In the latest step toward democratizing investing, online brokerages led by Robinhood are seeking to make buying and selling stocks not just cheap but seamless and even fun. That’s drawn a new class of young retail traders into the market. It’s also raised worries about the "gamification" of investing.
Robinhood offers trading of stocks — and more exotic financial products, including cryptocurrencies — on a sleek phone app popular with young investors dipping into markets for the first time.
The app has a colorful, uncluttered layout and lets users begin trading with as little as $1. For inspiration, they can browse the 100 most-held stocks among fellow users. An entertainment ecosystem has risen up alongside Robinhood. TikTok videos under #robinhoodstocks have millions of views, and communities of young investors use online forums such as Reddit’s WallStreetBets to join forces on stock-buying campaigns.
But one of these campaigns shocked investing professionals and roiled the financial markets. In January and February, individual investors — many using Robinhood — banded together on Reddit to drive prices of video game retailer GameStop and other "meme stocks" — stocks bought for reasons other than the company’s performance — to astronomical levels. This "trading frenzy" triggered volatility that caused hedge fund short-sellers to lose billions.
Even before the GameStop episode, Robinhood drew the ire of government officials. Massachusetts securities regulators in December filed a complaint against Robinhood, calling out its "gamification" tactics. And the company last week agreed to pay $70 million to resolve federal allegations that its strategies cause "widespread and significant harm" to its customers.
A Robinhood spokesperson said, "Those who dismiss new and younger investors, who come from increasingly diverse backgrounds, as unsophisticated or unserious perpetuate the myth that investing is only for the wealthy."