Robinhood (The App): Stealing From the Poor and Giving to the Rich

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Robin Hood, the legendary outlaw hero of a series of English ballads, some of which date from at least as early as the 14th century has taken on a new connotation. Robin Hood became a popular folk hero because of his generosity to the poor and downtrodden peasants, and his hatred of the Sheriff and his verderers who enforced the oppressive forest laws made him their champion.


Although around for centuries, the name Robinhood is most likely presumed as the stock-trading and investing app released in 2013. The fee-free platform makes trading in the stock market easy (maybe too easy, according to some experts and regulators). The app doesn’t offer the tax-advantaged investment accounts that are key to building long-term wealth. 


Although its low fees and usability are sure to hook users, investors should be wary of Robinhood. 


Facts About the App: The Good, Bad, and Neutral 

  • The app is self-directed.

  • You can open a brokerage and cash account.

  • 24/7 customer service is available but is still not on par with other brokerage services

  • The average age of users is 31

  • About 50% of users are first-time investors

  • In recent years, Robinhood has faced regulatory fines, public scrutiny, and lawsuits. 

  • Earlier in 2021, Robinhood settled a wrongful death lawsuit over the death of a 20-year-old user who committed suicide after seeing an incorrect negative balance of $730,000 on the app.


Robinhood Pros

  • The account is free to use and able to be set up within minutes.

  • There are fractional shares available, meaning you can buy partial shares of company stocks

  • No fee to trade cryptocurrency

  • $0 account minimum

  • The app is user-friendly.


Robinhood Cons

  • There are no retirement or tax-advantaged accounts.

  • If you are looking for tax-advantaged accounts like Roth or Traditional IRAs, you are out of luck with Robinhood.

  • Gamifies investing and trading — Regulators have accused Robinhood of pushing new investors into “unnecessary trading risks” with features like digital confetti meant to celebrate trades. (Robinhood discontinued the confetti feature prior to its IPO.)

  • There is a great lack of educational resources to inform investors. (Unless you buy a $5/mo Gold Membership.

  • There are no mutual funds or bonds which can make it hard to balance your portfolio


Investment Opportunities Available on the App

  • Stocks

  • EFTs

  • Crypto

  • Options

  • Fractional Shares


The Robinhood App: Stealing From the Poor and Giving to the Rich


As you may remember, in January 2021, Redditors began buying shared of the failing retail chain GameStock to drive up the stock price. These men and women targeted the Wall Street hedge funds that were engaged in “shorting” GameStop’s stock. During this time, they were using Robinhood to complete their mission of democratized finance.


What is “Shorting?”
To keep it short (pun intended) and simple, to “short” a stock is to bet that its price will go down.


Hedge funds bet heavily against — “shorted” — GameStop. Robinhood’s band of merry men and women bet for GameStop’s value to rise by buying shares and bringing the price up. The hedge funds lost billions.


Of course, those hedge funds were NOT happy. Robinhood, instead of embodying the name, shut down the users’ ability to buy GameStop stock, which pushed the price back down and appeased Wall Street.


You can read more about Robinhood’s everlasting shame here.


More Recent Robhinhood History

Robinhood is fined $70 million over misleading customers and system outages. The fine was the largest ever imposed by the Financial Industry Regulatory Authority, which is known as FINRA. As a subscriber, you have 10 gift articles to give each month. Anyone can read what you share.


Stock trading platform Robinhood recently disclosed a $3.69 billion full-year financial deficit for 2021. Robinhood has thrived in a context of low-interest rates, low inflation, and growing markets over the majority of its existence. The platform lost $423 million in the fourth quarter, or $0.49 per diluted share, compared to $13 million in the fourth quarter of 2020.


“With the uncertainty in the market, our customers became more cautious with their portfolios, trading less frequently and in smaller amounts across all asset classes, although crypto activity, in particular, came down pretty significantly,” Chief Executive Officer Vlad Tenev said on an earnings call.


Customers are now starting to experience the opposite trends, Tenev continued, crypto wallet recently rolled out to all users, is a long-term driver of new customers to its crypto platform, but not a revenue driver. 


According to the platform’s most recent earnings report, it lost $423 million in the fourth quarter, or $0.49 per diluted share, compared to a net income of $13 million in the fourth quarter of 2020. In after-hours trading, Robinhood shares (HOOD) plummeted 15% to $9.77 before recovering somewhat to approximately $10.12.


While Robinhood’s revenue for the quarter climbed 304 percent to $48 million from $12 million in the fourth quarter of 2020, its revenue from that activity is down $3 million to $48 million from $51 million in the third quarter of 2021. It fell short of its previous high of $233 million in Q2, 2021, and continued on a downward trend. Despite this, the company’s CEO, Vlad Tenev, seemed unexpectedly optimistic about the company’s future.


“We had a momentous year, nearly doubling the number of customers on the platform and making critical investments in our team and infrastructure to support growth,” said Vlad Tenev, CEO and Co-Founder of Robinhood Markets, in the report.


Improvements in trading infrastructure and the launching of a Beta version of its crypto WenWallets, which went live to select users last week, could be critical in halting the company’s losses as it enters its fourth year as a publicly-traded company. The brokerage filed for an initial public offering in July 2021, with an opening price of $38. 


The company’s battle to go public was far from straightforward. FINRA fined the corporation $70 million in June 2021 for system disruptions and deceiving customers. In December 2020, the SEC penalized Robinhood $65 million for identical violations. (Sinclair)


As you can see, Robinhood doesn’t have the most sparkling reviews. What do you think about this investing app? Let us know in the comments.


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