What Is Robinhood Markets And How To Make Money With This App?

Robinhood operates a website and mobile apps for iPhone, Apple Watch, and Android. The company has no branches and operates completely online with no fees for its operations. In this sense, they are very similar to the eToro broker, which we have already reviewed.

Technical Data

Robinhood is a FINRA-regulated broker, broker, registered with the US Securities and Exchange Commission, SEC, and a member of the Securities Investor Protection Corporation.

The company’s main source of income comes from interest earned on customers’ cash balances, the sale of order information to high-frequency traders (a practice for which the SEC opened an investigation of the company in September 2020), and margin loans.

The company has 13 million users as of its most recent SEC filing in August 2020, the Financial Times reported. At the time of these filings with the SEC, the company was valued at $11 billion, which represented a growth of more than 30% from its previous valuation the previous month.

History Of Robinhood Markets

Robinhood Markets was founded in April 2013 by Vladimir Tenev and Baiju Bhatt, who had previously built high-frequency trading platforms for financial institutions in New York City.

The company’s name comes from its mission to “give everyone access to financial markets, not just the wealthy.” Tenev noted that large brokers cost “fractions of a penny” to execute a trade, but typically charged fees of $5 to $10 per trade, as well as a required account minimum of $500 to $5,000. So, as in the British legend of Robinhood, it is about favoring the bulk of the population, giving them access to products that are often prohibitive due to their high cost. The market launch app was first publicly released at LA Hacks, a University of California hacking tournament, and then officially released for the market in March 2015.

As of January 2015, 80% of the company’s customers were in the “Millennial” demographic, and the average customer age was 26. 50% of users who have made a trade use the app daily and 90% use the app weekly. As of February 2018, Robinhood Markets had 3 million user accounts, roughly the same number as online broker E-Trade. However, at that time Robinhood Markets had been in the market for three years, while E-Trade, which is a subsidiary company of the renowned investment bank Morgan Stanley, had been in the market for 36 years.

Financing Rounds

In April 2017, Robinhood raised $110 million in a private funding round, reaching a valuation of $1.3 billion. The funding round was led by venture investor Yuri Milner of DST Global, by Greenoaks Capital and Thrive Capital.

On May 10, 2018, Robinhood Markers closed a $363 million Series D funding round led by DST Global. In May 2018, Robinhood raised a total of $539 million in venture capital funding, with the latest valuation that year of $5.6 billion, up from its previous valuation of $1.3 billion.

In May 2019, reports from Bloomberg and other outlets publicized Robinhood’s pursuit of an additional $200 million in funding, which could value the company in the range of $7 billion to $10 billion. In November 2019, Robinhood announced its expansion into the UK. At the time, the TechCrunch portal noted that the online broker’s operations would open in the UK in early 2020.

When the company opened in the UK, Vlad Tenev, the CEO reported: “Clients will be able to sign up for early access to our investment platform with no fees in the UK and it is very exciting for us because it will be our first international market in vivo and a very important step for us to fulfill our mission of democratizing access to the financial system”.

Rise Amid The Coronavirus Pandemic

During the 2020 stock market crash, Robinhood Markets trading surged. The subsequent market rally was partially attributed to Robinhood traders, but one study indicated that Robinhood traders had a little daily impact on major stocks.

In May 2020, it was announced that Robinhood had raised an additional $280 million in venture funding at a pre-cap valuation of $8.3 billion. This time the investment round was led by Sequoia Capital, and 3 months later the company announced a $200 million Series G funding round from a new investor. D1 Capital Partners, on August 17. This round of financing from D1 Capital Partners received the attention of the British newspaper Financial Times, which did an extensive review of the rapid rise of the company during the coronavirus pandemic.

Such was the stir the company caused in 2020 that the FT stated: “The latest wave of fundraising has fueled speculation that the Menlo Park-based company, which has reshaped the business of retail stock trading in The US, since launching its service in 2015, is preparing to sell shares to the public.

Michael Underhill, chief investment officer at Capital Innovations, a fund manager that invests in Initial Public Offerings of shares, said he expects the company to go ahead with a listing soon. “Seeing that kind of jump in valuation shows that they have speed and momentum on their side,” Underhill told the Financial Times.

Robinhood said in an August 2020 statement that its latest injection of funds would go towards “building our core product and improving the customer experience.”

The platform became one of the big winners of a boom in retail e-commerce this year, as punters cooped up at home by the coronavirus pandemic entered the markets for the first time, helping US stocks recover from March lows towards new record points.

