confetti and Rap

Menlo Park, California-based Robinhood encourages stock market newcomers with an irreverent tone and mobile-friendly trading system. The app shows confetti shooting when a user makes a trade, and features lists of the most popular stocks on its platform. A business news podcast Robinhood airs, “Snacks Daily,” has used rap lyrics to issue legal disclaimers (“The snacks you’re about to hear ain’t food — it’s ear candy/They don’t reflect the views of the Robinhood family.”)

A Reddit page for Robinhood users has more than 300,000 members who share memes and “really dumb” questions. In April 2019, the page had about half as many members. There’s also a server for the app’s users on Discord, an online communication application originally built for gamers.

Robinhood has learning tools listed on its website, and potential investors must complete an eligibility questionnaire before they can trade options. Users must be at least 18 years old to apply for an account.

Applications go through a customer identification process that validates names, ages and Social Security numbers, among other details, according to a person familiar with Robinhood’s procedures.

Half of Robinhood’s new customers this year have said they are first-time investors, according to the company. More than 2 million new accounts opened in the first quarter, exceeding the number of new users at Charles Schwab Corp., TD Ameritrade Holding Corp. and E*Trade Financial Corp. combined during that period.

To accommodate the influx, Robinhood’s customer support team has grown by more than 40% this year, according to the person familiar with the company’s operations. By the end of 2020, it expects to have more than twice the support staff it had in January.

Read more: Wall Street Fixates on a College Side Project Tracking Robinhood

Stanford University classmates Baiju Bhatt and Vlad Tenev founded Robinhood in 2013 and started selling trading software to hedge funds after graduation. Two years after moving to New York, the pair returned to California to launch Robinhood, which is now worth about $8 billion. Both are billionaires.

Earlier this year, as the coronavirus pandemic sparked violent swings in equities worldwide, Robinhood’s trading platform repeatedly failed, leaving millions of customers in the dark. Some pulled their accounts and went to competitors. On Thursday, Robinhood was down temporarily.

As much as Robinhood portrays itself as an outsider in the financial world, it earns money in staid, traditional ways. The company relies on the same financial machinery that Schwab, E*Trade and other decades-old trading platforms do.

Because the company doesn’t charge trading commissions — which is now the industry standard for discount brokers — it collects revenue in other ways. These include collecting interest income from uninvested customer cash, lending out securities and payment for order flow.

Those who seek out Robinhood may crave a non-traditional trading experience and are likely to embrace the platform no matter what, said Cait Lamberton, a professor of marketing at the University of Pennsylvania’s Wharton School.

“You don’t go to Robinhood unless you want what they’re offering,” she said. “People simply won’t show up who might be dissatisfied with the offer.”

Like this article? Let AdvisorHub come to you!  Sign up

Share This
Comments (3)
  • on Jun 19 2020, Nest Egg says:

    There was a time when our so called “wealth management firms” would play a role in educating new and young investors and guiding them away from speculation as opposed to investing. But now we are required to only manage “wealth” while telling small and new investors to “ get lost!” This is partly our fault!

    > Reply to Nest Egg
  • on Jun 19 2020, CNS says:

    Robinhood wants to increase shareholder value and grow as much as possible and doesn’t care who uses their platform or how inexperienced they are.

    Fidelity, not named in the article, also lets you buy fractional shares on their mobile app. These young, newbie traders might consider Fidelity old and crusty, but they also have a dedicated crypto-asset custody platform, that no other b/d has, among a couple other bells and whistles…Fidelity also (at least according to their website) doesn’t take payment for order flow. Robinhood doesn’t have any further competitive advantage anymore other than make you feel cool and hip for losing money on bad trades.

    What Fidelity, or the other big 3 won’t do, is approve a 20 year old with zero experience for level 3 options and allow him to create a bull put spread like he supposedly did, according to Forbes and others.

    Nest Egg is correct…whether you’re an RIA charging aum or simply selling a or c shares, there’s no place in an advisor’s book for clients with little money b/c of How the industry compensates advisors. The only option is a low cost etf roboportfolio (which isn’t necessarily bad), or charge by the hour for advice like a cpa or lawyer might do.

    > Reply to CNS
  • on Jun 19 2020, jake says:

    You have finra/sec drowning real firms, honest advisors with reg bi and other useless regs. In the meantime there’s a 20 year old option trader at robbihood that jumps in front of a train. Guess there’s not enough reg. fee grabs or fines to fund those govt. salaries and pensions.

