Pandemic Trading Pushes Startup Brokerage Firm Robinhood to the Top in Monthly Trades

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Aug 12, 2020
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Startup online brokerage firm Robinhood recorded more daily average revenue trades (DARTs) in June than any of its publicly-traded brokerage firm competitors. The 7-year-old company logged 4.3 million DARTs. That was nearly 500,000 more DARTS than its next closest competitor, Nebraska-based TD Ameritrade, and only 400,000 less than the next three competitors combined.

This was the first time that Robinhood reported, as most of the brokerage industry, their monthly trading totals. Although most brokerage firms no longer charge commissions on trades, DARTs are still considered a key metric for measuring the trading volume of their customers. 

Unlike much of the business world, the pandemic has not been so unkind to Robinhood and its rivals. Robinhood recorded more than double the number of trades in the second quarter of this year compared to the previous quarter. The company also saw it’s three most active days of trading ever in June and has brought in 3 million new customers since the start of 2020.

It’s competitors, namely TD Ameritrade, Interactive Brokers, Charles Schwab, and E-Trade, have also fared well during the pandemic. Those companies more than doubled their trading volume in the second quarter of 2020 when compared to the same period in 2019. TD Ameritrade saw the largest increase, 312%, in the second quarter year over year.

Unsurprisingly, the surge in customers and trades has partially been attributed to the many people stuck at home during the pandemic. Robinhood also has a very low financial barrier to entry. Customers get a free stock when they sign up and can buy just a share of expensive stocks. Those factors, combined with brokerage firms offering free trades, have led to millions of people to start investing in stocks for the first time.

However, many say that there is another factor at play, particularly when it comes to Robinhood. The average age of Robinhood’s customers is 33, and, critics say, that’s because the company has ‘gamified’ its trading platform to appeal to an audience that doesn’t know a world before online games. 

"Once you complete a trade, they encourage you to do so. They flash confetti. It's almost like a video game when you get to the next level.  Timothy Welsh, president and CEO of Nexis Strategy, said. “It's all playing on the endorphins you get from making trades."

That gamification and easy access have come with some controversy. Some say that the relative inexperience of many of the new traders can lead to confusion and even addiction to trading on the platform. In fact, one customer, Alexander Kearns, mistakenly thought he lost over $700,000 by trading options on Robinhood. After discovering how much he thought he had lost, the 20-year-old student committed suicide.

However, others, including the founders of Robinhood, have rejected the notion that the app encourages inexperienced, and young, customers to take risks. They claim that the company has made it possible for everyone to have access to invest in stocks, and that can only be a good thing.

"One of the things I love about Robinhood is it's ... drawn millions of new people into the market," Bloomberg columnist Nir Kaissar said. "If we want people to become more savvy about personal finance and investing — and I think we generally say that we do — then I think they need to have the experience of being an investor. I don't think those are things that you can necessarily learn just in a textbook."

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