How Robinhood Captures Beginner Investors

Video Statistics and Information

Video
Captions Word Cloud
Reddit Comments
Captions
My dream car is a Corvette, basically Chevy Corvette, simple enough. Regardless, I was saving for that, and I was like, this is definitely a great opportunity to get into the market because all the prices are low. So I essentially stopped saving for that car and basically all the other cars that I was thinking about getting and just put all my money into the stock market. I'd never look at the market until March of this year. I figured now is as good a time as ever to start investing. I don't have that much money saved up, so there's not as much on the line. Robinhood has really become synonymous with millennial retail traders. It's free. All of the major brokerage firms have followed Robinhood with zero commissions. Robinhood has brought a whole new generation of investors into the markets, the iPhone toting millennials who actually like owning individual stocks. Robinhood getting its fourth major venture capital investment this year. Robinhood is simple. I mean, that's that's the simplest way to say that Robin, is what I consider my play money. I started using it a lot more recently during the pandemic. I don't know if it was out of boredom or just I saw an opportunity. Their whole mission has been to make it accessible, to make it easy, to make it fun. They make it sort of gamified , which has also been a criticism of Robinhood. Zero dollar commissions are not cost free, gets revenue behind the scenes from what's known as payment for order flow. We are learning new details tonight after a 20 year old Robinhood trader took his own life. Robinhood opened up the stock market to millions more investors. It changed the game among online brokers, causing a race to the bottom on commission fees for storied companies like Charles Schwab and ETrade. It gave rise to the amateur investor who boast about fortunes made on Reddit, not on CNBC. If you say investing for everyone, you have to design and investing environment for everyone. We're proud of the fact that we've enabled so many younger investors and first time investors to have access to the markets, because we believe that the more people that have access to the markets and can start investing earlier, the better off our economy will be. Robinhood is no longer the only game in town. Every other brokerage firm offers free trading. So the question going forward is that enough will Robinhood have to add more features and can they keep that growing user base engaged? So Robinhood started in twenty thirteen, it was founded by Vlad Teneve and Baiju Bhatt their mission, as they call it, was democratizing finance and making things like trading more accessible. They've blazed the trail. They were the ones that said zero commission is a real thing. They are the ones that said we can make a business, a profitable business out of offering customers free access to the capital markets. Robinhood turn the online brokerage industry on its head by offering free trading. But if the trading is free. How does Robinhood actually make money? Robinhood doesn't charge customers on the front end. It earns revenue behind the scenes through what's called payment for order flow. The retail broker like Ameritrade, E-Trade, Schwab or Robinhood, they'll route the individuals trade to a what we call a wholesale market maker. Two examples of the biggest are Citadel and Virtu. Robinhood makes money because when they route that trade, the payment that goes back, a certain amount of it will go to Robinhood. So it doesn't go to the investor. Robinhood has the highest rate for equities and options. This isn't a new practice, though. It's how the other brokerage firms were also able to eliminate commission fees. Robinhood makes most of its money off of order flow for options, trading a much more complicated and riskier way to invest in stocks. Think a payment for order flow like Facebook and Google. Those are also free because you are the product or your data is. From the very beginning, our mission has been to democratize the financial system. Thank you. And for us, this isn't a headline. It's not a gimmick or a billboard ad. It's the central reason why we started the company and it flows through all the decisions that we make. They have this buzz and this brand loyalty and social media following that does not exist at any other brokerage firm. And it's been one of the ways that they have gotten the snowball effect of millions of users. When we first came here a few years ago, we were at one million and we thought that was quite an awesome milestone. And now we're here with with ten million accounts. I think it's it's just a testament to what we've been able to do. There are other trading apps like Webull and Dough, but none with the name recognition or the user base of Robinhood. Retail investors, meanwhile, have doubled their trading activity during the pandemic. I think we are in a perfect storm for trading. And really it started last October when we moved to zero on commission rates and we saw the engagement start then. And market volatility in February and early March was at a record level. And so that drove people to the market as it historically has. What is different today is the pandemic. People have been able to trade from the privacy of their home and have been able to spend more time online than probably everyone would even want to. Everyone is experiencing an uptick in not just trade to it's a number of assets to someone like Schwab brings the number of new accounts that are open. I think one of the reasons why I decided to throw so much money to the market late March, early April, stocks had just fallen so much in value. I mean, they became attainable for middle class guy like myself, maybe had a few thousand in savings that I was willing to invest. I'm not sure if it's like just pandemic related, but I think that the market has just been really volatile in general. So I've been kind of trading because I think it's like short term gain here and there. And also