Will the dust ever settle for Robinhood?

Rick Steves

The situation that affected Robinhood should serve as a reminder to broker dealers that b booking is not a sustainable business model

Robinhood’s recent restrictions amid extreme volatility caused by the trading of meme stocks have left a hole in its identity. Only time will tell if they’ll recover the image they worked so hard to build.

It’s just like the tale as old as time. David versus Goliath.

Robinhood was the sling that broke before the shot to the head. Why? We might only get the full picture after the SEC investigation, which charged the broker-dealer with misleading customers about revenue sources and failing to satisfy the duty of best execution.

Off to a promising decade, as monetary policy and government spending in the context of the COVID-19 pandemic brought millions of retail investors to the platform, Robinhood is now falling victim to its own mission: “to democratize finance for all”.

The power of the people came in the form of subreddit r/WallStreetBets. The story is now widely known within the trading industry and elsewhere, but it is likely to serve not only as a cautionary tale for broker-dealers but also as living proof that b-booking is no longer a sustainable business model in a world where online investing communities are likely to become mainstream.

What will become of Robinhood is still unknown, but the broker seems to be on the verge of insolvency after having to draw on a line of credit from six banks amounting to between $500 million and $600 million as well as an emergency $1 billion emergency raise. Even if they do emerge from the financial problems caused by the clash between their business model and the emergence of meme stocks, investors aren’t likely to forget they were kept from trading freely in such a volatile market.

Moreover, Robinhood CEO’s poor communication skills during the crisis led to a widespread belief among retail investors that the broker conspired with Citadel and Melvin Capital against its customers. Now that even US politicians from left to right, including Representative Alexandria Ocasio Cortez (D-NY) and Senator Ted Cruz (R-TX), are publicly outraged by Robinhood’s actions, many investors are losing faith.

Traders seem to be heading out and onto other platforms, not only to make sure they can make the trades they wish but also out of fear of being stuck with a bankrupt broker. While the SIPC protects up to $500k in accounts, cryptocurrency holders risk losing everything since Robinhood Crypto is not a member of FINRA or SIPC.

The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.

Read this next

Digital Assets

Binance executives sue Nigerian authorities over rights violation

Two senior executives from Binance have filed a lawsuit against against Nigeria’s national security adviser’s office and its anti-corruption agency, alleging violations of their fundamental rights.

Retail FX

Banxso announces 8.7% interest rate on deposits in South Africa

“With Banxso, they can enjoy the benefits of both worlds – earning competitive interest and having the freedom to trade, all within the same platform.”

Industry News

FINRA to publish transaction details in U.S. Treasury securities

“Consistent with our longstanding practice, FINRA is introducing greater transparency in a calibrated and careful manner, benefiting liquidity and resilience in this critical market while also mitigating potential information leakage concerns.”

Institutional FX

OpenYield launches “cheap and easy” fixed income trading for brokers

“We’re on a mission to make bonds cheap and easy to trade, and are excited about the opportunity to build generational capital markets infrastructure.”

Digital Assets

Sumsub and Mercuryo publish a guide for VASPs: “Mastering Travel Rule Compliance”

“At Sumsub, we’ve concentrated our efforts on filling the gap in understanding the complexity of Travel Rule regulation and helping organizations find the best solution to stay safe and compliant while minimizing costs and avoiding potential risks of non-compliance. This guide we created with Mercuryo, our trusted partner, is the ultimate navigation tool all VASPs can consult.”

Digital Assets

Bitget Wallet Leads with Record Swap Volume & New Crypto Innovations

This week, Bitget Wallet achieved a milestone by surpassing Metamask with a record 388,757 Swap order transactions, securing the global lead. The significant 7-day trading volume, almost 68,000 more than its rival, underscores its liquidity and user trust. This robust activity signals Bitget Wallet’s prominent role and reliability in the dynamic crypto market.

Digital Assets

Embarking on a Digital Currency Journey

Imagine you’ve stumbled upon a treasure map, leading you to untold riches hidden in the vastness of the internet. Instead of gold coins and jewel-encrusted goblets, this treasure comes in the form of digital currencies, the modern-day loot coveted by many.

Reviews

Traders Union Experts Share The Trading Analyst Review For 2024

Navigating options trading in rapidly shifting markets poses a considerable challenge. This is where options trading alert services become invaluable. They aid traders in keeping abreast of evolving opportunities and market trends. In this assessment, Traders Union experts scrutinize The Trading Analyst alert service to ascertain its efficacy. 

Digital Assets

BlockDAG’s Presale Achieves $9.9M: Aiming For A 5000-Fold ROI As Cardano’s Price Rises And Fantom Launches Sonic

Explore Cardano’s surge, Sonic’s efficiency, and why BlockDAG’s growth makes it the top crypto choice. A deep dive into the future of blockchain investments.

<