How Robinhood Is Changing The Stock Market And How Consumers Invest

Every few years, a company comes along that radically changes how an industry operates.

Uber forever changed how people get around cities and Airbnb drastically redefined how we think about travel accommodations.

Robinhood has undoubtedly become one of those companies for the financial industry, altering how consumers get access to and participate in the stock market.

It’s one of the few companies that I probably talk about on a daily basis, as I’m sure my friends would quickly attest.

Robinhood is a financial services company that makes it extremely easy to buy and sell stocks, exchange-traded funds (ETFs), and options. The simple and intuitive design of the mobile app makes every other stock platform look archaic.  

What else makes the company special? It pioneered concepts like commission-free trades, buying fractional shares, and no account minimums. These were foreign ideas in the industry prior to Robinhood popularizing them. Now consumers expect these things and competitors have found parity.

While you would think the $1.7 billion the company has raised would be the most impressive headline since its founding seven years ago, the user growth is a much more appealing data point. The platform boasts a user base of more than 10 million, according to a CNBC report from June of this year, with recent estimates showing closer to 13 million.

If you are already familiar with the company, none of these figures will come as a shock. However, if you are like many Americans who use traditional brokers like Charles Schwab or T.D. Ameritrade, you might not fully appreciate the influence that Robinhood has on the market.

Over the last three months, I’ve drafted and deleted two or three versions of a blog post that I’ve written about Robinhood because the topics can get so expansive. The underlying crux of those pieces revolved around a few different hypotheses about the extent of how much the company impacts that stock market and how social media can really quickly amplify those waves.

Eventually, I’ll gather the data to truly prove or disprove some of my guesses.

In its simplest form, the company minimizes the barriers to entering the stock market for people who may have otherwise stayed on the sidelines. What we’ve seen recently represents nothing short of a flood into the market. Three million new accounts having been created in 2020 alone.

Yesterday, Yahoo Finance detailed a survey of 1,000 Americans that showed an estimated 33% of the stockholders polled have been more actively trading since the start of the Coronavirus pandemic compared to before, particularly among people with household incomes of $50,000 or less. This comes at a time when unemployment claims and economic uncertainty is running rampant. 

While the data hasn’t been exclusively correlated to Robinhood, general themes over the last many months indicate that the company is a likely contributing cause and beneficiary of this increase in stock market activity.

Unfortunately, the company doesn’t come without baggage. Earlier this year, it was reported that a young trader perceived that he went into significant debt on the Robinhood platform after the app allowed him to make a number of risky bets. This sadly led to the young man taking his own life. 

This and similar stories happen as a result of unsophisticated traders entering the market with a limited understanding of basic trading concepts. 

Personally, I predict Robinhood continuing on a tremendous trajectory. Interest in stocks is high and generally, that could be a good thing, as long as safeguards continue to get put in place. TV personalities have attributed the growth of this activity to consumers trying to scratch their itch to gamble during a time when casinos and sports were harder to bet on. I can understand that.

Still, time will tell how much more impact Robinhood could and will have on the market. I’m bullish on their prospects.