As the app takes center stage in the GameStop saga, experts worry that inexperienced traders could get hurt.Robinhood, the stock trading app at the center of the bizarre GameStop saga, has long been controversial. Even before the toll-free service hit the headlines recently, Robinhood was accused of downplaying the risks of trading stocks and of presenting essentially complex financial instruments like a game to attract young people and new investors.
This strategy had tragic consequences. In June 2020, a student named Alexander Kearns killed himself after seeing a negative balance of more than $ 700,000 on his Robinhood account despite some of his deals being incomplete. In a suicide note, Kearns called Robinhood and asked how he could take so much risk.Robinhood, the stock trading app at the center of the bizarre GameStop saga, has long been controversial. Even before the fee-free service was recently elevated to headlines, Robinhood had been accused of downplaying the risks of stock trading, essentially presenting complex financial instruments like a game in its effort to draw in young people and new investors.
It’s easy to see beginners like Kearns getting sucked into Robinhood, which uses Silicon Valley’s growth hack tactics to get users’ attention. The service promotes transactions by showering digital confetti when deals are made. New members receive a free inventory when they register. Combine the dopamine rush of a game with the herd mentality of social media – a Reddit forum called r / WallStreetBets served as a virtual water cooler to boost recent activity – and it becomes clear how a swarm of traders could push stocks from a troubled video game dealer which is more than 800% higher than two weeks ago.
Coye Cheshire, a professor at UC Berkeley School of Information, says no one knows how things will play out on the stock market, which has now driven stocks of AMC, Koss, and others soaring. But if large hedge funds that were the target of the r / WallStreetBets mob can be wiped out, so can a lot of ordinary people.
“The app does [trading] seem fun and simple, but the market is really complicated, “said Cheshire.” It may be dangerous. “
That strategy has had tragic outcomes. In June 2020, a college student named Alexander Kearns killed himself after seeing a negative balance of more than $700,000 in his Robinhood account, though some of his trades were incomplete. In a suicide note, Kearns named Robinhood, asking how it allowed him to take on so much risk.
Robinhood, which did not respond to a request for comment on this story, was founded in 2013 by former Stanford University roommates Baiju Bhatt and Vladmir Tenev. The app was a pioneer in commission-free online trading with a stated mission to “democratize finances”. The product has been specially tailored to this ethos and appeals to people with little experience in the stock market.
With the app, traders can swipe to confirm stock purchases, receive notifications, and read market news. In a tutorial on YouTube, a vlogger describes the app as “like tinder, but for things that make you money”. In May, the company announced it had more than 13 million accounts.
Amid recent stock market chaos, Robinhood disabled trading with GameStop, AMC and other companies targeted by the Reddit crowd on Thursday. Legislators on both sides of the aisle, including Democratic MP Alexandria Ocasio-Cortez and Republican Senator Ted Cruz, criticized the decision as unfair to small investors. The company later said it was a “risk management decision”.