Friday, December 9, 2022

Robinhood: trade wars | Financial Times

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Memes trades and bored retail investors laid the groundwork for an outstanding tech list by Robin Hood. Claims that the trading app has ruined its reputation forever by stopping trading of GameStop and other actions popular with traders on a Reddit forum are overstated. The increase in the number of users is greater.

Notoriety is an effective form of customer acquisition. A JMP Securities analyst used data from SimilarWeb to estimate that Robinhood was downloaded over a million times in the span of three days last week – including hundreds of thousands of downloads after trading stopped GameStop. This equates to about a tenth of the 13 million users Robinhood reported last spring.

Some angry users have given Robinhood a star on the App Store ratings. This did not prove to be a deterrent for future masters of the universe. The theory that Robinhood’s actions were taken to protect hedge funds has also not been established. The company’s explanation is more everyday: clearing houses required more guarantees as the surge in activity increased filing requirements. Raising $ 3.4 billion in convertible debt allowed it to revive trade and could provide a cushion for future clearing emergencies. A list would provide even more.

The Menlo Park company, valued at $ 11.7 billion last year, has already suffered damage to its reputation. He likes to say that its origin story is tied to the Occupy Wall Street protests, although it was founded two years later. These complaints are tarnished by the volume of income from the flow of orders sold to market makers. He has already paid $ 65 million to settle claims that he misled users about how he makes money.

As long as the retail boom lasts, it won’t matter. Check out Reddit’s r / WallStreetBets forum, which had less than 2 million members at the start of the year and now has over 8 million (although some may be bots). Robinhood no longer stands out for free trades – a feature also available from Charles Schwab and ETrade. But its simple design encourages higher trading volume.

There are a few things that could hinder Robinhood from entering public markets. Regulators may restrict its ability to place clients in margin accounts, which will make it more difficult for Robinhood to make money by lending stocks. GameStop investors can cash in, causing the price to drop and scaring new users. Even more frightening – Reddit traders may one day decide to make Robinhood himself a target.

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