Robinhood application created stock fever in pandemic season: Is there still “robbing the rich and dividing the poor”

Among these applications, Robinhood emerged as a simple, convenient, free and attracted tens of millions of people to participate in the stock market. However, Robinhood is also the reason why a 20-year-old boy committed suicide and participated in blocking users from trading Gamestop shares recently. Despite its reputation, the platform continues to grow and will officially become a public company through the IPO.

Robinhood Markets is an American financial services company headquartered in Menlo Park, California founded in 2013 by Vladimir Tenev and Baiju Bhatt, who previously built many high-frequency trading platforms for financial institutions in New York.

With a mission to provide financial services to everyone instead of just the rich, the two founders chose the name Robinhood, a robber famous for robbing the rich to the poor in the UK. previous century.

The company’s Robinhood application was first introduced to users in late 2014 on the iOS platform via the AppStore before officially launching in March 2015. Robinhood Markets becomes the fastest growing brokerage firm. and their application was the first financial software in history to win an Apple Design Award.

The two founders of the Robinhood app – Vladimir Tenev and Baiju Bhatt (Image: Robinhood)

The company is known for offering free (no purchase and sale fees) of its stock and fund certificate (ETF) transactions via its mobile app. By the 3rd quarter of 2016, Robinhood launched a subscription to pay Robinhood Gold with the feature to receive cash up to 50,000 USD into your account instantly (without having to wait up to 3 days), margin trading and analytics. Market expertise from MorningStars or NASDAQ.

However, the segment that generates the most revenue for Robinhood comes from redirecting the command lines to third-party brokers and enjoying commissions. This practice has been rated by many analysts as selling user information to third parties, though Bahtt’s founder has repeatedly denied. By the end of Q1 / 2020, this is still the segment that brings the highest profit for the company (accounting for 70% of revenue); Margin lending and premium service packages only bring in 30% of total revenue for the company.

Robinhood revenue details (Image: Forbes)

The number of Robinhood users started to skyrocket when the company launched a program to introduce new applications to new users. When a user recommends a friend to sign up for Robinhood, they both receive a share of one of the companies including Facebook, Apple, Rite Aid, Ford and General Electric – these are corporations. and leading company in the United States.

This attracted a lot of new users to Robinhood. As of February 2017, Robinhood had more than 2 million users and made many transactions with a total value of more than 30 billion USD. In its expansion effort, Robinhood has partnered with Baidu’s to seek opportunities in the Chinese market. Through the integration into Baidu’s Stock Master application, Robinhood can help Chinese investors buy shares in the US market, which the founder Tenev judged to be similar to “investors coming to the US and open a stock account “.

Just 2 months after its historic milestone, Robinhood successfully raised $ 110 million in investment capital from a number of large funds; the company itself is valued at up to $ 1.3 billion. In May 2018, the company continued to successfully raise capital from venture capital funds with the amount 5 times that of the previous year; Company value is also determined up to 5.6 billion USD.

Robinhood’s coverage is getting bigger and bigger; and translating Covid – 19 gives them the opportunity to grow stronger. Their number of users grew the most in online trading applications. From Q1 to Q2 2020, when countries started restricting movement and enacting social quarantine orders, the number of Robinhood users increased to 139 percent, nearly double the growth of The second application is TD Ameritrade. The number of transactions using this application surged, but did not affect the large stocks on the US stock market.

Robinhood users spiked during the period of social isolation (Image: Techcrunch)

By the end of 2020, Robinhood announced it had 13 million users, and the company was valued at up to $ 8.3 billion. Along with its development, the company also suffered many scandals. The first is the suicide of Nebraska University student Alexander E. Kearns after seeing a negative $ 730,000 cash balance in his Robinhood margin trading account, although this is a temporary figure and does not reflect correctly. the nature of your account.

This prompted Robinhood to issue a press release that will consider many additional criteria in trading, including providing background knowledge for users.

Kearns died at the age of 20 after seeing a negative cash balance of more than $ 700,000 in his Robinhood account raised many questions about the Robinhood trading platform (Image: Forbes)

Not stopping there, Robinhood was also the main character in the famous WallStreetBets deal earlier this year. This online trading platform did not allow users to trade 13 stocks, the most prominent of which was the stock of Gamestop (GME), which was pushed by many users at r / WallStreetBets in short time.

For players using margin loans, the platform even forces them to sell stocks. While funds can still trade normally, retail investors are frozen in transactions. Robinhood’s work is said to support large investment funds to put pressure on individual investors, and can also be seen as a blatant act of manipulating stock prices. However, with the support of Elon Musk and a number of politicians and the outrage of many investors over the threat of bringing the case to court, Robinhood had to re-trade a very limited volume. to manufacture the above stocks.

In addition, Robinhood has withdrawn credit lines from many banks, given the reason is to ensure enough cash to pay for many transactions as well as have enough deposit. at the Clearing houses. However, in the middle of the storm, the company is expected to carry out the IPO in March 2021. According to many sources, this deal will be done by Goldman Sachs with a value of up to 20 billion USD. However, neither Goldman Sach nor Robinhood have commented on this.

Thus, it can be seen that Robinhood has grown rapidly, especially during the quarantine period for Covid, in both the number of users and arising transactions. Even so, the actions of this company, especially in the suicide of student Alexander E. Kearns and intercepting the retail investor’s trading when they try to buy into Gamestop stock reveal the company. are not on track with their original set of goals. The actions they have taken recently have both given funds and institutional investors more power over the market and over individual investors. The question is, will Robinhood continue to move away from their “everyone can trade” strategy after the IPO is successful?