Products Offered By Robinhood Markets

Stock Trading

Robinhood’s original product was commission-free trading of stocks and tradable funds. In February 2016, Robinhood introduced instant deposits, instantly crediting users with deposits of up to $1,000; previously, it took three days for funds to appear via ACH transfers between banks.

In September 2016 Robinhood Markets launched Robinhood Gold, a premium subscription plan offering up to $50,000 in instant deposits, margin trading, plus market analysis.

By February 2017, the company had executed over $30 billion in trades and in August 2017, the company began offering free shares in exchange for referring new users.

Robinhood has banned its users from buying some high-risk penny stocks, it also banned purchases of shares of the company Helios and Matheson Analytics, the owner of MoviePass, in August 2018. Services not offered by Robinhood Markets include retirement accounts, mutual funds, and bonds.

In October 2019, several major brokers such as E-Trade, TD Ameritrade, and Charles Schwab announced in quick succession that they were phasing out trading fees in a bid to keep up with more competitive Robinhood Markets fees. Although, Charles R. Schwab said that it was within the intentions of the program as a broker to eventually eliminate trading fees, as the firm had historically been a discount broker.

Among other services in this Robinhood category, support for buying fractional shares and automatic reinvestment of dividends was introduced in December 2019. Automatic recurring investments were introduced in May 2020.

Cryptocurrency Trading

On January 25, 2018, Robinhood Markets announced a waiting list for commission-free cryptocurrency trading. By the end of the first day, the waiting list had grown to more than 1,250,000 people. Robinhood began offering Bitcoin and Ethereum trading to users in California, Massachusetts, Missouri, and Montana in February 2018. In May 2018, Robinhood expanded its trading platform to Wisconsin and New Mexico.

Banking Services

In June 2018, it was reported that Robinhood was in talks to obtain a United States banking license, with a company spokesperson stating that the company was in “constructive” talks with the OCC, Treasury’s Office of the Comptroller of the Currency. The USA for that purpose.

The Failed Promise Of Savings Accounts

In December 2018, Robinhood announced checking and savings accounts, with debit cards issued by Ohio-based Sutton Bank, that would be available in early 2019. Robinhood claimed that the accounts would carry a 3% annual interest rate. ; At the time of the announcement, the highest interest rate on savings account at a licensed bank to date was 2.36%.

Robinhood initially claimed that their savers’ and traders’ accounts would be insured by the SIPC (Securities Investor Protection Corporation), which the SIPC denied. The products were rebranded as “Cash Management” the next day.

In January 2019, the waiting list and registration page were removed from the app. A new cash management feature was announced in October 2019, with insurance from the FDIC, Federal Deposit Insurance Corporation, various partner banks, and an annual interest rate of 2.05%, though this was later reduced before the release at 1.8% after a federal rate cut. The feature launched in December 2019. However, the current annual return is a fraction of what was originally promised and is only 0.30%.

Controversies Surrounding Robinhood Markets

Pay Per Order Flow

(In the financial markets, payment for order flow refers to the compensation a broker receives, not from its client, but from a third party that wants to influence how the broker routes client orders for fulfillment. )

Bloomberg News reported in October 2018 that Robinhood Markets had received nearly half of its revenue from payment per order flow. The company later confirmed this on its corporate website when asked by CNBC. The Wall Street Journal found that Robinhood “appears to be taking more cash per order than its rivals, by as much as 60 to 1, according to its regulatory filings.”

FINRA, the Financial Industry Regulatory Authority, fined Robinhood $1.25 million in December 2019 for failing to ensure that its customers received the best price for orders. All of Robinhood’s trades between October 2016 and November 2017 went to companies that paid for order flow, and the company did not consider price improvement that may have been obtained through other market makers.

Security Violation

In July 2019, Robinhood Markets admitted to storing client passwords in clear text and human-readable form on its internal systems, according to emails it sent to affected clients.

Robinhood declined to say how many customers were affected by the bug, saying it found no evidence of abuse. However, in 2020, the firm acknowledged that nearly 2,000 Robinhood Markets accounts were compromised in a hacking spree, siphoning off customer funds, a sign that attacks on customer accounts were more widespread than ever before. what was previously known and was not originally announced by Robin Hood.

Infinite Leverage

In November 2019, the WallStreetBets Reddit community shared that there was a bug in the Robinhood platform that allowed Robinhood Gold users to borrow unlimited funds. The loophole was closed shortly after and accounts exploiting this feature were suspended, but not before some accounts posted six-figure losses using what WallStreetBets users called the “infinite money code cheat”.

