4 Ways Robinhood Has Changed Trading For Good
If you haven’t left your bedroom/office for the past days, you may only now be noticing a roommate or two have become trading experts.
Next, your Instagram ads have moved slightly toward the financial scale, day trading has become as interesting as bitcoin earlier in the year, and you find yourself watching Bloomberg more often than Netflix.
Some people have indeed taken advantage of extra quarantine time to improve their financial knowledge. There are countless stories of people who have studied financial concepts and used their savings to become skillful traders.
But that doesn’t mean it’s gotten easier to do so. Or does it?
What is Robinhood?
A mobile online trading platform that attempts to reframe what was once seen as a profession for only a few ‘lucky’ ones.
Since its launch in 2015, Robinhood surpassed 13 million users in May of 2020. That number was just over 3 million in 2018. Without disregarding the extreme value-creating tool that the Robinhood team created, the COVID-19 pandemic has a lot to do with its growth over the past year.
Still, Robinhood users today average over 4 million daily average revenue trades, which surpasses the numbers of the largest brokerages like TD Ameritrade and Charles Schwab. A reminder: Robinhood is only available for US users.
Before COVID-19 and the modern office revolution even existed, Robinhood launched its app to try to make trading more democratic and accessible. At the palm of people’s hands, trading could be demystified.
But real-life trading is something that takes years, if not decades, of learning. What the app creators didn’t see coming were the highly addicted bitcoin-motivated traders.
#1 — Self-Proclaimed Traders
You don’t have to look far to see a few trading ‘moguls’ teaching how to get to 1 million dollars through online courses and tweeting about once-in-a-lifetime portfolio bets.
When social media is engineered to become more gamified, people tend to wish for rarely true realities and look for quick, easy ways to reach that threshold.
Unfortunately, even trading experts know that this path is extremely gruesome and takes years of experience to grow accustomed to.
But Robinhood users are not your traditional traders. And they don’t want to be. This is the platform for people who don’t necessarily know finance at first but may be willing to learn. It is based on this financial democratization that the platform grew to what it is today, and it is how it continues to raise capital month after month.
“Robinhood rose to prominence by offering users a hassle-free signup process, sleek design, and zero-fee trading.” — Toby Howell, Morning Brew
#2 — Quick Money
At its nominal description, Day trading is basically buying an asset for a price and selling it later for a higher price within the same 24-hours.
Those who are adept use graphic standards and technical indicators to analyze data from the past, trying to create a prediction model until they find the right moment to buy or sell.
But that’s not the stereotypical Robinhood trader strategy.
Extra time off due to high unemployment rates paired with stimulus checks makes up the perfect formula for a day trading boom.
Today, the headlines on ‘how to make money quickly’ lose to Robinhood’s attractive gamified experience.
When buying Bitcoin comes with party poppers and birthday hats, who wouldn’t want to at least try crypto?
#3 — The Less Trading Knowledge, The Better
Today, trading is seen as a ‘passive income,’ quick fix, a gamble on the market, much like sports betting in New Jersey and Nevada.
An even higher social media use and the ‘hustle economy’ (or gig economy for some) have something to do with this feeling of wanting to do better at faster rates.
Scott Galloway shows that the gamification of stocks is the beginning of what a new generation is obsessed with:
It’s flashy and quick; it’s very Wolf of Wall Street.
Before, they were just consumers. Now, they are gamblers on society's future, reaping the rewards on stocks that represent the direction toward where cities want to go (but not necessarily where they are going).
Thus, inexperienced traders have become grade A fans of Apple, Tesla, and Google based on these stocks’ performance. After all, with the pandemic, it’s been easier to see technology companies transforming our consumer habits — hello, Amazon.
#4 — Focus on ESG and Tech
But not all millennials are bad traders, and not all bad traders are bad news for society.
Realistically, the novice traders that don’t yet follow many financial definitions or some theoretical model do something else. They act as the consumers they are.
Robinhood users that are not experienced traders are likely to know of brand names and invest in those companies because they know enough as consumers. Marketing wins again.
But that also means that millennials, traditionally environmental and social conscient beings that they are, may look at more long-term investing as an answer — looking at you, Tesla.
As most of the thinking behind buying ESG comes from the potential effect these companies may have in society (and not necessarily quick returns), it is natural to expect an increase in investments for that front.
The same thinking goes toward technology. As approximately 57% of millennials currently subscribe to Amazon Prime, they are likely to act as loyal consumers when purchasing tech stock. Likewise, Facebook is en route to double its stock price since March.
What does this mean?
It’s an understatement to say that Robinhood-like apps have shaped trading patterns and behaviors. Many consider inexperienced traders for the rise of certain stocks amid the pandemic, indicating stockholders to be more market-agnostic, whether intentionally or not.
As Robinhood fixes its still minor cybersecurity issues, millennials continue to grow within trading applications alike. And with more revenue streams open for grasp, Robinhood executives seem to be willing to make the gamified experience one for all:
“We believe that if you’re going to have a single app on your phone, we want Robinhood to be the money app,”–Gretchen Engster Howard, Robinhood’s COO
Still, one piece of news may try to democratize the trading market once again — or at least make investors a little savvier: According to Bloomberg, Robinhood is considering making its users’ trading data public again.
Independent of whether Robinhood users’ data trading goes public, trading can’t be seen as it was before.
The challenge for traders new and young is to forecast even more unpredictable trading activity, as a larger share of inexperienced traders continues to buy stocks based on feeling.
Weren’t trading days easier when you didn’t have to consider what your reckless grandma bought after a few glasses of wine?
But you tell me: Are you comfortable making that trade even though thousands may not understand what a Fed interest rate increase means?
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