Whether you’re a self-proclaimed Wolf of Wall Street, or someone whose only association with the terms “bull” and “bear” are Chicago sports teams, you are likely familiar with the fintech-startup-turned-cultural-phenomenon known as Robinhood. Valued at nearly $9B as of January 2023, Robinhood shattered the notion that investing is only for the upper crust of the financial district. Built on the promise of no trading fees, no account minimums, the ability to buy fractional shares, and easy access to standard investment products as well as cryptocurrency, Robinhood truly makes investing attainable for all. However, the guardrails that have been in place for decades were not just established to exclude, but to protect people from their own recklessness. By removing them altogether, the stock market becomes almost casino-like in nature, where anyone can gamble and the house always wins. So while Robinhood owns investing for all, you have to ask yourself, should all be investing?

Robinhood was founded in 2013 by Vladimir Tenev and Baiju Bhatt, classmates turned roommates at Stanford University who bonded over their shared experience as children of immigrants and aficionados of the American financial institution, save for one major flaw: its exclusivity. Inspired by the Occupy Wall Street movement, Vlad and Baiju set out to build a company that would make personal finance accessible to all, aptly naming it after the heroic English outlaw who stole from the rich and gave to the poor. However, it wasn’t the introduction of fractional shares or the absence of trading fees that managed to ensnare an entire generation of young investors, but rather, the fact that Vlad and Baiju cleverly designed the app to feel like social media.
With animated confetti filling the screen after trade executions and emoji-riddled notifications, Robinhood’s gamified user experience makes investing as entertaining and addicting as a game of Candy Crush… except the stakes are considerably higher. According to the research firm Alphacution for The New York Times, the majority of Robinhood users are young, lack investing experience, and are consistently trading the riskiest stocks at the fastest pace. A staggering 50% of its customer base had never invested in the stock market prior to downloading the app. Yet Robinhood users are consistently trading nearly 10x as many shares as E-Trade customers, and 40x as many shares as Charles Schwab customers on a regular basis. In the first 3 months of 2020 alone, they bought and sold 88x as many risky options contracts as Schwab customers, relative to average account size.
“[Robinhood] encourages people to go from training wheels to driving motorcycles.” – Scott Smith, Director at Cerulli Associates (a financial consulting firm)

Now, you may be thinking, “Who cares? Everyone is responsible for their own financial gains and losses. Blame people for being reckless with their money, not the platform that enables them,” and you’re technically not wrong. However, from a moral standpoint, Robinhood is not exactly living up to its namesake because this mindset still allows the rich to get richer (Robinhood being one of the rich). Every time a Robinhood customer trades, Wall Street firms are actually the arbiters determining what price the customer gets, and you better believe they are capitalizing on users’ ignorance and inexperience. These firms then pay Robinhood for the right to do this through a controversial process known as “payment for order flow.” In fact, the New York Times reported in 2021 that for each share of stock traded, Robinhood raked in 4 to 15x more than Schwab, which translates to about $19,000 for every dollar in the average Robinhood user’s account. For reference, Schwab’s profit is about $200 per dollar.

While it’s tempting to point the finger of blame and call Vlad and Baiju a couple of clever hoodwinkers who beguiled a generation of young investors into biting off more than they can chew, the issue (and the stock market itself) is much more complex and nuanced than a short blog piece can even begin to unpack. Robinhood’s business model may be far from perfect, but at the end of the day, the company democratized finance and made it possible for anyone with $1 to their name to participate in the American financial system. So for now, we’ll give credit where credit is due and say that Robinhood owns investing for all. Flaws and all.