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"Robinhood's mission is to democratize finance for all". One of the most controversial broker dealers in the world, which has blown up throughout the past few years is officially filing for an IPO today. The premise behind this infamous brokerage is that they offer an easy trading platform for beginner investors, and brought commission free trading to the forefront of many broker dealers. Why is this company so controversial? What is the deal with the founder? Much more to come.
Robinhood was in the midst of a major issue in the beginning of 2021 when they had restricted trading on specific stocks. This was when “Meme stocks” were pumped by a group on Reddit. The owner Vlad had explained that the reasoning for such restrictions was due to their inability to transfer X amount of funds to the clearing house, a needed step within each and every broker-dealer's daily/weekly tasks depending on trading volume. Vlad stated the volume was so high that they were unable to deliver the recommended amount to said clearing house. On the flip side, retail investors were unhappy as they believed the reasoning for such restrictions was due to the fact that the hedge funds needed to cover their short positions, thus they imposed restrictions on all meme stocks. In my opinion, the two are probably both true. I don’t think Robinhood did this intentionally, I believe they felt massive pressure and push back from said hedge funds, which are most likely funding their IPO as we speak, and had to restrict trading. Understandable from a business perspective, unless you’re in Robinhood’s position and are supposed to be there for the retail investor. Not a great look for the company.
How does Robinhood stack up with their competition? Morgan Stanley has seen a massive increase in their stock price over the last 35 years, increasing by $90, current market value of $92.02. JP Morgan, another bank stock, is currently trading at $157.08. The common theme with many of these bank stocks is that they have mostly all been on the NYSE for nearly 30-40 years, thus with a new company like Robionhood being added into the mix, this could lead to more investments.
Robinhood had also recently been hit with a $70 million fine from FINRA, the SRO that regulates the trading and activity within the stock market.