Robinhood
Introduction
Robinhood is the ubiquitous day-trading app most popular with Generation Z and Millennials. It’s casino-like layout, zero fees, user-friendly interface and no minimum deposits have combined to create a new-age rival to the large, traditional brokerages like Charles Schwab and Ameritrade. Now grown into an $11.2 billion giant, it nonetheless carries some non-obvious dangers that make it far from the folksy, fun app-of-the-common-people it markets itself as.
The image above is for the Robinhood app on Apple’s app store. There’s already one clue that all is not quite as it seems. Take a moment to try to find it.
It’s the age requirement 4+ years. This is five years less than Bloons Tower Defense 5: a game where you help monkeys protect their territory against an invading army of balloons. Whilst at times Robinhood’s app seems like it was designed by a four-year-old (with all the bright colors, emojis, and lack of any words longer than “Robinhood” that you’d expect), it is obviously ridiculous to make a real-money stock trading app downloadable by children. Or so you’d think.
The basic idea with Robinhood is similar to that of a social media platform or online game: the more people playing your “game”, the more money you make. Therefore, everything in the game is designed to get you to play more in the way everything in social media is designed to get you to click more. Except of course finance is often not a game, and it is far too easy for people with poor impulse control to blow away their life savings with a few clicks.
Production
Production is defined as the process by which creators of cultural products create them and imbue them with meaning.
Robinhood’s layout is simple and colorful. There is the main page where your total account balance is visible, alongside a graph of results over a customizable time horizon. If you’re lucky, your Robinhood chart will be colored green, indicating that you’re “winning”, and your graph will look something like this:
As can be seen in the above image, the Robinhood app layout is extremely minimalist for a brokerage: it is focused more on delivering an aesthetically pleasing, serotonin-high-inducing experience for the user rather than being a detailed analytical tool for managing one’s savings. When taken in conjunction with the repeated confetti and party emojis it pushes on users, as well as the green vs red graph lines (to indicate whether you’re “winning” or “losing”), the app is built to feel like it’s a game. Indeed, it is fun to navigate and play around with.
However, the most significant part of production for Robinhood is not in the things it gets right, but rather the many (many, many) things it gets wrong. Various glitches and bugs have existed on Robinhood, which several users have taken advantage of. Highlights include:
• Robinhood crashed on February 29, 2020 because they forgot to code for the leap year . As it happened, this was “one of the best days for the US market since the financial crisis” where Robinhood’s 10 million users were not invited to the party
• Robinhood’s premium service used to offer a one-off doubling of one’s account value in leveraged (borrowed) money, but because the code was written by an imbecile, a few tweaks made this “double leverage” repeatable. Naturally, one enterprising user did this over and over again, eventually building a $1.7m position from a deposit of $3,000 . Robinhood’s saving grace was that this user only stopped at $1.7m due to (surprise, surprise) another coding error, which meant the app couldn’t process “double leverage” values over $1m
• All other known problems are too numerous to list here. They include but are not limited to: failing to keep track of day trades; misunderstanding margin calls; delayed payout of dividends; reversing user deposits; attempting withdrawals from accounts that don’t exist then charging users fees for failed withdrawals; incorrect display of account balance
Predictably enough, the app breaks constantly. By constantly, I mean up to three times a week . This is a problem when the app encourages its users towards “options” plays which must be activated or sold within a fixed time period.
Customer service is basically non-existent, with no phone number to call in case of emergencies. This compounds upon Robinhood’s not-too-serious attitude and user-friendly interface combined to add to the already-existing situation where casual investors are piling mountains of cash into an already highly volatile market, with no avenue of recourse if the system has a problem, which as we have seen, it usually does.
Representation
Representation is defined as the discursive process by which cultural meaning is generated.
‘The stock market is how rich people got rich. Why can’t poor people get rich off it too?’
Robinhood and its fans market the above concept constantly, but the idea that its app will enable poorer people to accumulate wealth through this newfound access is a false implication. Undoubtedly a small minority of individuals will get lucky (see: Anono-mon, who managed a 200,000% return from $500 to $926,700 in just over a year ), but this is where the gamification of what was formerly a serious pursuit has serious ramifications. Indeed, it brings to mind one of Warren Buffett’s favorite sayings:
“The stock market is a device for transferring money from the impatient to the patient .”
By gearing its app towards encouraging spontaneous impulsive behavior, Robinhood is pulling its users into the camp of the “impatient” who will inevitably lose to the “patient”. When these individuals begin to congregate online and encourage each other into riskier and riskier plays, the effect compounds until billions of dollars are risked every day by people who have little to no idea what they’re doing.
The consequences of this behavior en masse have been the study of serious research. However, the maniacal, degenerate gambler behavior is of far more consequence to those attempting to understand this evolving culture. This leads us to…
Identity
Identities are defined as constantly evolving, culturally-constructed meanings.
Three words: Wall Street Bets. One of the internet’s true hive minds, Reddit’s r/wallstreetbets is one of its most popular subreddits with over 1.6m members. Originally built for a community of studious investors, it has long since degenerated into the forum of choice for Robinhood users featuring nonstop memes, name-calling, screenshots of huge stock wins or losses, and straight, undiluted bullshit.
