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For a trading firm, there are few bigger blunders than clients being unable to move money when markets hit historic highs.
Yet that’s exactly what happened at start-up brokerage firm Robinhood earlier this year. The aftermath? A surge in new users, record trading activity and a new round of venture capital funding.
Despite its missteps, the company has quickly ushered in 10 million users, most of whom are millennials and new entrants to the stock market. Robinhood’s free-trading model kicked off a wave of fee-slashing that turned the brokerage industry on its head.
“We’ve seen a major paradigm shift for broader financial services,” Robinhood co-CEO Baiju Bhatt told CNBC in a phone interview. “People that previously didn’t feel like the markets were for them are for the first time feeling a sense of inclusivity.”
The company, which snared the No. 46 spot on CNBC’s 2020 Disruptor 50 list, released Tuesday, was founded by Bhatt and co-CEO Vlad Tenev in 2013. The company was named after the outlaw from English folklore, who stole from the rich and gave to the poor. Robinhood, mostly used by millennials to trade stocks and cryptocurrency, has grown from its 1 million subscribers in 2016 and 6 million accounts in October of 2018. More than half of Robinhood customers are opening their first brokerage account, and the median customer age is 31 years old, according to the company.
Retail trading has taken off in 2020 amid the coronavirus downturn that many young traders saw as an entry point into the world of investing. Major brokerage firms saw record new accounts in the first quarter. Fidelity, for example, saw a record 1.2 million accounts open in the first few months of the year.
“New investors who sense a generational-buying moment but do not have much background in the equity space,” Citi chief U.S. equity strategist Tobias Levkovich said in a note to clients in May. “We have heard anecdotally about younger individuals with less market experience viewing the March plunge as a unique time to start portfolios and often crowding into the tech arena, purchasing the stocks whose services or products they know and use.”
The influx of young, inexperienced traders is benefiting Robinhood. In March the start-up said it saw three times its average customer trading volume compared to 2019. That uptick continued through April and into May, Bhatt said.
Robinhood users recently told CNBC they were using Covid-19 stimulus checks to invest in beaten-up stocks, and generally, for the first time in their lives, they are playing the market. Lequon Godbolt, who bought into airline stocks, told CNBC, “I just started taking it seriously about two months ago.”
Alongside that jump in activity after the March lows for the stock market, the trading app experienced technical issues that kept it offline for nearly two full trading days. As a result, Robinhood clients missed out on the biggest one-day point gain in…