Platform Falls

On Monday, March 2, 2020, Robinhood suffered a system-wide, all-day outage during the largest daily point gain in Dow history, preventing users from performing most actions on the platform, including opening and closing operations. The S&P 500 rose more than 4.6%.

Robinhood users posited that the outage was the result of a coding error regarding the leap year handling for Saturday, February 29, 2020. Robinhood denied these claims. Robinhood later said they will offer compensation on a case-by-case basis. Robinhood experienced another major system-wide outage on March 9, 2020. Robinhood is currently facing three lawsuits due to the outages in March 2020.

The Suicide Of Alexander E. Kearns

Robinhood faced controversy in June 2020 after University of Nebraska student Alexander E. Kearns committed suicide after seeing a negative cash balance of $730,000 in his Robinhood trading account. It was later discovered that this was a temporary negative balance due to unstable trading activity. In his suicide note, Kearns, who was 20 at the time of his death, accused Robinhood of allowing him to take too many risks. In a press release, Robinhood promised to consider additional criteria and education for customers seeking authorization for Tier 3 options, considered risky.

Sec Investigation Into The Sale Of Customer Orders

On September 2, 2020, the Wall Street Journal reported that Robinhood was under investigation by the SEC for failing to fully disclose its customer order sales to high-speed trading firms, with a potential fine of more than $10 million.

Robinhood Markets IPO

On July 28, 2021, and after big announcements, Robinhood Markets finally completed its initial public offering on the Nasdaq stock exchange, thus consolidating itself as a public company. The company raised capital for about 2,000 million dollars and sold its shares for 38 dollars per unit. By the date of the public offer, the company declared to have some 22.5 million active users, based on data from its second quarter of 2021.

The company had a gigantic jump in revenue during 2021. With revenue of 522 million dollars during the first quarter of the year, 309% more than the same period of the previous year. The growing wave of retail investors that the company has attracted and the popularization of trading have made it possible for the company to consolidate such amazing income.

In the first trading session for the company’s shares on Nasdaq, Robinhood Markets reached a market cap of about $32 billion, making it one of the tech industry’s most promising companies for the future. right now.

Goldman Sachs and JPMorgan Chase have been the leading investment banks that have made the company’s IPO possible.

The CNBC news network stated that the company’s immediate competitors included firms such as Fidelity, Charles Schwab, Interactive Brokers, and newer investment services such as Webull and SoFi.

Among the company’s largest investors at the time of its initial public offering were DST Global, Index Ventures, NEW, and Ribbit Capital.

However, following the much-hyped initial public offering, the day after trading, Robinhood shares fell by more than 8% to $34, down from their initial price of $38. The drop, while typical of stocks making their debut on the stock markets as early private investors try to sell their shares on the same day as the IPO at huge profits, was also related to losses that the company had to face during January 2021, after the failures presented in the mania for meme actions such as GameStop.

Robinhood Markets Review

We have already talked about the history of the company. Now let’s talk about what Robinhood Markets is like for the common investor. How to invest and how to earn.

The first thing to say is that to open an account with this broker you need to be a resident of the United States or the United Kingdom, otherwise, it will not be possible to operate. However, given its rapid rise and its possible listing on a stock market as a public company, it is very likely that the company will soon expand to different markets such as the Latin market, so it is important to consider it as an investment option.

Since Robinhood is a regulated entity, it is one of the most reliable forms of investment at the moment, which is why the company has won a wide audience among millennial investors, which does not mean that the investments are safe. It is simply a legitimate broker that operates with the standard rules of the market but incorporates the novelty of zero costs in market transactions.

Initial Considerations: Reliability

Since Robinhood is a stockbroker, the company must be subject to the same regulations as companies like TD Ameritrade, another well-known broker.

The Securities and Exchange Commission (SEC) regulates Robinhood.

The SEC was created in 1934 to regulate markets to protect investors from harmful practices and promote full disclosure of information.

In short, the SEC has the job of ensuring that companies like Robinhood don’t rip off investors.

However, they also make sure that companies do not lie to the stock markets.

In addition, the company guarantees the money of its clients.

That’s right: Robinhood guarantees the funds, up to $500K for securities and $250K for cash.

These protections are provided to you by the Securities Investor Protection Corporation (SIPC).

So the money is safe with Robinhood, in that sense.

While businesses don’t have to become FINRA members, as the “new kid on the block” in the brokerage world, Robinhood thought this would be important to gaining customer trust.

FINRA, or the Financial Industry Regulatory Authority, is a non-governmental company that attempts to regulate and enforce the rules of the New York Stock Exchange.

FINRA investigates companies and ensures that the market and brokers associated with the market maintain integrity.

