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The trading app, Robinhood, which has become a sensation among young (and some old) retail investors, is “throwing jet fuel on the speculative fires of coronavirus-era equity markets.” That’s according to Annie Mass and Sophie Alexander who write in Bloomberg:
Rich hedge fund managers are talking about it. So are not-so-rich millennials. And fast-twitch gamers, and bored sports fans and — in all likelihood — some 15-year-olds you know.
The “it” is Robinhood Financial’s trading app, which is throwing jet fuel on the speculative fires of coronavirus-era equity markets. Not since the dot-com mania of the 1990s, when starry-eyed day traders dreamed of online riches, has a brokerage platform drawn such a frenzied following. Skeptics warn the hype could set up home-bound novices for disaster.
The rush of newbie investors flocking to Robinhood has sparked controversy over how much they’re influencing markets, and whether it’s appealing to those seeking to gamble at a time when casinos are closed and major sporting events are canceled.
Robinhood drew more scrutiny this week after a young user’s death, which his family has called a suicide based on a note he left.
Alexander Kearns, 20, killed himself after his Robinhood account showed a negative balance of more than $700,000, according to a series of tweets by his relative Bill Brewster. The figure may have been temporary and would have been updated when stocks underlying his assigned options settled to his account, according to Brewster. But Kearns believed it reflected how much leverage he had, according to the note, which was provided to Bloomberg by his family.
Robinhood is reviewing its “options offering to determine if any changes may be appropriate,” a spokesperson said in a statement, adding that the company was “deeply saddened” by Kearns’s death and expressed its condolences to the family.
Trading Losses
Some responses to Brewster’s posts show traders grappling with losses in the value of their holdings, while others have highlighted that even teenagers seem to be dabbling in the app.
“They’re not super finance-savvy,” Brewster said of Kearns’s family in a phone interview this week. “I don’t even know that they would have known the questions to ask.”
Robinhood’s popularity reflects one aspect of modern investing culture, said Alex Caswell, a wealth planner at RHS Financial. It fits into a community that includes everything from Reddit’s Wall Street Bets forum “where everything is seen as one big casino” to FinTwit (financial Twitter), and Barstool Sports’s Dave Portnoy livestreaming his day trading to millions of fans.
“There is a culture that has been built around Robinhood,” Caswell said. “That culture doesn’t necessarily just come from the fact that Robinhood exists, rather Robinhood makes that culture easier to exist.”
Read more here.
