Robinhood

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Robinhood
Robinhood.png
Founded 2013
Headquarters Menlo Park, California
Key People Baiju Bhatt (Founder, CEO); Vlad Tenev (Co-founder)
Employees 200-500
Products Robinhood trading app
Twitter @robinhoodapp
LinkedIn Profile
Facebook Page
Website Robinhood Home
Blog Robinhood Blog

Robinhood is a fintech company as well as a broker-dealer registered with FINRA. It was founded in 2013. Its primary product is a brokerage app that offers trading services for stocks, options, ETFs, and cryptocurrency.[1][2]

As with accounts held with any U.S. broker dealer, securities investors' accounts on Robinhood's platform are protected from a Robinhood failure by the Securities Investor Protection Corporation (SIPC) for up to $500,000.[3] It is regulated by FINRA.[4]

The app offers its trading services free of commission fees. In place of these fees, the company generates revenue by selling premium services, selling order flow to market makers on stock exchanges, and earning interest on funds users keep in their Robinhood accounts.[5][6]

Designed for "the next generation" of traders, Robinhood targets millennials. On its website, it encourages new traders to learn about trading using various tools integrated into the app's user interface, such as candlestick charts, which were added in September 2018.[7][8] Part of its stated goal is to "build a financial product that would enable everyone—not just the wealthy—access to financial markets." [9]

In December of 2018, Robinhood launched a new feature that allows users essentially to hold a checking account through the platform. The company said these accounts would be insured by SIPC, although Stephen Harbeck, president and CEO of the SIPC, told Bloomberg in an interview that these accounts were not insured by the SIPC.[10]

Company History[edit]

Robinhood announced the development of its app, including the promise of "zero-commission trading," in 2013.[11] The same year, Robinhood received approval from FINRA to operate as a broker-dealer.[12] The company raised $3 million in seed funding from Index Ventures. The following year, the company raised an additional $13 million from investors; notable investors besides Index Ventures included Stocktwits co-founder Howard Lindzon, Jared Leto, and Snoop Dogg.[13]

Robinhood's CEO, Baiju Bhatt, said at a public TechCrunch Disrupt SF talk on September 6, 2018 that the company had begun the processes of looking for a CFO to expand their business, as well as undergoing audits from the SEC and FINRA. Around the same time, the company announced plans to launch an IPO.

By September 2018, Robinhood had over 5 million worldwide users.[14]

In August of 2020, the New York-based hedge fund D1 Capital Partners invested $200 million in Robinhood, giving it a valuation of $11.2bn.[15]

Robinhood, along with several other online and traditional trading platforms, was used in January 2021 by retail traders who flooded into stocks of struggling companies like GameStop and AMC with buy orders. The target companies were being championed by WallStreetBets, an online community on the website Reddit. The retail buyers caught some hedge funds that had shorted the companies' stocks off-guard, spurring heavy losses among the short sellers. Even as its customers were generally profiting from the price spike, Robinhood was forced to raise $1 billion from its investors on January 28, 2021 to help cover demands for collateral from its clearing firm and the Depository Trust & Clearing Corporation. Amid the buying surge, the company also temporarily disallowed purchases of certain shares, a curb that incited the ire of its customers and drew criticism from some legislators. In addition, at least two class-action lawsuits were filed against Robinhood that charged the brokerage prevented investors from profiting by blocking them from purchasing shares.[16][17][18]

Robinhood publicly filed for an IPO on July 1, 2021, a day after FINRA announced it had fined Robinhood Financial LLC $57 million and ordered the firm to pay approximately $12.6 million in restitution, plus interest, to thousands of customers FINRA said it had harmed and deceived.[19] [20] Among other things, FINRA said Robinhood had allowed thousands of customers to trade risky derivative products that were “not appropriate” for them and gave customers false or misleading information about how much cash was in their accounts, their ability to trade on margin, and the risk of loss in trading these derivatives.[21]

Robinhood Crypto[edit]

Robinhood partnered with Chicago-based trading firm Jump Trading LLC, which had already begun engaging in digital asset trading in November 2017. The partnership allowed Robinhood to offer free digital asset trading by sending digital asset trade orders to trading venues for execution. Nora Chan, a spokeswoman for Robinhood, said that Robinhood sends its orders to more than one trading venue - this could mean cryptocurrency trading platforms, brokers, market-makers or OTC trading desks. She did not confirm that Robinhood uses Jump to execute trades, and a representative from Jump declined to comment on the matter.[22]

Launched in 2018 Robinhood Crypto offers trading in bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Ether (ETH), Ether Classic (ETC), Dogecoin (DOGE), and Litecoin (LTC).[23]