I just had more time during quarantine to actually pay attention to it. I guess like I would say, I was afraid because I didn't really want to lose money. I knew the stock market wasn't really the best thing for somebody that didn't know what they were doing. Once they coronavirus and everything was starting to happen, I saw stock prices lower. So I definitely want to take advantage of the opportunity of buying in low and trying to sell high. The game tonight has been postponed. You're all safe. And that was the scene after the NBA postponed a game between the Jazz and Thunder, shortly afterward the league suspended its season indefinitely. The sports gambling has been pretty nonexistent. So some of the more active betting types no doubt turn their attention to a different arena, so to speak. So you know me. You know, I like to gamble on sports, right? You knew that, right? Sports are gone. So I've moved to day trading. I have margin, I have this I don't know what any of it means. That's why I got fine with that check. Here is what I know. I have ninety thousand shares of ABT right now, and I'm down 20 grand in a whisper. David Portnoy is founder of Barstool Sports. About a few weeks ago, he decided to take a crack a day trading. He put three million dollars into an ETrade account and he's currently down about six hundred thousand dollars. He is sort of emblematic of this moment of day traders doing really well and actually outperforming some legendary investors like Warren Buffett. We have you on because you are the every man. So many people are at home and they are dat trading their accounts now. So they see a little bit of themselves in you. He has criticized Warren Buffett for selling the airlines, for example. He bought the airlines at a certain week and did really well. Alaska Airlines up 17 percent. Boeing up 13 percent. Carnival up 16 percent. Delta up seven and a half percent. What is what do you do if you listen to old man Buffett? Get out on the airlines, idiot. He has talked to you about certain stocks that have done really well. So it's hard to see if there's actually an effect in terms of him buying or touting a stock and then it going in one direction. With seven seconds, a hundred fifty four. Let's go. One hundred five nine eight. Six figure days only six figure days only. The median age of a Robinhood user is thirty one. These are people who have seen the market do nothing but go directly up since two thousand and nine. Before that the market was seen as a riskier place and not really for amateurs. Robinhood, though, built a product that virtually eliminated all barriers to buying stocks, and it did so during a time of epic returns for the stock market. The S&P, for example, rose nearly three hundred and ninety percent from the depths of the Great Recession until the coronavirus pandemic. The stock market wasn't a sure thing. What else was? I started using Robinhood around March of this year of twenty twenty. I started using the app kind of out of wanting to learn something new and boredom at the same time. We started working from home. I looked at Webull. It wasn't really user friendly for me. And then I looked at Charles Schwab. I looked at Think Or Swim so then I landed on a Robinhood and it was the most user friendly. It was the one that I understood. And it was more associated to a game, so to speak. I'm a big fantasy football player, fantasy basketball. I love it. It was similar to that. It was like using an app on your phone versus like being overwhelmed by an investing experience. I definitely like the Robinhood app for simplicity. It's super easy to use, super easy to pick up, extremely easy to read. I've I had other investing apps as well and they just they simply just don't compare. Robinhood is very simple in the sense that I can open up a stock, execute a trade, I can buy an option by a contract in literally a matter of seconds. I think the user interface is a big part of that as well. Very easy to navigate the learning curve. We're talking a matter of seconds, to be honest. Even the options were easy to apply for, easy to get, and just kind of they just made everything simple so almost anyone could trade. I mean, when we first started, we're kind of just listening to what other people were saying on other like trading platforms like StockTwits or Twitter or something, and kind of just blindly doing what other people were doing. What really drew me towards Robinhood was the fact that they let you invest on your own. I could take my money, put it wherever I want it to be. I know where it's going. I know which stocks I'm invested in. The very first day I started trading, I put fifty dollars in and then I immediately went and bought Coca-Cola stock and then put fifty dollars in it. I went Live Nation because I saw Mark Cuban do it and then I looked at that app, I would probably say one hundred times like every fifteen to twenty minutes until about four o'clock. The thing that makes Robinhood really unique is that it's incredibly efficient in the way that it operates because from the ground up a technology company. People don't expect money things to be easy. It is easy, is it is frictionless. It is fun. And I think that incongruity of expectations is part of what makes it really work. It's it's not your usual financial app. It's different than most fintech. The second thing that they're doing is they are making it identity congruent for everyone. Nobody feels like they're excluded from this conversation. In the past, I think you might have said, well, I'm not an investor. You know, I'm not a typical fill in the blank investment bank person. And people would actually feel alienated by that experience even if they had some money to deal with. They just weren't part of that group. So the everyone piece of it is really important. Millennial investors who favor the online trading system, Robinhood got a very bad surprise yesterday. The platform didn't work at all on the best day for the Dow in more than a decade. The website was down. Users couldn't access the app. They were tweeting at