Mobile-Trading App Robinhood Now Has More Than 10 Million Accounts

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The online trading industry is in a state of flux and it has fintechs to thank. One in particular, which just surpassed the 10 million mark in terms of customers, is Robinhood. 

The Menlo, California-based mobile app and desktop trading platform that launched in April of 2013 has been able to amass millions of customers. It has more users than E*Trade, pioneered commission-free stock and ETF trading and doesn’t require any account minimums. It has leveled the playing field for regular investors and turned the industry on its head. 

Take the acquisition of  TD Ameritrade by Charles Schwab, which was announced in late November as a glaring example. Schwab is paying $26 billion in an all-stock deal for one of its main rivals. The deal provides the combined company with what they said are “strategic benefits” and will give Schwab access to 12 million clients and $1.3 trillion in client assets. Combined the company will have 24 million client accounts and more than $5 trillion in client assets. 

Then there’s Fidelity Investments, which in October announced zero commissions for online U.S. stocks, ETFs and options trades. All of the industry players were forced to follow suit, which weighed on their stocks. Retail investors applauded the commission-free move, but investors weren’t as happy. Commissions have long been a revenue driver for online trading firms. Now because of the likes of Robinhood, they have to seek alternative ways to make money. That could prompt more consolidation in the online brokerage industry. 

In a blog post Robinhood touched on its ability to transform the industry in highlighting its 10 million customers milestone. The mobile trading firm pointed to other brokerages moves to offer commission-free trades as a big example of its influence. 

“Rooted in this customer focus, we pioneered commission-free stock and ETF trading with no account minimums. And since then, we’ve added commission-free options trading, commission-free crypto trading through Robinhood Crypto…and soon, a competitive interest rate on uninvested cash through your brokerage account,” Robinhood wrote in the blog post. “The future of Robinhood will be about continuing to listen so we can expand to more services that pass value back to you — and keep challenging the industry in the process.”

IT HASN’T ALWAYS BEEN SMOOTH SAILING 

Robinhood, which has a valuation of $7.6 billion as of July, is doing a victory lap but the fintech hasn’t been without controversy. Last year it made a PR blunder when it was forced to pull its new checking and savings account off the market. It boasted an interest rate of 3% but the product ran afoul of regulators. It held off until October in finally rolling out a cash management account, which now has a 1.8% APY.  It also recently withdrew its application for a bank charter.

 In November Robinhood confirmed a glitch on its platform that enables traders to use unlimited borrowed money or margin to purchase stocks. Known as “infinite leverage,” traders took to Reddit forums like WallStreetBets to talk about the capital they were able to access. One trader boasted being able to get $1 million in borrowed funds with just $4,000. Another trader claimed to be able to borrow $50,000, purchase shares of Apple and subsequently lose the money.

Robinhood said at the time that it identified a “small number of accounts” engaging in the activity. The accounts were restricted and a permanent update was made to the system to prevent it from happening again. 

But that’s not stopping traders from trying to work the app to access more margin. A new Reddit user claimed this week to have discovered a different way to manipulate the trading app but instead of using covered calls it exploits the app using an iron condor options trade.  As a result, users’ margins are doubled, but funding comes at a slower rate than in the previous exploitation. 

Robinhood spokesman Jack Randall said the company has protections in place to ensure there is enough cash or stock when a customer places an options order. “Robinhood monitors closely for any type of abusive activity on our platform and will take action as appropriate, including but not limited to restricting customer accounts,” said Randall.