Fears About Robinhood are Overblown, New Stock Trading Platforms Are Here to Stay

Last year’s Gamestop scenario has ignited fears about phone app trading, but these market problems always existed in some form or another.

Concerns raised about Robinhood

Authorities ranging from investor advisors to financial reporters to the Biden Administration’s SEC Chair have all been warning of the dangers involved in the trading platform Robinhood. Concerns include luring novice investors who are at risk of being taken advantage of, increasing gambling behavior in the stock market by gamifying trading, and the payment for order flow funding business model that allows for commission-free trades for the users.

Pandemic lockdowns meant that a lot of Americans had more free time on their hands and stimulus checks meant they also had more disposable funds to use in trying their hands at investing. At the same time, many avenues of traditional gambling (casinos, major sporting events etc.) were all temporarily paused by the pandemic. There are signs that suggest some habitual gamblers may have shifted into the equity market to fulfill their gambling fix. Gaming-related stocks like Penn National Gaming (PENN), a racetrack and casino operator, and DraftKings (DKNG), a popular sports betting platform, saw a spike in interest soon after the start of the pandemic. Traditionally sports-oriented media platforms like Barstool Sports pivoted to stock market coverage.

While there is good reason to assume that many of these new investors used Robinhood or other free trading platforms to make their investments as they have the lowest barrier to entry, there is no evidence to show that Robinhood itself had any impact on changes to the trading behavior of its users.