Fortune: Robinhood should empower young investors, not take advantage of them

Robinhood’s latest announcement that it will actively recruit college students to use its platform via cash prizes highlights the importance of providing young people more access to modes of investing–if they are well informed.

What once required an investor to have over $100,000 in assets and a broker to place all trades for them, now takes a few simple clicks on a free phone app. Students as early as high school can place life-altering trades in seconds.

This can clearly cause problems for those unfamiliar with the risks in these markets and not privy to best practices on how to gain long-run returns while minimizing pitfalls. However, the solution isn’t as simple as opposing this move by Robinhood. On one hand, getting young people to invest early and experience how the power of compound interest is one of the greatest things that can lead to long-term wealth. Transaction costs are the lowest they have ever been for investing and access to markets is easier than ever–all great news for starting investors.

Students need to be aware of how to use this opportunity to build wealth at a young age, without being taken advantage of by Robinhood and other broker-dealers.

First, young investors should be aware that Robinhood’s business model is built upon getting you to trade as frequently as possible. To do this, they have structured their app to “gamify” the process of trading, taking advantage of those who are prone to risk-taking behavior and making the trading process seem fun. The more one trades on the Robinhood app, the more it makes, and the lower one’s long-run returns will be.

Read the rest at: https://fortune.com/2021/09/27/robinhood-young-investors-stock-trading-derek-horstmeyer/