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How Robinhood Is Shaking Up Stock Trading | WSJ - YouTube
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- This pandemic and its
fallout really represents
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the biggest shock to the US
economy in living memory.
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- [Alexander] 2020 has
been a turbulent year
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for the stock market.
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- The biggest drop we've seen
since that crash in 1987.
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- Fourth quarter, 1999.
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That's the last time that
we saw a quarter this good.
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- [Alexander] But rather
than be sacred off
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by the Dow's wild ride,
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millions of new investors,
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many of whom are bored,
isolated and out of work
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because of the pandemic are
buying like never before.
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2020 has been a better year
for all brokerage firms
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but the broker of the moment is Robinhood.
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Named after the fictional character
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who robbed the rich to feed the poor,
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Robinhood's founders say
they create the platform
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to democratize America's financial system
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by making it cheaper and easier
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for a new generation of investors
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to begin building their
wealth in the stock market.
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- [Narrator] I bet he's
investing right now.
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He's taking charge, he's
grabbing the bull by the horns.
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- [Alexander] Since it
was founded in 2013,
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the Silicon Valley-based firm has tried
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to disrupt the industry.
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On Robinhood, traders can
buy small slices of a stock,
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otherwise known as a fractional share.
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Robinhood also doesn't
require a minimum balance
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for opening an account.
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But the perk that the
company is most known for
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is free trades.
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- You ever think about trading stocks?
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There's always been a cost.
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Usually up to 10 bucks
for every single trade.
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Until now.
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- [Alexander] Today, free
trades are the industry standard
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but that wasn't the case until last year
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when Robinhood's success
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spurred established industry brokers,
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including Charles Schwab,
E*Trade and TD Ameritrade
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to eliminate their commissions.
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Free trades were partially
what attracted Will Nelson
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to the app but what really sucked him in
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was the intuitive interface.
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- It was fairly easy from the get go.
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- [Alexander] Nelson, who
has no background in finance,
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started using Robinhood in 2018.
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- Go into the search bar,
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you type in what you want, there it is.
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There's the Buy button.
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How many did you want?
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It's fairly straightforward.
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- [Alexander] That recipe
of easy-to-use interface
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and free trades has transformed Robinhood
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into something of a phenomenon.
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This year, the company reported
three million new accounts,
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bringing its total to 13 million.
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All of this attention
has made Robinhood one
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of the most valuable
startups in the country
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but it has also drawn criticism.
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- I fundamentally believe
that decisions belong
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to their owners so long as those decisions
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were entered into knowingly and willingly.
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- [Alexander] Tara Falcone is
a personal financial adviser
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whose company ResiUP specializes
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in working with Millennials.
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- And I think that that's
where the fine line
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is really being drawn here
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is that these young, inexperienced traders
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don't know what they're doing.
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They've never received
education around investing.
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Most of them have no
idea what a stock even is
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or what its price represents.
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- [Alexander] In a statement
to The Wall Street Journal,
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a Robinhood spokesperson wrote,
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"It's not lost upon us
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that our company and our
service have become synonymous
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with retail investing in America,
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and that this has led to millions
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of new investors making
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their first investments through Robinhood.
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We recognize this profound responsibility,
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and we don't take it lightly."
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In June, a 20-year-old
trader died by suicide
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after he misinterpreted his
Robinhood account statement,
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which temporarily showed
a negative balance
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of about $730,000.
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His family said he was trading options,
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a complicated financial
instrument typically used
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by experienced traders.
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- I likened it like to giving the keys
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of a sports car to a 12-year-old
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because there are certain aspects
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or actions in our society
that are gated by age
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because of where we are as young people
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in our fundamental
psychological development.
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- [Alexander] In a final
note left for his family,
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which was later tweeted by his relative,
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Kearns wrote that he had
no clue what he was doing
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and that he never intended
to take this much risk.
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In a blog post on Robinhood's website,
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the company's co-founders wrote
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that they were personally
devastated by this tragedy.
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Robinhood said it now provides investors
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with more educational
resources and customer support.
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But critics say Robinhood
still makes it too easy
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for inexperienced individuals to trade.
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Robinhood still has fewer
hurdles for options trading
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than other brokers.
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- So I'm gonna open up the Robinhood app.
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I'm going to hit the magnifying glass
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at the bottom.
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It takes me to browse.
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I'm gonna type in the ticker symbol.
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- [Alexander] Nelson
has been trading options
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on Robinhood for about a year now.
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- And the next thing I wanna do
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is I wanna hit Trade.
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I see an option to buy or trade options.
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I'm gonna click Trade Options.
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It pulls it up.
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- [Alexander] In just a few minutes
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with just a few clicks,
he makes his trade.
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- Hit Review, it gives you a chance
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to make any edits before you execute.
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Swipe up to submit.
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And the order was filled.
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So it really is that simple
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to execute an options trade on Robinhood.
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- [Alexander] To learn more
about the world of finance,
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Robinhood traders often
turn to social media.
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Nelson taught himself about options,
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partially by watching YouTube tutorials.
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Others turn to popular
forums on Reddit or Facebook.
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- I think what's happening in
the options realm right now
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with young people is that it's talked up
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so much more on social media
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as this get rich quick scheme.
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- [Alexander] Jose Duenas is a moderator
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on the Facebook group,
Robinhood Stock Traders,
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which has over 100,000 members.
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- So I joined and then
I immediately saw things
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that were kind of worrying.
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People just throwing money into a stock.
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- [Alexander] Duenas, who
is a self-taught trader,
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felt an obligation to try and help.
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- You feel like, or at least I felt
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that I had some type of
responsibility towards these people.
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I'm like okay, maybe I
know a little bit more
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than the average person.
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Let me try to educate
some of these people.
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- [Alexander] Earlier this year,
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Hertz filed for bankruptcy
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and its stock price crashed.
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Whereas established traders stayed away,
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Robinhood's traders
invested in record numbers.
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- So a stock that had over the last year
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or so really traded kind of in the teens,
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they're now seeing it in
the $1 and change range
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and thinking oh my God,
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this is the steal of the century.
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Of course, Hertz is gonna
continue to exist in some form.
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I better own this.
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- [Alexander] This strategy
has been repeated many times
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with Robinhood traders jumping
on high-risk investments
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like the airlines and Kodak.
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Robinhood's app has also
been described as gamified.
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- Robinhood has different
levels that you can unlock
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as you start trading.
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Level one is usually just
buying and selling stocks.
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And then level two I
believe is options trading.
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Option three is a more
advanced method they say
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but they do make it seem
like you unlock more,
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the more you learn.
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So it is kind of a video game aspect.
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- I've never seen
another brokerage account
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as colorful and as exciting
as the Robinhood trading app.
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There's confetti that
appears the first time
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you place a trade.
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And while that is something to celebrate,
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I think that confetti denotes a bit more
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of a idea of celebration
than maybe is warranted.
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- [Alexander] Despite
the potential pitfalls,
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both Nelson and Duenas
say they'll continue
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to use the app.
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- I kind of do see it as a stepping stone,
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I'm young, I'm 24 years old.
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I think it is a good platform
to get your feet wet,
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maybe learn a little
something about stocks
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but for serious investing,
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I don't think Robinhood is considered
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or should be considered
a serious stock broker.
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- And I think there is value
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into making accessible platforms
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for people who don't have $20,000
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or hundreds of thousand of dollars
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or millions of dollars
to go to a hedge fund
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or to get a special broker
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and to have these fees.
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I think it's very important
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to kind of increase access to it
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because that's part of
the long-term way we,
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I don't know, make society more equitable.
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(dramatic music)
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