Robinhood. We started noticing it all over social media and it lasted through the close that day. That also was a historic day for the Dow and traders were left on the sideline. Robert had seen its second day of major outages, leaving clients unable to trade these market swings. Robinhood traders stuck on the sideline yet again, the trading startups saw two days of outages last week during another historic market day. I had ran into errors before this, so I was kind of like prepared almost in a way where I didn't have anything that needed to be, like, dumped that at that point in time in March, I had all my money in acorns and I had heard about what happened with Robinhood. And that kind of scared me a bit, you know, made me a little bit worried about the platform. And I monitored it closely over the next two months because in the back of my mind, I was thinking about putting my money in there, but just wasn't sure about it yet. Once I was able to get past that, I invested and haven't had any problems with blackouts or anything like that. I think that just working in the technology industry and just being a product manager, I know how these things work. I was like, oh, they're probably doing some data migration and they screwed up or something. So after the initial outage, that's when I just decided that I needed to move to another brokerage. I had gone more long term minded and I was adding a lot more money. So I was up to maybe like six or seven thousand dollars at that point. But to me, like, that's my life savings. Like I have a lot of student debt to pay and bills and all this stuff. So I just knew I needed to go with someone more reliable than Robinhood. Some of the complaints on social media were that people were done with Robinhood. They were going to take their money and move to other brokerage firms. So based on that, without any numbers behind it, anecdotally, you might think that Robinhood would see a wave of customer losses or some sort of attrition. The exact opposite happened. They saw record account growth in March. They added three million new accounts this year alone. So you may have seen some individuals leave, but overwhelmingly, Robinhood went the opposite direction. We tracked millions of app downloads, which I think does track with some of the data that we've seen out there around new account growth. And so it's an impressive stat and I think speaks to the bigger picture of just a record amount of new investors engaging new investors wanting to try the different platforms out there and mobile being a big component of how people want to engage. We are learning new details tonight after a 20 year old Robinhood trader took his own life. Let's get to Kate Rooney with the story, Kate. Yeah, this is an awful situation. Alex Kearns telling his parents in a suicide note seen by CNBC that he had lost hundreds of thousands of dollars on the trading app Robinhood. According to his family, the college sophomore was studying management and had a growing interest in financial markets. And according to a screenshot he left of his account, Alex had racked up a negative seven hundred and thirty thousand dollar cash balance. But his cousin, who we spoke to, says Alex may have misinterpreted what he owed. It could have been reflecting the other side of an options trade that had not yet settled. FINRA, of course, requires brokerage firms to approve clients for that type of trading. But this tragedy underlines the risks of complicated derivatives, especially for the flood of new retail investors that we're seeing this year. The situation was one of the most important things I had read. It scared me to it made me even more cautious when I go to buy a call or put spread to make sure I'm making the spread, not just to make a call or naked put that at risk that much. I saw it on Twitter at first and I was shocked. The death of that young man was extremely unfortunate. And we made a point to look at all of our systems again and to make sure that the information that we're providing to our users is not misleading in any way. Robinhood updating its platform in the wake of a customer suicide last week in a blog post this afternoon, the co-CEOs announcing three updates. The fact that Alex Kearns was able to get a margin account as a suicide note said, how did I, as a 20 year old, get the ability to borrow almost a million dollars when I have no income? The that is not a legal question. That is an ethical question. The criticism is that Robinhood incentivizes users to trade more often and use complicated investment tools because Robinhood earns revenue through payment for order flow. The more trading volume that occurs on Robinhood, the more money the company makes. Their users should not be, especially a 20 year old, should not have access to that kind of volume and trading, especially with options. I think a good example is on my Schwab account. I applied for options trading. I was rejected because I didn't have enough experience. In a September seven blog post, Robinhood updated users on its improvements and future changes to options trading. This included, adding the ability to exercise contracts within the app, adjustments to how buying power is displayed, additional requirements to trade level three options and increased resources to better understand options. It is like very dignified and it is an app, so it's very easy to use, very accessible. A couple of swipes and you're done. I would hesitate to say that simply because it has gamelike attributes that it's actually a gamified. It's its inherent nature is that it shouldn't really be considered a game by anyone. The frictionless experience, the mobile nature of it, the rewards that they give you for engaging in certain behaviors can certainly make it feel that way. And certainly we feel like we're winning or losing because somebody is keeping score. At the same time the responses that people have to losses suggest that it's not just a game. You know, if it's a game, it's a very serious game. Robinhood is what I consider my play money. I will put money into