Is Robinhood, Really The Best Thing For The Markets?
The truth about FinTech Trading Platforms
The Beginning of FinTech Stock Trading Companies
It all started when two young men, Baiju and Vlad graduated Stanford University built two financial companies specializing in building and selling Finance trading platforms to hedge fund companies. After working on building Finance Software companies for these firms, they realized Hedge Fund firms pay very little in commission to trade stocks, although profited off of consumers for pretty hefty commission rates. That’s when they decided to build Robinhood, a software platform that would help lower the entry level to financial opportunities to everyone.
Instead of profiting off of the commission directly, Robinhood build products on top of their free platform that came at an affordable cost, to help profit off of their business model. This allowed Robinhood to reach to new markets and transform the future of the stock market.
Robinhood platform was the last digital trading platform that entered the market in 2013. Ameritrade launched in 1975, E-Trade launched in 1982, and Acorns launched in 2012. Making Robinhood the last with the largest impact on the market.
Robin hood's easy to use platform, made it easily accessible for anyone to trade. The platform includes simple analytics, simple news coverage, and first introduced dollar trading that even removed the entry way of investing in companies like Amazon, Berkshire Hathaway, and others that have a high stock cost. While partnering with FinTech company Plaid to allow for easy funding into accounts, and automatic cash flow to start trading the same day. Something many companies fail to provide.
Although Robinhood provided a decentralized opportunity to invest in the market, it failed to provide the education opportunity to teach new investors about the market. The traditional retail industries prevention to enter, provided confirmation that majority of investors were going to be purchasing rationale investments.
In 2020, the pandemic showed just how new investors on FinTech platforms can do to a stock market. With the Global Pandemic occurring many new investors are bored and have money to take advantage of the market. Many times, as specified on Investopedia, beginner traders, are eager to buy low cost stocks, because it provides easy entrance. We see this with investors that attempt to flip a profit with penny stock trades. Although like penny stocks, these stocks have higher risk.
Many investors started to purchase stocks like Hertz and JcPenny, that are clearly Bankrupt. According to CNBC:
Hertz, Whiting Petroleum, Pier 1 and J.C. Penney, which all declared bankruptcy amid the pandemic, saw their shares surging at least 70% each in Monday’s trading alone, some of which more than doubling. Imminent bankruptcy filers Chesapeake Energy and California Resources also skyrocketed from a few pennies to a couple of dollars in a matter of days.
A third party company that tracks Robinhood performance level saw a spike in the creation of brokerage accounts and the purchases of bankrupt companies like Hertz in the market. Companies like Hertz filed for Chapter 11 that allows companies to continue business if they agree to pay a certain monthly payment. Creditors remove the money left on the stock, and leave common stock holders with absolutely nothing.
The Truth About Decentralized Trading Platforms
As much as applications like Robinhood provide equal entry way on a technical perspective, it fails to provide an equal opportunity. Providing a trading platform with no economic gateway is the first step to improve financial inequalities systematically built throughout the U.S.
With a lack of Financial Education in those communities that aren’t able to trade contributes to making bad financial decisions that can cause a greater loss than they can afford. Purchasing Bankruptcy stocks is a rookie mistake, if you do not know what it can mean for a company, and for you as a stock owner.
Today, June 6th, Investors that had stocks in bankruptcy stocks really felt the economic crash, when the market was impacted by the rise of the virus cases, overvalued stocks in the market. Investors whom didn’t sell before the crash saw their stocks dive into penny stock status.
For other stock owners, it also plays with the gaming field of the market. As an investor myself, usually you can expect what other investors find important to understand consumer confidence in the market. When new investors come and mess with the market, it’s harder to outline if a stock is going to be in the selling stage, the buy time, or if it’s going to become overvalued.
As easy as it is to complain about the lack of Financial Education in the United States in at-risk, people of color, and low income communities. It’s also easy to provide a link to a FREE Online Financial Educational Resource, here. This site provides free courses, readings and information for everyone. The Non-Profit Organization, National Endowment for Financial Education provides a non-bias, free resource to all families on Financial Literacy.
