March 25, 2021
By Mirka Cuadros
Robinhood Markets- the free-trading app allowing investors to trade stocks, options, ETFs and cryptocurrency- inadvertently unleashed havoc on the stock market Jan. 28 after announcing restricted trading on several stocks.
For millions of traders, Robinhood was a gateway into the stock market as it stood out as one of the only brokers offering free trades. Its intuitive take on commission free-trading, buying or selling a stock with no charge, has engaged millions of users into the retail trading space.
Senior Matt Derrig said he began using the Robinhood stock trading app a year ago and has been able to feed his portfolio every week since.
“Money encouraged me to buy stocks. I wanted to get a head start in life,” Derrig said.
Like many traders his age, Derrig used technology to propel his financial journey. Platforms such as TikTok, Discord and Reddit have given rise to forums like r/WallStreetBets where millions of young, informally educated investors regularly buy and sell equities right from their phones.
Many of them view trading as a tournament, posting their gains and hoping to tear down a system rigged against them from the start. With such disdain for Wall Street’s titans, members of r/WallStreetBets took it upon themselves to drive up GameStop’s shares, a particularly heavily shorted stock, on Jan. 27. Their coordinated effort based on the devastation of short-sellers and the overall financial institution’s health ultimately resulted in a rise of 135 percent in GameStop stock, most of which had taken place in Robinhood.
The mission to challenge the dominance of Wall Street soon targeted Robinhood Markets after the online brokerage placed limits on trading on many stocks, one of them being GameStop. Small investors once lured in by Robinhood’s mission to “democratize trade” are now furious at the stock trading app for doing the bidding of Wall Street.
On Jan. 28, Robinhood defended the additional restrictions as “necessary” to ensure it didn’t conflict with government regulations. Users were now only allowed to sell shares they own and repurchase shares they had borrowed and sold. Restrictions on Robinhood traders got tighter on Jan. 29, only allowing clients to buy a single share of GameStop and expanding the list of restricted stocks from 13 to 50.
In a world where wealth creation seems out of reach and the economy only works for the top 1 percent, it is difficult to blame Redditors for their outrage.
“Money encouraged me to buy stocks. I wanted to get a head start in life”.
Some users have joined a class-action suit against the company claiming it manipulated the market by restricting trades, which caused users to lose money. Now, after enduring the wrath of novice investors, the trading strategy has become a new age symbol of class warfare between the poor and rich. Unfortunately, Robinhood has chosen to serve the demands of the elite.
History teacher Mr. Clifford said the workings of Robinhood’s revenue restricted people from buying any more stocks.
“Robinhood gets paid by hedge funds for data. Hedge funds told Robinhood to stop their users from buying stocks and they did,” he said.
He said though Robinhood may act as a gateway to the stock market for amateur investors, it ultimately obeys and works for the interests of its hedge funds.
“Robinhood is a great platform for novice amateur traders to get involved in stocks. However, Robinhood is told what to do by hedge funds,” Clifford said.
In the weeks to come, Robinhood is expected to face serious legal challenges. Congress has decided to step in with the latest hearing challenging the company’s decision to prioritize Wall Street business partners over retail users. A House committee with more than 50 members held a hearing about GameStop and the meme-stock mania for five hours that addressed from Robinhood’s gamification of stocks, to their claims of market manipulation on behalf of Reddit users.