It does not charge fees for trading, but it is still paid more if its customers trade more. “Over the long term, it’s like trying to beat the casino.”Īt the core of Robinhood’s business is an incentive to encourage more trading. “They encourage people to go from training wheels to driving motorcycles,” Scott Smith, who tracks brokerage firms at the financial consulting firm Cerulli, said of Robinhood. This year, they said, the start-up installed a glass barrier at the front entrance. Some have visited Robinhood’s headquarters in Menlo Park, Calif., in recent years to confront the staff about their losses, said four employees who witnessed the incidents. The average age is 31, the company said, and half of its customers had never invested before. Kearns, Robinhood’s average customer is young and lacks investing know-how. Kearns wrote in his suicide note, which a family member posted on Twitter. “There was no intention to be assigned this much and take this much risk,” Mr. The figure was high partly because of some incomplete trades. Those dangers came into focus last month when Alex Kearns, 20, a college student in Nebraska, killed himself after he logged into the app and saw that his balance had dropped to negative $730,000. Some Robinhood employees, who declined to be identified for fear of retaliation, said the company failed to provide adequate guardrails and technology to support its customers. This kind of trading, where a few minutes can mean the difference between winning and losing, was particularly hazardous on Robinhood because the firm has experienced an unusual number of technology issues, public records show. They also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size, according to the analysis. In the first three months of 2020, Robinhood users traded nine times as many shares as E-Trade customers, and 40 times as many shares as Charles Schwab customers, per dollar in the average customer account in the most recent quarter. More than at any other retail brokerage firm, Robinhood’s users trade the riskiest products and at the fastest pace, according to an analysis of new filings from nine brokerage firms by the research firm Alphacution for The New York Times. And the more that customers engaged in such behavior, the better it was for the company, the data shows. It has been one of the tech industry’s biggest growth stories in the recent market turmoil.īut at least part of Robinhood’s success appears to have been built on a Silicon Valley playbook of behavioral nudges and push notifications, which has drawn inexperienced investors into the riskiest trading, according to an analysis of industry data and legal filings, as well as interviews with nine current and former Robinhood employees and more than a dozen customers. The ease of trading has turned it into a cultural phenomenon and a Silicon Valley darling, with the start-up climbing to an $8.3 billion valuation. Millions of young Americans have begun investing in recent years through Robinhood, which was founded in 2013 with a sales pitch of no trading fees or account minimums. “When he is doing his trading, he won’t want to eat,” said his wife, Tashika Dobatse, with whom he has three children. His account value shot above $1 million this year - but almost all of that recently disappeared.
Dobatse took out two $30,000 home equity loans so he could buy and sell more speculative stocks and options, hoping to pay off his debts. After funding his account with $15,000 in credit card advances, he began spending more time on the app.Īs he repeatedly lost money, Mr.
Dobatse, now 32, said he had been charmed by Robinhood’s one-click trading, easy access to complex investment products, and features like falling confetti and emoji-filled phone notifications that made it feel like a game. But his behavior changed in 2017 when he signed up for Robinhood, a trading app that made buying and selling stocks simple and seemingly free. Richard Dobatse, a Navy medic in San Diego, dabbled infrequently in stock trading.