The rise of Robinhood in 2020 amid controversies

Summary

• Robinhood, the commission-free brokerage app, has flourished amid the pandemic induced environment.
• The customer base, including the women traders in a considerable percentage, has expanded.
• The app also faced charges of aggressively using advertising tricks to attract investors without the infrastructure to facilitate the users.

The year 2020 had been volatile for the stock market. The share market was gripped by fear and massive uncertainty throughout the year, adding to the market volatility. New or first-time traders saw a lot of opportunities in such a market condition. For a company like Robinhood, the entire circumstance of lockdown, turbulent market, and market going down was ideal to flourish.

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Robinhood app is an online trading app, which is commission-free. Amid the stock market volatility last year, the app has done exceptionally well in attracting new investors.

This Silicon Valley's product is easy to use and empowers the first time and most young investors to make independent decisions while trading. The interface and game-based features are specially designed to lure the young and new traders. The fintech company saw massive growth during last year despite facing some challenges and controversies.

Robinhood’s Journey in 2020

The app saw more than 3 million people joining it, and it added 5,000 new companies to their watchlist. As per the company, investors have mostly invested-in consumer goods stocks.

The app also provides many tools and learning resources needed to make an informed investment decision. During the lockdown, people could save on outings and other expenses. Many first-time investors preferred investing those saved money to generate money in the volatile market condition.

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Vlad Tenev, CEO and Co-Founder of Robinhood, also highlighted that the customers had participated thoughtfully as over 3.2 million people read the Robinhood educational articles. Since January 2020, the daily visits were up by a whopping 260 per cent.

Surprisingly, women percentage in the customer base has increased, with the total number of women on the app going 3x in 2020. The company is committed to removing investment inequality, and this year, it is planning to serve customers more in trading with products similar to cash management.

Must read: ‘Robinhood’ Trading Mania Popularity Reaches Australian Millennials

Robinhood's controversies

While growing at a fast pace, the fintech company also found itself dragged in controversies, mostly accusing it of aggressively marketing its app among the new investors without caring about the customers' best interest.

In a complaint filed by the State of Massachusetts, again, the allegation was that the company was using advertising tactics such as gamification to lure customers, however, not maintaining the infrastructure and procedures required to meet the demands of these customers.

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The complaint says that Robinhood was aware that its infrastructure was incapable of supporting its growing customer base. Consequently, it experienced around 70 disruptions or outages between January to November 2020. Massachusetts wants the company to compensate for customer losses and disgorge all profits.

On the other hand, Robinhood responded that these allegations are baseless and confirmed that the company has worked to scale the system and handle any such alleged situation. Moreover, Robinhood has agreed to pay USD 65 million to settle SEC charges for not disclosing to the customers about getting payments from trading companies for routing customers' orders to these companies.

Must read: Robinhood Again Accused of Violating Securities Laws, this Time for Downplaying Risk

The work from home situation has boded well for Robinhood, with many dabbling in the stock market aggressively. With the vaccine being rolled out in some of the countries across the globe.

 the year 2021 would be an interesting one for the trading company.