In late January, Robinhood, an app that offers commission-free stock and options trades on a streamlined platform, restricted buying on more than 10 stocks, including GameStop and AMC.
This sent traders in an uproar as Robinhood users lost opportunities — and money. One user filed a class-action lawsuit against the company, which may have prompted it to allow investors to buy limited shares from GameStop and AMC again.
Consumers aren’t just upset about losing money, though. On Twitter, Congresswoman Alexandria Ocasio-Cortez of New York shared her disappointment with Robinhood. “This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
According to Business Insider, “The company said it blocked purchases for some stocks in order to meet deposit requirements from clearinghouses registered with the Securities and Exchange Commission.”
Robinhood CEO Vladimir Tenev noted that his company could’ve done better communicating. “No doubt we could have communicated this a little bit better to customers,” he told Reuters.
Jaylon Brown, a fourth year economics major at Florida A&M with a minor in business, has been trading for more than a year. The Atlanta native says that he uses Robinhood on occasion but primarily uses Thinkorswim and Charles Schwab. Brown compared Robinhood to editing a photo.
“You know how you can edit a picture through your photos app on your phone but the picture would be a lot better if you used Adobe photoshop? That’s Robinhood compared to the other trading companies,” Brown said.
Brown added that he uses Robinhood for his smaller savings accounts.
Jonathan David, a videographer from Miami, has been investing for a little less than a year. He says the app is pretty easy to use.
“It is very easy to navigate through which is one aspect Robinhood took keen interest in because the app is catered toward young investors. Charts aren’t as detailed as other professional investing programs but if you’re a young investor, the basic candlesticks will do,” he said.
David admitted that he did lose money during the Robinhood fiasco. “I did lose a little over $500 but it wasn’t through a direct investment in GameStop. I decided to place a call option on Express, assuming it’d keep rising, before Robinhood placed restrictions on 50 stocks.”
A call option is basically a contract between a buyer and a seller that allows the buyer to purchase a stock at a strike price by an expiration date.
“I don’t hang my head on the loss, it was just unfortunate the way things played out,” Brown said.
He added that he won’t be using Robinhood as much anymore because of this.
Both David and Brown agree that this will have both positive and negative effects on how customers invest their money moving forward.
“Recent events can discourage young millennials from investing in Robinhood out of fear that they don’t have complete control of their investments,” David said.
Robinhood’s CEO said that since this fiasco, the company has worked with investors to decrease the amount of funds needed and the company has raised $1 billion in emergency capital to make sure customers’ trades can happen.