- This pandemic and its
fallout really represents
the biggest shock to the US
economy in living memory.
- [Alexander] 2020 has
been a turbulent year
for the stock market.
- The biggest drop we've seen
since that crash in 1987.
- Fourth quarter, 1999.
That's the last time that
we saw a quarter this good.
- [Alexander] But rather
than be sacred off
by the Dow's wild ride,
millions of new investors,
many of whom are bored,
isolated and out of work
because of the pandemic are
buying like never before.
2020 has been a better year
for all brokerage firms
but the broker of the moment is Robinhood.
Named after the fictional character
who robbed the rich to feed the poor,
Robinhood's founders say
they create the platform
to democratize America's financial system
by making it cheaper and easier
for a new generation of investors
to begin building their
wealth in the stock market.
- [Narrator] I bet he's
investing right now.
He's taking charge, he's
grabbing the bull by the horns.
- [Alexander] Since it
was founded in 2013,
the Silicon Valley-based firm has tried
to disrupt the industry.
On Robinhood, traders can
buy small slices of a stock,
otherwise known as a fractional share.
Robinhood also doesn't
require a minimum balance
for opening an account.
But the perk that the
company is most known for
is free trades.
- You ever think about trading stocks?
There's always been a cost.
Usually up to 10 bucks
for every single trade.
Until now.
- [Alexander] Today, free
trades are the industry standard
but that wasn't the case until last year
when Robinhood's success
spurred established industry brokers,
including Charles Schwab,
E*Trade and TD Ameritrade
to eliminate their commissions.
Free trades were partially
what attracted Will Nelson
to the app but what really sucked him in
was the intuitive interface.
- It was fairly easy from the get go.
- [Alexander] Nelson, who
has no background in finance,
started using Robinhood in 2018.
- Go into the search bar,
you type in what you want, there it is.
There's the Buy button.
How many did you want?
It's fairly straightforward.
- [Alexander] That recipe
of easy-to-use interface
and free trades has transformed Robinhood
into something of a phenomenon.
This year, the company reported
three million new accounts,
bringing its total to 13 million.
All of this attention
has made Robinhood one
of the most valuable
startups in the country
but it has also drawn criticism.
- I fundamentally believe
that decisions belong
to their owners so long as those decisions
were entered into knowingly and willingly.
- [Alexander] Tara Falcone is
a personal financial adviser
whose company ResiUP specializes
in working with Millennials.
- And I think that that's
where the fine line
is really being drawn here
is that these young, inexperienced traders
don't know what they're doing.
They've never received
education around investing.
Most of them have no
idea what a stock even is
or what its price represents.
- [Alexander] In a statement
to The Wall Street Journal,
a Robinhood spokesperson wrote,
"It's not lost upon us
that our company and our
service have become synonymous
with retail investing in America,
and that this has led to millions
of new investors making
their first investments through Robinhood.
We recognize this profound responsibility,
and we don't take it lightly."
In June, a 20-year-old
trader died by suicide
after he misinterpreted his
Robinhood account statement,
which temporarily showed
a negative balance
of about $730,000.
His family said he was trading options,
a complicated financial
instrument typically used
by experienced traders.
- I likened it like to giving the keys
of a sports car to a 12-year-old
because there are certain aspects
or actions in our society
that are gated by age
because of where we are as young people
in our fundamental
psychological development.
- [Alexander] In a final
note left for his family,
which was later tweeted by his relative,
Kearns wrote that he had
no clue what he was doing
and that he never intended
to take this much risk.
In a blog post on Robinhood's website,
the company's co-founders wrote
that they were personally
devastated by this tragedy.
Robinhood said it now provides investors
with more educational
resources and customer support.
But critics say Robinhood
still makes it too easy
for inexperienced individuals to trade.
Robinhood still has fewer
hurdles for options trading
than other brokers.
- So I'm gonna open up the Robinhood app.
I'm going to hit the magnifying glass
at the bottom.
It takes me to browse.
I'm gonna type in the ticker symbol.
- [Alexander] Nelson
has been trading options
on Robinhood for about a year now.
- And the next thing I wanna do
is I wanna hit Trade.
I see an option to buy or trade options.
I'm gonna click Trade Options.
It pulls it up.
- [Alexander] In just a few minutes
with just a few clicks,
he makes his trade.
- Hit Review, it gives you a chance
to make any edits before you execute.
Swipe up to submit.
And the order was filled.
So it really is that simple
to execute an options trade on Robinhood.
- [Alexander] To learn more
about the world of finance,
Robinhood traders often
turn to social media.
Nelson taught himself about options,
partially by watching YouTube tutorials.
Others turn to popular
forums on Reddit or Facebook.
- I think what's happening in
the options realm right now
with young people is that it's talked up
so much more on social media
as this get rich quick scheme.
- [Alexander] Jose Duenas is a moderator
on the Facebook group,
Robinhood Stock Traders,
which has over 100,000 members.
- So I joined and then
I immediately saw things
that were kind of worrying.
People just throwing money into a stock.
- [Alexander] Duenas, who
is a self-taught trader,
felt an obligation to try and help.
- You feel like, or at least I felt
that I had some type of
responsibility towards these people.
I'm like okay, maybe I
know a little bit more
than the average person.
Let me try to educate
some of these people.
- [Alexander] Earlier this year,
Hertz filed for bankruptcy
and its stock price crashed.
Whereas established traders stayed away,
Robinhood's traders
invested in record numbers.
- So a stock that had over the last year
or so really traded kind of in the teens,
they're now seeing it in
the $1 and change range
and thinking oh my God,
this is the steal of the century.
Of course, Hertz is gonna
continue to exist in some form.
I better own this.
- [Alexander] This strategy
has been repeated many times
with Robinhood traders jumping
on high-risk investments
like the airlines and Kodak.
Robinhood's app has also
been described as gamified.
- Robinhood has different
levels that you can unlock
as you start trading.
Level one is usually just
buying and selling stocks.
And then level two I
believe is options trading.
Option three is a more
advanced method they say
but they do make it seem
like you unlock more,
the more you learn.
So it is kind of a video game aspect.
- I've never seen
another brokerage account
as colorful and as exciting
as the Robinhood trading app.
There's confetti that
appears the first time
you place a trade.
And while that is something to celebrate,
I think that confetti denotes a bit more
of a idea of celebration
than maybe is warranted.
- [Alexander] Despite
the potential pitfalls,
both Nelson and Duenas
say they'll continue
to use the app.
- I kind of do see it as a stepping stone,
I'm young, I'm 24 years old.
I think it is a good platform
to get your feet wet,
maybe learn a little
something about stocks
but for serious investing,
I don't think Robinhood is considered
or should be considered
a serious stock broker.
- And I think there is value
into making accessible platforms
for people who don't have $20,000
or hundreds of thousand of dollars
or millions of dollars
to go to a hedge fund
or to get a special broker
and to have these fees.
I think it's very important
to kind of increase access to it
because that's part of
the long-term way we,
I don't know, make society more equitable.
(dramatic music)