it. I'll work to grow it to to reach a goal that I have so I can take that money and buy my wife a new car whenever she needs one or buy myself a new computer or a new video game, or it's more for the fun side of it. I enjoy it. It's fun. It can get really easy to blow through a ton of money. I just try to think of it as like a learning experience is like a limit. It's like when I walk into a casino, I give myself two hundred dollars. Robinhood's customer service has also been criticized for its response time and a lack of phone support. After a little while of just kind of buying like stocks and stuff like that. We kind of started to test out the options and see how that was. But some days I would wake up and it would say I was up like one hundred thousand two hundred thousand dollars. Like I would say my contract was up like 2000 percent. And then I would try and sell it and say the contract was worth like two hundred. I would try and sell it at two hundred and then the contract would go down to like one fifty. So then I'd hit like cancel and try to sell it at like one hundred, even below 150. Then the contract would go down to like 50 and it kept keep going lower all the way until it would be the actual price of what the contract was. And I would kind of look into it on other sides and see that there was no spike like that. And then it started to happen kind of like maybe once a month every other week. But it was enough times where like after once or twice or three times, like, I just knew that it wasn't like I just knew it was a glitch. The customer service from the beginning it was weird because they have no phone number. They have basically no way of reaching out to them except through email. So my customer service experience was a little rough at first. So I got on the app and I emailed them to the app with no response. So then I was like, OK, well, posted something at Robinhood support that I was having some issues and whatever, and then I got a direct message from them, which was great, because then they said emailed this email address, we'll give you an infinite number. So I did that. I got an infinite number and I waited about three days and still no response. Went back to the Twitter app and wrote at that Twitter and said, hey, you know, I have still not received a response. It's been over a week. And then I got a response. Once I made that initial contact, it was less than 48 hours for my issue was resolved. It was that quick. It was the getting in touch with them was the hard part. They have an email that's broken down like someone wrote where they say, hi, Kevin, like we looked at your issue, stuff like that. And then it even says, like at the bottom, like sincerely and then the employee's name. But I replied to that email before and said that, like, the issue hasn't been fixed because it's occurred multiple times in a row. And I've gotten this response saying that it was fixed. And then you get another reply from that email, basically. Then the same email is the first one with maybe one or two words. Change kind of takes away that personal feeling like they're not really there to kind of help you out at all. A Robinhood spokesperson told CNBC that they found the best approach to reaching customers quickly is through email. Over time, they plan to build additional ways to communicate with users, and they've more than doubled the size of their customer support team this year. They've definitely caught the attention of regulators. I think people are paying attention and associating them with the boom in day trading and retail trading, although they have pushed back on that distinction. They have a business model that is fundamentally based on creating addiction's that is being presented to people as a way to generate wealth. And we need to be honest about that. We have an obligation in my current job. I have an obligation to protect investors and they're not holding up their end of the bargain. We're getting reports from The Wall Street Journal that Robinhood faces a potential civil fraud action over its failure to disclose its practice of selling clients orders to high speed trading firm. Fine could be ten million dollars. Now, this is not confirmed as SEC. We've reached out to them. We don't have a comment from then yet. We'll try to get to some more on this. And by the way, remember, Robinhood is still under investigation for other issues, including that March outage that they had that caused a lot of disruption at the height of all of that craziness. Robinhood has been criticized for making stock trading seem like any other game or app on your phone, but it seems that that's what the users are looking for. There are so many details about the way the market works that people honestly, they don't want to see how the hot dogs are made. So it's understandable why we make the call to care about what directly affects us. And unfortunately, we simply don't have the bandwidth necessarily to take in all the other possible information and incorporate it in our decision making. It's not to say we couldn't use more than we do, but but we are limited in what we can deal with. I think that ultimately, as we are bringing in a lot of new investors to the market, there's a responsibility around making sure that they understand the tools and ultimately the structures of how markets work. And the more you can help them around that, I think ultimately the better those investors are going to be over time. What they would probably need to do two things that the first thing they could do is think about communicating risk in a more concrete fashion in terms of a currency that people really understand. Right. Hey, right now you're putting an amount at risk that could also buy you a week at the Ritz Carlton. They could also say, hey, if this works out as well as your last trade is, you could make enough to go to the Ritz Carlton for a week. But making it concrete can allow people to make those trade offs a lot more effectively. The other thing that they could do is literally insert sludge, which we call it, just slows