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.
