- Robinhood, the zero-commission brokerage platform in the US, caught many eyeballs as the financial market had entered into a volatile period all thanks to coronavirus pandemic.
- Amid COVID-19, the online brokerage start-up has become representative of a new era in retail investing; and has somehow turned a bunch of young people into day traders.
- The amateur investors initially bought beaten-down airline and cruise stocks and have now turned their attention towards buying shares of companies such as Hertz, JC Penney, Pier 1, Chesapeake Energy and GNC that have filed for bankruptcy.
There are some larger bloopers for a trading firm than its clients being unable to move money when financial markets hit notable highs.
That’s exactly what happened at the US-based brokerage firm Robinhood earlier this year. The repercussions? Growth in new consumers, high trading activity and a new cycle of capital funding.
If you are not familiar with the concept, Robinhood is a commission-free investing app that is popular among millennials in the US.
Robinhood is benefitting from the inflow of young, inexperienced traders.
Amid COVID-19, people have been confined to their households, and sports, as well as gambling are stranded. This year, trading has taken off, with an entry of numerous young traders into the world of investing.
The app which was unveiled in 2015 has quickly ushered to over 13 million users, most of them are millennials and new entrants to the stock market. Moreover, ~ 3 million have connected with the app in the past few months.
In early May, Robinhood announced a round of Series F funding worth US$280 million preceded by existing investor Sequoia Capital. The injected funds led to the valuation of the Company at US$8.3 billion.
Lately, Robinhood has been under limelight due to social media experts such as Dave Portnoy. He is a president of Barstool Sports, online blog who shifted his focus to day-trading when the pandemic brought a halt to the sporting events.
Are you wondering what has made him come under the spotlight?
On Twitter, he goes by Davey Day Trader Global and leads an army of new traders into the stock market.
Dave tweets and live streams his day-trading activity to his followers with radical comments as well as gives followers a sight into both his successes and failures as he flips positions worth hundreds or thousands of dollars.
Of late, an unfortunate demise of a young man shook the market. He took his own life, after believing he had lost ~US$750,000 in soured options bet made on Robinhood. In fact, his account on the brokerage app had a balance of US$16,000.
The tragic episode underlines the dark side of the recent blare in retail trading and the offerings such as free trading, cheap debt, and the ability to buy a small percentage of stocks that have attracted more investors to the markets.
Moreover, this incident has triggered calls for reform of online brokerages.
Retail investors, who are categorised as young and amateur have become the driving force in the recent rally behind the US stock market with the high trade volume.
The question arises, why are retail investors swarming to the market now, especially when a pandemic has trembled the US?
The outbreak of COVID-19 has somehow turned a group of people into day traders.
Initially, they were buying beaten-down stocks. But, now Robinhood investors ratcheted up volatility for bankrupt companies such as Hertz, JC Penney, Pier 1, Chesapeake Energy and GNC expecting for a remarkable bounce from insolvency.
Hertz Global Holdings Inc (NYSE:HTZ)
Hertz shares have been trending on Robinhood and are topping the charts as far as popularity of the stock goes amongst new investors.
Since the car rental company, had filed for bankruptcy in late May, the stock had hit a low of US$0.56 on 26 May 2020. However, the stock also noted substantial gains after hitting the low on 26 May 2020.
With the Company voluntarily filing for Chapter 11 reorganisation, it is assumed that the equity of the Company might be worthless.
On 12 June 2020, the bankrupt Company set a historical precedent and announced that it would sell a billion dollars’ worth of new shares. However, this step came to the attention of the Securities and Exchange Commission (SEC), and the sale was cancelled.
On 2 July 2020, HTZ’s shares last traded at US$1.50, up by 1.69 per cent from its last close.
Once acclaimed as a favourite in Germany’s fintech space, Wirecard in June faced a fight for survival amid an investigation into its accounting practices.
Wirecard AG (FRA:WDI) went to rags after admitting to fraud worth €1.9 billion in its financials. The Company’s share prices dropped to €38.80 (as on 19 June 2020) after the acceptance of the fraud.
The Company also underwent a criminal investigation for the missing cash resources amounting to €1.9 billion from its balance sheet, and it is noted that former CEO Markus Braun was arrested based on the charges of fraud.
Did you read; Wirecard’s Riches to Rags Story, a fraud to remember!
On 25 June 2020, the Company had filed for opening insolvency proceedings, which led to plummeting in stock price of the Company and it closed the days’ trade at €3.09 from opening the market session at €11.48 (on 25 June 2020).
This drop in the share price raised a question, whether bargain-seekers would buy the dip? The Robinhood crowd might hang onto the hopes that the Company would sail its way out of the storm.
On 3 July 2020, the shares of WDI, at the time of writing, was trading at €3.31, zooming up by 19.69%.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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