Intro
About Robinhood
Robinhood is a US-based commission-free discount broker established in 2013. Its mobile trading app was officially launched in March 2015. The Menlo Park, California-headquartered group includes Robinhood Markets and its three wholly-owned subsidiaries Robinhood Financial, Robinhood Securities and Robinhood Crypto.
The Robinhood trading platform offers users an easy way to trade stocks, exchange-traded funds (ETFs), options, gold and cryptocurrencies - commission-free. Customers can invest in more than 5,000 securities, including US equities and ETFs listed on US exchanges. Robinhood also provides covered options contracts for US exchange-listed stocks and ETFs, as well as cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, Litecoin, Ethereum Classic, Bitcoin cash and Bitcoin SV.
The platform offers educational tools including Snacks, a daily digest of business news; Learn, a collection of articles; Newsfeeds, which offers access to free premium news; as well as cash management services. Robinhood has also introduced IPO Access, which gives retail investors the same opportunity as institutional investors to invest in IPOs, regardless of order size or account value. On the flip side, trading tools on the platform are limited.
Currently, only US citizens are allowed to open investing accounts. Robinhood was planning to make its services available to clients in Europe and other continents as well, but its global expansion plans are on hold for now. The broker originally planned to launch its app in the UK in 2020, but decided to postpone this indefinitely in July 2020.
Robinhood is regulated by top-tier financial authorities such as the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Robinhood Markets has been listed on the Nasdaq exchange under the ticker symbol “HOOD” since the company's initial public offering in July 2021.
History
Robinhood was founded by Baiju Bhatt and Vladimir “Vlad” Tenev in 2013 with the mission to democratize finance. Tenev and Bhatt served as co-CEOs and co-presidents of the company from its inception in 2013 until November 2020. Since then, Tenev has served as Robinhood’s sole CEO and president. Bhatt, meanwhile, stepped down as co-CEO and became Chief Creative Officer, as the company found the dual CEO structure to be inefficient as it was preparing for its IPO.
Prior to the IPO, Robinhood had raised a total of $5.6 billion in funding over several rounds, with the last one taking place in February 2021 in a private equity round. Robinhood’s biggest venture capital investors include D1 Partners, Sequoia, Kleiner Perkins, Index Ventures, and Google’s venture capital arm, GV.
Robinhood announced its IPO on July 1, 2021, just one day after FINRA levied a $70 million fine on the company. Robinhood's IPO ended up as one of the most popular share issues of 2021. On July 30, 2021, Robinhood issued 55 million shares at $38 per share.
Founders
Co-founders Bhatt and Tenev, both children of immigrant parents, were roommates and classmates at Stanford University. After graduation, they moved to New York, where they set up two financial companies, Celeris and Chronos Research, both selling trading software to other trading companies.
In New York, they discovered that big Wall Street firms were paying next to nothing to trade stocks, while most retail investors were charged a commission for every single trade. They also saw that retail investors have limited access to trading. To change this, they decided to create a financial product with the mission to give everyone access to financial markets. They moved back to California and built the Robinhood trading app.
Tenev has a BS in Mathematics from Stanford University and an MS in Mathematics from UCLA. He was born in Varna, Bulgaria in 1987 and the family moved to the US when he was five. Bhatt has a BS in Physics and an MS in Mathematics from Stanford University. He is the son of Indian immigrants.
Customer base
By offering commission-free trades and requiring no minimum account balance, Robinhood opened up investing in the stock markets to a younger and more diverse group of investors. The median age of Robinhood users is 31, and about half of its customers are new investors. The simple, intuitive trading platform appeals to a new generation of investors who prefer trading on smartphones.
Note that although Robinhood doesn’t charge you fees to open your account, maintain your account or transfer funds to your account, other fees such as trading (non-commission) fees, subscription fees, wire transfer fees and paper statement fees may apply to your broker account.
In 2021, the number of customers on the platform almost doubled. Net Cumulative Funded Accounts increased by 81% to 22.7 million as of December 31, 2021, from 12.5 million a year earlier, with much of this growth taking place in the first part of the year.