Below we find one of Wall Street Bet’s all-time most popular memes, with over 43,000 upvotes:
Someone who buys and sells stocks daily is commonly known in the investing community as a “day-trader”, or “trader” for short. A quick anagrammatization leads us to the preferred manner in which Robinhood users address each other in their forum of choice. If you’d like to learn more about this unique community, you can view my first blog post here.
Robinhood is marketed as a way for poorer individuals to access and profit from the stock market, somewhat analogously to how Robin Hood the legend stole from the rich and gave to the poor. The app claims to accomplish this by cutting the prohibitive financial barriers to entry that previously made it mostly the domain of those who were already wealthy. This calls for a quick detour to answer the $11.2 billion question: since it doesn’t run ads and is free, how does Robinhood make money?
Robinhood makes money primarily by selling orders placed by its users. The concept essentially works as follows:
- Robinhood user Albert Einstein places an order to buy Apple stock and is willing to pay price x
- Robinhood takes that order and matches it with Xi Jinping who wants to sell Apple stock at price y
- x > y
- Robinhood gives price y to Xi Jinping and takes his Apple stock
- Robinhood takes price x from Albert Einstein and gives him Apple stock
- Robinhood keeps the difference between x and y (known as the “spread”)
So, although Albert Einstein hasn’t directly “paid” anything to Robinhood via fees, Robinhood has profited from him by acting as his broker. Therefore, it is in Robinhood’s interest for Albert Einstein to be trading as frequently as possible. Hence the casino/video game app layout – by driving a repeated serotonin rush, Robinhood induces users to trade more, driving up its profits.
N.B. the process is more complex than this. For more information:
In their excellent article: Robinhood and How to Lose Money, two investors with tens of thousands of hours’ experience trading stocks define this perpetual journey where brokerage firms are constantly looking for “the gravy” (people who follow the markets but don’t really care about things like price), whilst making clear to Robinhood users that “y’all are the gravy.” This offers a sober reminder of how the mantra “if you’re not paying, you’re the product” applies perfectly to Robinhood.
This is all public knowledge, and is a long-winded way of explaining the self-identifying of Robinhood users as “traders”.
Regulation
Regulation is defined as what’s allowable or acceptable in a culture.
Regulation is most notable by its absence on Robinhood. For example, options are clearly a high-risk, advanced trading mechanism that should only be accessible to those with a comprehensive understanding of them. Indeed, this is a legal requirement. Robinhood condenses this into a handful of documents – the bare minimum required to avoid legal liability – which essentially boils down to “yes, I have read the terms and conditions”. Since nobody ever reads the terms and conditions, users just click “yes” over and over again to get signed up for their “YOLO” plays.
Robinhood came under heavy fire after 20-year-old Alexander Hearns committed suicide after seeing a $730,000 negative balance on his account. This was due to (wait for it) a coding error on Robinhood’s side, which temporarily showed him an incorrect number for his account balance. Hearns had gained access to close to $1,000,000 of leverage through Robinhood despite not having a job. Even by Robinhood’s standards, this is a head-spinningly stupid error beyond my wildest comprehension. And with no customer service to contact in case of emergencies, an amalgamation of individual errors coalesced into a huge and entirely avoidable tragedy. More information is in the following video:
Nonetheless, Robinhood continues to give a straight-faced defense of its business practices whilst simultaneously, but quietly, paying large fines to the Financial Industry Regulatory Authority.
Consumption
Consumption is defined as how messages are decoded by the audience.
Having read so many negatives about Robinhood, you might be forgiven for asking why a human being would seek out such a dysfunctional app and community. For this part, I’ll move somewhat into the speculative area here, since I think we cannot be certain without signing up for Robinhood ourselves (don’t do it…), but I think I can definitely hazard an educated guess.
The app is objectively bad but objectively fun. It’s quite the adrenaline rush to be winning at gambling, particularly for sums significant to the user, and Robinhood gamifies the stock market to the point of gambling. Smart gamblers know the house always wins in the end, just as they know Robinhood is taking their money without being loud about it, but they are willing to pay for their kicks and can control their risk-taking so that it doesn’t meaningfully impact their lives. These people are in the minority.
Which brings us back to the ill-informed, the gamblers, “traders”, or whatever you want to call them. They absorb all of the information about how the house always wins and pile everything in, without appropriately considering the consequences. The consequences range from the inconveniencing to the utterly disastrous; Robinhood’s denigration of federal laws designed to protect uninformed investors from this type of behavior (by finding the fastest way around these laws with “blah blah terms and conditions…click yes to spin your life savings away”) somehow serves to attract precisely those people who those laws are designed to keep away. Add that to the non-politically-correct community, which is certainly the only subreddit with over 1 million followers to be so brazenly so, and we have a recipe for attracting people with poor impulse control who feel like outsiders and like memes.
As a sign-off to the traders, here are some of their favorites of the latter:
And…
