About
With 13 million users, Robinhood is a popular trading application where people can invest in stocks, ETFs, and options without any fees. It is developed by Robinhood Markets, Inc, one of the most successful tech startups on Wall Street which is expecting to go public in early 2021.
Controversies
Data Sharing:
One of the key selling points of Robinhood is that the users do not have to pay any commission fees to trade. Therefore, Robinhood Inc. has alternative ways to make money – selling data to financial companies. It was reported that the California-based trading platform charges large investment firms including Citadel Securities, Virtu, G1 Execution Services, Wolverine and Two Sigma to access real-time information about which stocks Robinhood’s users are buying and selling [2].
In this way, the large investment companies can research the investing behavior of the retailing customers, and they could come up with solutions to profit from the financial markets. This leads to a conflict of interest. On one hand, Robinhood promotes that it is helping the retailing investors to gain from the financial markets; on the other hand, it is helping the institutional investors by informing them of how the retailers are investing in order to profit from the information.
Restricted Trading:
On January 28th, 2021, Robinhood Market Inc. restricted users from buying shares of companies including GameStop Corp. (GME), AMC Entertainment Holdings Inc (AMC), and BlackBerry Limited (BB). After the trading halt, some users speculated that Wall Street hedge funds prompted the trading app’s decision [2].
Though the CEO of the Robinhood Market Inc. Vlad Tenev denied the statement and said that the decision “was entirely about market dynamics and clearinghouse deposit requirement, as per regulation,” people still doubt his words due to Robinhood’s relation with Citadel and similar companies [1].
Conclusion
Although Robinhood is depicted as a controversial app that collects user data and profits from sharing the data with large investment companies, it opens a straightforward way for retailers to trade conveniently. When determining which method to use for trading, it is highly recommended that users conduct research into which permissions they allow applications to gain. There are multiple options for trading, such as using banking institutions, however as we learned, data protection is not guaranteed. The term ‘buyer beware’ is a tremendously important aspect to consider, especially when deciding which institution you allow access to your finances.
References
[1] Aten, J. (2021, January 28). Robinhood is the Facebook of INVESTING. you're the data, not the customer. Retrieved February 18, 2021, from https://www.inc.com/jason-aten/robinhood-is-facebook-of-investing-youre-data-not-customer.html
[2] Douglas MacMillan, Y. (2021, January 30). Robinhood and citadel's relationship comes into focus as Washington vows to examine Stock-market moves. Retrieved February 18, 2021, from https://www.washingtonpost.com/business/2021/01/29/robinhood-citadel-gamestop-reddit/