New York trading licenses[edit]

In January 2019, the New York State Department of Financial Services (DFS) granted Robinhood a Bitlicense, official approval to transact cryptocurrencies with New York residents.[24] The DFS also gave Robinhood license to carry out money transfers.[25][26]

Dogecoin Whale[edit]

In February 2021, blockchain analytics firm Elliptic discovered that the wallet containing the world's largest supply of Dogecoin - almost 29 percent of all Dogecoin in circulation - "almost certainly" belonged to Robinhood Markets, according to Tom Robinson, chief scientist and co-founder of Elliptic. According to Elliptic's research, the wallet was created in June 2018, which is right around when Robinhood began letting its customers buy DOGE. Robinhood later tweeted, "for operational security reasons and to protect customer privacy, we will not confirm which addresses do or do not belong to us" in response to the allegations. The identity of the owner of the wallet had been the subject of debate on Twitter at the time after Tesla CEO Elon Musk tweeted that he believed the cryptoasset suffered from "too much concentration," and that he would pay the biggest holders of DOGE to void their accounts.[27][28][29]

Trading boom[edit]

The week before key competitor Coinbase's feverishly anticipated stock market debut on April 14, 2021, Robinhood Crypto's head of Operations, Christine Brown, revealed in a blog post that the app had 9.5 million customers during the first quarter of 2021.[30] Coinbase had earlier revealed that it had 6.1 million active users in the same period.[31] Robinhood's first quarter figure was more than 450% greater than its own previous quarter's figure of 1.7 million.

Key People[edit]

  • Baiju Bhatt - Founder and CEO
  • Vlad Tenev - Co-founder

References[edit]

  1. Robinhood: Investing. Now for the rest of us.. Robinhood.
  2. DON'T SLEEP. Robinhood.
  3. Robinhood: Investing. Now for the rest of us.. Robinhood.
  4. BrokerCheck: Robinhood Financial LLC. FINRA.
  5. This Investor Bet On Robinhood With The First Check. Forbes.
  6. Robinhood Plans to Launch IPO, Seeks CFO Amid Audits From Regulators. Cointelegraph.
  7. Robinhood: Investing. Now for the rest of us.. Robinhood.
  8. Robinhood Crypto App Adds Candlestick Charts Due to Popular Demand. Coindesk.
  9. About Us. Robinhood.
  10. SIPC Says It Has Serious Concerns About Robinhood's New Product. Bloomberg.
  11. Robinhood App Will Offer Zero-Commission Stock Trades Thanks To $3M Seed From Index And A16Z. TechCrunch.
  12. Robinhood gets $3M to take from Wall St. and give to Main St. with its mobile-first, zero-commission brokerage. Pando.
  13. With $13 Million, Robinhood Aims to Share the Stock-Trade Wealth. Recode.
  14. Robinhood Plans to Launch IPO, Seeks CFO Amid Audits From Regulators. Cointelegraph.
  15. Retail trading app Robinhood’s value tops $11bn on new fundraising. The Financial Times.
  16. Why Robinhood Had to Risk Infuriating Its Customers. The New York Times.
  17. Robinhood Fallout Sweeps Market After $1 Billion Lifeline. Bloomberg.
  18. Robinhood is being sued over the GameStop meltdown. Do investors have a case?. Fortune.
  19. Robinhood Reveals 2020 Profit With Surging Loss This Year. Bloomberg.
  20. FINRA Orders Record Financial Penalties Against Robinhood Financial LLC. FINRA.
  21. Robinhood ordered to pay $70m penalty to US regulator. The Financial Times.
  22. Robinhood’s Free Crypto Trades Powered by Chicago’s Jump Trading. Bloomberg.
  23. Robinhood saw more crypto traders than Coinbase in Q1 2021. CoinDesk.
  24. New York Financial Regulator Grants BitLicense to Robinhood and LibertyX. CoinTelegraph.
  25. Cryptocurrency firm Robinhood wins New York trading license. Reuters.
  26. Cryptocurrency firm Robinhood wins New York trading license. Star Online.
  27. Cryptocurrency Sleuths Point to Robinhood as Dogecoin Whale. Bloomberg.
  28. Dogecoin is Now on Robinhood Crypto. Robinhood.
  29. We are not alone. Just like other crypto platforms, for operational security reasons and to protect customer privacy, we will not confirm which addresses do or do not belong to us.. Twitter.
  30. How Crypto Fits Into Robinhood’s Mission. Medium.
  31. Robinhood saw more crypto traders than Coinbase in Q1 2021. CoinDesk.