people down. I mean, we see this when your email pops up and says, hey, you didn't put in a subject line or you put the word attached in here, but there's no attachment. So it wouldn't be that hard to put in those pauses. Despite the easing of some of these pandemic related restrictions, analysts we talked to say that this new breed of Robinhood trader is not going away. They've now discovered the stock market and they're likely here to stay. Because of the free commissions now, because of the comfort level that people now got in trading and what's going on, I think culturally with people's comfort level with technology. We've reached a new level, higher level, I think will subside, but we won't go back to pre-pandemic levels. This was really just an eye opener to me. And I can really see myself going forward with investing to teach people how to invest as like just a normal thing I would do if it's something I really like doing. So I've chosen personally to just keep a few thousand tied up into some stocks that I really don't think will hit zero ever. Apple is one of those stocks. I'm not buying options. I'm not buying calls and playing it safe. I'm playing it conservatively right now. Robinhood is no longer the only game in town when it comes to zero commissions. That is now industry standard. Analysts have said that it put some pressure on them to launch more banking products. That's something we've seen Robinhood go into with cash management. It does seem like they are trying to be sort of a one stop shop for banking. The thought by some traders is that at some point, Robinhood traders, once they get a certain networth, they might not feel comfortable trading on Robinhood and as they call it, graduate. That is yet to be seen. It's too soon to tell, but that is one possibility that analysts often mention. It's like when you buy a car and it's like the most unreliable car ever. Not that Robinhood is, but it has its super quirky features that you just kind of have to learn to live with. But you learn to love that car at the same time. That's kind of like my experience with Robinhood over these past few months. And even just for simple trades, I will continue using it in the future. I think that I do see myself growing with this product because it's super easy and they are adding more and more features and they're making the whole experience. It is something where if you can get a hook into a customer and really serve them well and grow with them and offer them the types of services and products that are going to help them better calibrate their financial picture, then I think that's going to be a good relationship on both sides and ultimately going to help drive more growth over time. Robinhood needs to think about a longevity of the relationship they're going to have with the consumer. Given that the stock market is going to move up and down, some people are going to do well. Some people are going to do badly. If they don't prepare people for that, they will lose up. So it is actually in Robinhood best interest to figure out how to effectively prepare people for these eventualities. Robinhood right now has a lot to overcome. But if they come out of this on the other side, venture capital investors at least are betting that they'll become a major player in the brokerage industry. What matters, though, is that Robinhood zero commissions model has finally caught the fancy of a whole new generation investors. Cecause of a newfound love for stocks by millennials the brokerage landscape will never be the same, just like it was when E-Trade got its start thirty seven years ago. Growth is a very hard thing to control, and Robinhood's growth has been explosive, explosive to the point where they're onboarding so many users and having so many concerns with so many different clients of theirs, that there's going to be some hiccups along the way, just like any growing company has. And unfortunately, because they are disruptive in this industry, I think those hiccups get really amplified. There's a lot of players in this world that are really upset that Robinhood changed the game. So any time they have a little setback, whatever that setback may be, I think it really gets amplified quite a bit. And I think Robinhood gets a really bad rap. I love the mission of democratizing trading. I love that idea. Again, I feel like getting away from the idea that there are magical wizards who can talk about this and normal people can't is a really good idea. At the same time, if you say investing for everyone, you have to design an investing environment for everyone. And the investing environment that actually works for everyone is going to look different than the investing environment that works for the hypothetical wizard in the castle. It's not to say we shouldn't do that. It's just that we have to be very thoughtful about what that everyone really needs, if that's our goal. So one of our core values is that participation is power. Yes. And I think that kind of just says it all. Everyone in this country and around the world should have the ability to participate in our financial system and something that the two of us really hold dearly and and appreciate even the small people, because your accounts are not as big as the E-Trade, those people. Right. Those people can get a piece of America piece of a corporation.
Info
Channel: CNBC
Views: 347,551
Rating: undefined out of 5
Keywords: CNBC, business news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable news, finance news, money tips, financial news, Stock market news, stocks, robinhood, acorns, trading options on robinhood, robinhood crypto, how to trade options on robinhood, robinhood app, how do i get my money out of robinhood, are there any fees on robinhood, robinhood app review, wall street, first time investing, beginner investing, how to invest
Id: fjNtrraxLII
Channel Id: undefined
Length: 29min 56sec (1796 seconds)
Published: Wed Oct 07 2020
Related Videos
Note
Please note that this website is currently a work in progress! Lots of interesting data and statistics to come.