Robinhood's Monthly Active Users (MAU) increased by 48% to 17.3 million in December 2021 compared with 11.7 million in December 2020. However, MAU decreased for the second consecutive quarter in the last quarter of 2021. MAU is used to measure how many customers interact with the company’s products and services during a given period and is an indicator for engagement.
Robinhood share price
Robinhood’s Class A common stock is listed on the Nasdaq under the symbol “HOOD”. The company went public in July 2021 at a $32 billion valuation. The stock closed 8% below the IPO price of $38 per share on its first day of trading on the stock market.
By the end of 2021, Robinhood stock lost more than half of its value, falling from the IPO price of $38 per share in July 2021 to $17.76 on December 31, 2021. The downward trend continued in early 2022 as the company continued to struggle. At this valuation, the company may well become an acquisition target.
Criticism and controversies
Besides its success, Robinhood has also made international headlines with several controversial issues. There have been several legal actions against the company with regards to service outages, opaque order routing practices, trading restrictions, and cybersecurity issues.
Between 2018 and late 2020, Robinhood experienced outages and system failures on several occasions. The most serious outage occurred on March 2-3, 2020, when Robinhood’s website and mobile application shut down. This meant that Robinhood’s customers couldn't access their accounts during a time of historic market volatility (caused by the emerging Covid-19 pandemic).
Robinhood was found to have negligently communicated false and misleading information to its customers in several cases. This led to serious, and in one case even tragic consequences as a young customer took his own life in June 2020. In a note found after his death, he expressed confusion as to how he could have possibly used margin to purchase securities, because he was sure that he hadn't “turned on” margin in his account. It turned out that Robinhood displayed to him, and to other customers, inaccurate negative cash balances.
Bloomberg News reported on October 15, 2020 that hackers had infiltrated nearly 2,000 Robinhood accounts and siphoned off customer funds. Robinhood said hackers gained access by breaching external personal email accounts, an assertion that some victims acknowledge but others reject.
In December 2020, Robinhood agreed to pay $65 million to the Securities and Exchange Commission (SEC) to settle charges of deceiving customers about its revenue sources. According to the SEC, "Robinhood only partially explained their order flow payment strategy to their customers. This could worsen transparency, as clients could receive higher trade prices without realizing it, while Robinhood is marketed as a commission-free service.”
In January 2021, as Gamestop and other meme stocks experienced increased levels of volatility, Robinhood restricted some types of trading by their customers in those stocks. Some observers at the time attributed these trading restrictions to possible pressure from hedge funds. Tenev came under criticism from both users and politicians.
“Robinhood did not impose these trading restrictions at the request of hedge funds or to try and move prices in GameStop one way or the other,” Tenev said at a hearing before the US House Committee on Financial Services in February 2021. He said that the restrictions on GameStop were due to an increase in clearinghouse deposit requirements.
On June 30, 2021 FINRA imposed record financial penalties on Robinhood Financial LLC. The company was ordered to pay around $70 million for systemic supervisory failures and significant harm suffered by customers who either received false or misleading information from the company, or were affected by the company’s systems outages in March 2020, or were approved to trade options even when it was not appropriate for them to do so.
In its July 1, 2021 IPO filing with the SEC, Robinhood disclosed that the US Attorney's Office had executed a search warrant for Tenev's cell phone as part of a probe into the GameStop short squeeze.
On November 8, 2021, Robinhood disclosed that it had suffered a “data security incident” on November 3, 2021. An “unauthorized third party” had obtained email addresses of approximately five million users and the full names of a different group of about two million users. This means that the attack potentially affected almost 40% of Robinhood’s MAUs.
Competitors
Robinhood’s main competitors include SoFi Invest, Webull, Alpaca Trading and moomoo. After the meme stock frenzy of early 2021, many users reportedly closed their brokerage account at Robinhood and started searching for alternatives.
Robinhood further reading
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