    > Reply to jake

Leave a Reply Cancel reply

Tony Sirianni Podcast Banner

CORONACRASH NEWS

  • Finra Scrutinizes Brokers Who Took PPP Loans for Potential Violations

    Finra Scrutinizes Brokers Who Took PPP Loans for Potential Violations

    Jan 25, 2021
  • Merrill Touts Success of Growth Strategy in Pandemic-Afflicted Year

    Merrill Touts Success of Growth Strategy in Pandemic-Afflicted Year

    Jan 19, 2021
  • Raymond James Slashes CEO Pay 17% in Turbulent Year

    Raymond James Slashes CEO Pay 17% in Turbulent Year

    Jan 8, 2021
  • Solomon Sees Vaccine Bringing Goldman Staff Back by End of Year

    Solomon Sees Vaccine Bringing Goldman Staff Back by End of Year

    Jan 5, 2021
  • J.P. Morgan Bank Broker Cleared of Coronavirus Crash Claim

    J.P. Morgan Bank Broker Cleared of Coronavirus Crash Claim

    Dec 4, 2020

NEWS

  • LPL Reels in UBS Pennsylvania Team with $245 Million Book

    LPL Reels in UBS Pennsylvania Team with $245 Million Book

    Jan 26, 2021
  • UBS Wealth Americas Profit Hits Record with Fewer Brokers

    UBS Wealth Americas Profit Hits Record with Fewer Brokers

    Jan 26, 2021
  • Hightower Takes Stake in $830 Million New York RIA

    Hightower Takes Stake in $830 Million New York RIA

    Jan 26, 2021
  • CI Financial Buys Chicago RIA and Asset Manager Overseeing $23 Billion

    CI Financial Buys Chicago RIA and Asset Manager Overseeing $23 Billion

    Jan 25, 2021
  • Finra Bars Ex-Merrill Broker Kenahan After Record NH Settlement

    Finra Bars Ex-Merrill Broker Kenahan After Record NH Settlement

    Jan 25, 2021

FINANCIAL INDUSTRY PODCASTS

AllIndependenceSuccess
The must listen-to podcast for financial advisors by Tony Sirianni. Guests to include:
-Ron Kruszewski
-Shirl Penney
-Penny Pennington
-Eric Clarke
and many more
Michael Kitces and Carl Richards discuss financial advising topics.
Suzanne Siracuse asks the questions nobody else asks, as influencers and interviewer collide in her new and truly unique podcast series The Big Reveal.
The “new advice value stack,” and how firms can use it to help maximize their own value propositions for their clients.
The Brighthouse Financial Insights Panel is a group of leading, independent experts providing powerful insights into the big challenges facing you and your clients.
Equipping independent financial advisors with the tips, insights, and knowledge needed to evolve in every aspect of his or her life
Powering Independence Podcast, insights and ideas for RIAs, presented by Dynasty Financial Partners. A podcast dedicated to presenting fresh ideas and best practices for the wealth management industry.
As an industry expert, Frank LaRosa provides guidance and advice on a host of topics from recruiting and transitions, succession planning, practice management, M&A and more.
Our goal is to unlock the challenges to reveal the opportunities and what it means to provide advice in the 21st century.
Our webcast is dedicated to helping our viewers get real insights by avoiding the cognitive dissonance of today’s media outlets and biased editorial filters.
Go behind the scenes with registered investment advisors and other related independent business model experts
As a nationally recognized recruiter and consultant to financial advisors, Mindy Diamond has unmatched experience in introducing advisors to the independent space.
The must listen-to podcast for investors, venture capitalists and financial advisors, with Tony Sirianni and Paul Dietrich.
An Introduction to Independence: 5 Key Episodes to Jumpstart Your Knowledgebase
Jay is an investment strategist, CERTIFIED FINANCIAL PLANNER™ and business consultant to financial advisors.
In this podcast business owners, entrepreneurs and executives reveal their top tips for success.
We interview top financial advisors and visionary voices to bring you the strategies, tips, and tools you need to make a difference in people’s lives.
A financial literacy and commentary show that features a number of investors, financial experts, professional athletes, business owners and more.
Join Sound Financial Group CEO Paul Adams and President Cory Shepherd every week, as they help you Design and Build a Good Life™.
The Kuderna Podcast, focusing on wealth in it's original meaning- a state of well being.
Timeless wisdom, actionable information you can use right now to make smarter investment decisions.
Made for and dedicated to those folks serious about their financial plan.
Latest News 
Advisor Moves 
Enforcement 
Opinion 
  • About Us
  • Contact Us
  • Advertise
  • Events
  • Careers

 get our newsletter

Industry focused content and breaking news.

SIGN UP

Contact Us

EMAIL US
1707 Post Oak Blvd.
#484
Houston, TX 77056

© 2021 AdvisorHub
  • |Terms of Use
  • |Privacy Policy
  • |Advertise
  • |Careers
  • Facebook
  • Linkedin
  • Twitter

Back to top