The Lure Of Robinhood

Well, before we get to the hard part of trading, let’s consider why this app and broker has become so popular.

The thing with Robinhood, which is far from a scam, is probably Robinhood’s way of selling the investment world.

They often target newbies and amateurs who may have never traded a stock before in their life.

Its target audience is investors who do not have much experience in the stock market and are probably not looking to invest large amounts of money.

Without a doubt, this is a noble mission, since they are bringing the best of finances closer to those who have been excluded from them: the common citizen.

Much like the character, it’s named after, this makes it seem like they’re helping the poor get a piece of the wealth management that the rich have usually gotten.

There is nothing wrong with educating people who don’t know much about the stock market.

However, we should take a closer look at how Robinhood projects the investment world.

We could learn a lot from the way their platform works and the things they leave out.

Individual Stocks And Cryptocurrencies

Robinhood won’t let you trade mutual funds or ETFs, and they focus on things like individual stocks and even cryptocurrencies.

There is a certain appeal to individual stocks.

After all, it seems simpler.

Why get stuck in a complicated mutual fund or ETF when you could just buy a share of Tesla or Netflix?

People love Tesla and Netflix!

And Robinhood knows it.

While you may not be pumping money into a mutual fund with a cryptic name, you can throw a few bucks at some of your favorite publicly traded tech companies.

Of course, as any experienced investor will tell you, dealing with individual stocks dramatically increases the margin of both your risk and your reward.

Individual stocks are volatile, and while a large company like Amazon or Apple may seem like a safe bet, the risk of loss increases with individual stocks.

Not to mention the companies that look flashy right now, but could suffer bigger losses in the future.

Individual actions are actions of vanity.

You can play with a small part of your money, simply because you like a certain company and want to be part of it.

Unless you are an expert trader, and even if you are not an expert trader, you will want to balance your portfolio with much safer options.

But without mutual funds or ETFs, it will be more difficult to do this in a meaningful way at Robinhood.

And this is why Robinhood plays on speed and instant gratification.

Within minutes of getting the app, you can end up with stock from your favorite company.

And with partial shares, it’s easy to feel the rewards of investing.

Another way this allure of Robinhood appears is with cryptocurrencies.

Love or hate cryptocurrencies, there is no doubt that the option to trade cryptocurrencies is Robinhood’s clear attempt to play to a younger, more tech-savvy audience.

Notifications And Celebrations

With no minimums or brokerage fees, Robinhood is trying to maximize people’s engagement with stock and crypto investments.

You can trade all day every day and you won’t pay any brokerage fees for moving your money between different stocks.

The app celebrates your trades with confetti (emoticons and graphic design obviously) and sends you notifications when stock prices move.

These default settings are messing with the dopamine in your brain, trying to wrap your emotions around the stock market.

Now, this does not mean that Robinhood is bad!

Getting your emotions caught up in something helps you commit to something beneficial to your finances, not a bad thing. Seeking to improve your finances is not bad.

But you have to understand that confetti and notifications can lead you to move things and make moves before you know what you’re doing.

And this can be good!

The Robinhood platform is an excellent training ground for the stock market.

When a person has wasted $20 on the app, well, they’ve spent the price of a movie and popcorn to get what they paid for: a few hours of entertainment.

Conclusion: The Robinhood Investment World

None of this means that Robinhood is bad.

Robinhood is exactly what they claim to be.

A low-cost, no-fee way for younger people to get into the stock market.

While Robinhood may not be your retirement guru guiding you toward passive income from stocks, Robinhood can give you some hands-on financial education at a price that won’t hurt your wallet.

The Ending Part. How To Make Money With The App

The first thing, as we said initially, is to live in a country where Robinhood is operating, such as the US or the UK. Being a regulated broker you will not see them promoting themselves in markets where they do not have surveillance or regulation.

After signing up is very simple, such as opening a social network account, legal identification data and bank details are provided and you will be ready to start trading, something that the broker will help you with if you have no experience.

General Conclusions

Robinhood is certainly a disruptive app and with a wide acceptance, in such a short time, perhaps much more than brokers that have been in the market for much longer, it is sure that they will play a very important role in the democratization of finance and the stock market and cryptocurrency operations. We still do not know how high this democratization will be, but what is certain is that it will give a boost to the new forms of economy that are emerging around fintech, decentralized finance, and neobanks. And this will be beneficial for a large part of society that has been excluded from these markets.

We hope that soon we will be able to know more about this application and broker. Very surely more and more they will become much more popular and will soon break into the Latin market.

With information from Wall Street Survivor.