Robinhood stood at a crossroads this morning - they had to appease the brokerages and establishment that makes up more than 40% of their revenue (high-frequency trading, and , payment for order flow), or they had to keep their retail customers involved in the GameStop/AMC/etc stocks happy. They had to choose to take the burn off of those who make billions off of stock trading in exactly the way that Reddit had been or continue to let people trade these stocks and keep a rally going that was enriching far more normal people - the people who it had built a brand on supporting.
Hell, yesterday Robinhood’s CEO described retail investors and individuals as feeling like they were “talked down to” or “not taken seriously.” He also said “I think people are seeing now that [retail investors] now have the ability to invest and they’re empowered.” This was *yesterday*. They said “let people trade” in a tweet in 2016.
They have been enjoying this crazy rush until someone - hedge funds, brokerages they work with, I don’t know - said that it was time to stop, and they had a choice. They could have stepped up and said “no, this is volatile, this is risky, we are going to put a big fat honking warning on each of these stocks so people know, but people should be able to make their decisions, we’re pro-consumer.”
Instead, they put out probably the worst thing possible for their brand - a blog that starts with how they want to “democratize finance for all” that ends with them holding hands with every retail brokerage and saying that customers can’t buy these stocks, and can only sell them, naturally creating a market where the winners are those that can still trade (big funds) and the losers are everyone else (Robinhood’s customers).
When your entire messaging is built around the idea of democratizing trading and rooting for the little guy, a move like this is pure poison. There’s an argument to be made that this was somehow in service of protecting users from making bad decisions, but if that was the case they would have done it days ago. If they were so against the little guy losing money, they never would have launched an options product in the first place. Or maybe they’d have cut options products when a guy killed himself after being assigned millions of dollars of leverage.
Their entire positioning from day one has been about, and I quote from their first TechCrunch article, “keeping the divide between the haves and have-nots from growing.” They have built a brand over about six years on enabling people to trade and take advantage of the same mechanisms that the elite have used to get rich. They have positioned themselves as “us” and other brokerages as “them,” and they’ve now starkly, brutally said that they are truly in the camp of the haves - they have always been part of the system, they are “the man,” and that any time the system wants, it can change what you can and cannot do.
It’s a classic “you’re not the customer, you’re the product” situation - Robinhood’s sale of user data and user trades means that, frankly, you’re just there to ride their wave. There may also be a reason we don’t know around the way that they clear their stocks - they built their own clearing platform, so perhaps it’s different.
Robinhood could have used this as an inflection point to strengthen their brand, even without necessarily changing their course. If an exterior force was pushing them to do this, now would be the time to identify them and say “hey, this is happening, we love you and we are not going to be able to help you.” It would still sting, but it would put them on the side of the average user. But I don’t even think that’s what happened here - I think that they were pressured by investors, both their own and otherwise, to join in a mutual industry-wide ratfucking of the individual investor, masked as “trying to save them against market volatility” that for the most part was hurting big investors and helping individual investors make a fast buck.
Now, there is somewhat of a smokescreen here that this is all driven by WallStreetBets - there’s industrial money on both sides of these trades, and that indeed all the people making money are average joes, college students and the like. But that doesn’t change that this was a way that a lot of people could participate in a fairly reliable “number go up” scenario. These stocks were rallying, and people were getting involved.
It is difficult to see this as anything other than Robinhood appeasing their real master, and no communication that has come out of Robinhood suggests otherwise. This is an opportunity that exists with two gravitational forces - to pull users closer to Robinhood, or to pull Robinhood toward the establishment - and Robinhood has chosen, through a lack of communications strategy and generally not giving a shit, to crush people who were making money during a pandemic.
I get the argument that this may be a strategy that exists to stop people losing money, but the truth is that if they were so worried about that they’d have totally cut options the moment it did its first insane burst. If they were concerned about users being churned by volatility, maybe they shouldn’t sell crypto products.
And because they’ve waited so long - yes, a few hours is “long” in this case, there is no endearing explanation that the company can give about what they’ve done here that will appease their userbase.
And, yes, Robinhood can do whatever they want with your account. Absolutely. Just like any company they have this little ditty stuck in there:
But the way Robinhood has been acting here is disgraceful - whether or not they were forced to, whether or not they are innocent, whether or not they claim they had “good intentions” (which I don’t believe), they have blown it here. There is no fixing this damage beyond a total fall-on-their-sword action, and even then, what does that help? What can you do for the people that lost money because they believed, fairly, that the market would continue to operate the next day, versus entirely clam up?
Even if this is a case of stocks moving too fast for Robinhood to execute trades, where was that worry yesterday? Or the day before? Where was the concern? Where was the messaging? Where was the education beyond “be aware that stocks are volatile”? If you were concerned, to the point that in a day’s time you’d shut down trading, where was your messaging around that? That lack of warning likely lost people millions of dollars. The reason everyone is pointing the finger at them for siding with the big funds is because they acted as if they did, even if they had other reasons.
There is a time and a place to be quiet. There are many situations where you should say nothing.
This wasn’t one of them. Communication around this should’ve been robust. It should’ve been early. It should’ve been on Monday. It should’ve been consistent. They should have forewarned people that things like this could happen - that if momentum catches up, things get shut down. If this was even a possibility, they should’ve been transparent about it, but instead have immolated what little brand they had, as well as lost many of their users millions.
Now they’ve hurt many, many people. And profited in the process.