Robinhood logo

The Confusion and Anger Around the Robinhood Situation

I know — at this point, you’re probably already sick of reading about Robinhood. However, please indulge me while I share my two cents (which could be turned into a grand if I buy GameStop, amiright?) on the matter. As an observer and user of Robinhood over the past few years, what we saw happen yesterday was simultaneously shocking and not really all that surprising. This is to say that, while their decision to limit trades on certain stocks was staggering, the lack of savvy and inability for Robinhood to get out of its own way was certainly not without precedent.

For a quick refresher if you’ve been on a desert island sans WiFi this week, there is currently an Internet-fueled short squeeze occurring, where retailer investors are purchasing shares of such seemingly random companies as GameStop ($GME), AMC ($AMC), BlackBerry ($BB), and others as a means of not only making a profit but also screwing over Wall Street short-sellers. In fact, it seems to be working as reports show massive losses at hedge funds such as Melvin Capital occurring as prices for $GME and others soared to frankly ridiculous levels. Citing this volatility, Robinhood restricted trades of several ticker symbols on Thursday morning, making it so that traders could not buy shares of these stocks and, instead, only sell shares they already owned. Cue mass hysteria.

While “hysteria” might not be the right word, it’s safe to say the decision was not well received. Beyond upset customers, lawmakers as far-ranging as New York Congresswoman Alexandria Ocasio-Cortez and Texas Senator Ted Cruz found themselves in agreement as the former called for investigations into Robinhood’s decision (Ocasio-Cortez later rejected Cruz’s help on the matter, but that’s another story). By the end of the day, one of Robinhood’s CEOs took to television to explain their side of the story and the app sent a letter to users saying that it would once again allow some purchases of the impacted stocks — although certain limits and restrictions still apply.

So what happened? According to Robinhood co-CEO Vlad Tenev on Twitter, “As a brokerage firm, Robinhood has many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.” While I don’t doubt that, my initial feeling was that the app also likely halted trades in hopes of staving off blame they’d surely receive later on when customers lose money in these trades — especially those buying in at this stage amid major media coverage. After all, the firm has regularly been a target for criticism surrounding the ease in which “anyone” can open an account and start using the platform as a casino. Given that past rhetoric, you can see how such sentiments may have already been ringing in Team Robinhood’s ears when they were considering how to proceed. Unfortunately, as we now know, it probably would have been better to do nothing.

As I mentioned at the top, this isn’t the first time Robinhood has found itself in hot water. Take, for example, their “Checking & Savings” debacle that saw the firm backtracking on the concept after it was discovered that SIPC insurance doesn’t really work the way they apparently thought it did. It’s also worth noting that the app recently reached a settlement with the SEC over previous business practices that failed to explain to customers how the company made money. These PR nightmares show that, while Robinhood’s founders may have big ideas, they don’t always have the best instincts.

I’m far from the first to point out that Robinhood’s decision yesterday is at odds with their entire stated objective and mission statement. Thus, it’s not hard to imagine why customers were furious with the move. Yet, while I’ve stated that I think they were in the wrong, I’m slightly more sympathetic to their situation. In my mind, their bid to be proactive bit them badly — but, again, that’s nothing new.

Ultimately, it’s hard to say what becomes of Robinhood going forward. However, as much as people may be angry with them now, it’s impossible to deny the impact they’ve had on the current investing landscape. Sure, if not them, some other app may have come along and led the revolution — but, in this reality, it was Robinhood. As a result, when traders do want to leave the platform, they now have several options, whereas this wouldn’t have been the case just a few short years ago. So while this misstep may just be the one that eventually dooms them (although I wouldn’t necessarily bet on it), I’ll personally consider their overall impact to be a net gain.

Author

Kyle Burbank

Founder ~ Moneyat30
Kyle is a freelance writer - including being the head writer for Fioney.com. He also serves as editorial director for the Disney fan site LaughingPlace.com and the founder of Money@30.com. In 2015, Kyle and his wife Bekah moved from Los Angeles to Springfield MO in pursuit of greater financial freedom. Together, the pair enjoy travel, coffee, and spending time with their dog Rigby. Additionally, as of 2023, they become first-time homeowners.

Other Articles by Kyle Burbank

Capital One Savor Card

Capital One is Seemingly Saying "Goodbye" to the Savor Card

Earlier this week, Capital One removed what might have been considered (or at least intended) to be one of its flagship cards from its site. As of July 16th, the bank is no longer accepting applications for its Savor Rewards card. So what was behind this move and what's next?...
phone camera recording a YouTube video

Starting a Second YouTube Channel: Pros, Cons, & Considerations

If you look at some of the top creators on YouTube, something you might not immediately realize is that many have more than one channel to their name. As it turns out, there are several reasons for this — many of which might impact you as a creator as well....
sitting in Delta SkyClub

Travel Tuesday: Could Unbundled Business Class Come to Delta?

There's no question that flying in business class is a completely different experience than in economy. Between having your own pod and a lie-flat seat, suddenly the prospect of sleeping on a long-haul international flight doesn't seem so untenable. Of course, there are also service perks, such as a dedicated...

Leave a Reply

The "Email" field is empty, you must enter some text to proceed.The text you entered in the "Email" field appears to be invalid, please edit it and try again
Get Posts in Your Inbox
Featured Articles
Capital One Savor Card

Capital One is Seemingly Saying "Goodbye" to the Savor Card

Earlier this week, Capital One removed what might have been considered (or at least intended) to be one of its flagship cards from its site. As of July 16th, the bank is no longer accepting applications for its Savor Rewards card. So what was behind this move and what's next?...
phone camera recording a YouTube video

Starting a Second YouTube Channel: Pros, Cons, & Considerations

If you look at some of the top creators on YouTube, something you might not immediately realize is that many have more than one channel to their name. As it turns out, there are several reasons for this — many of which might impact you as a creator as well....
sitting in Delta SkyClub

Travel Tuesday: Could Unbundled Business Class Come to Delta?

There's no question that flying in business class is a completely different experience than in economy. Between having your own pod and a lie-flat seat, suddenly the prospect of sleeping on a long-haul international flight doesn't seem so untenable. Of course, there are also service perks, such as a dedicated...
Away softside luggage

Away Just Released Its First Soft-Sided Suitcase Collection

Over the past few years, I've become well acquainted with the travel accessories brand Away. I'm pretty sure my first introduction came when the American Express Green Card was revamped and launched with an Away statement credit as part of its welcome bonus offer. Although I didn't end up taking...