Robinhood, which is based in Silicon Valley, has been key to empowering the online investors. Adoption of the app has soared in the pandemic as the stock market surged and people took up day trading in the void of other pastimes. The company has drawn in millions of young investors who have never traded before by offering no-fee trading and an app that critics have said makes buying stocks feel like an online game.
Without fees, Robinhood makes money by passing its customer trades along to bigger brokerage firms, like Citadel, who pay Robinhood for the chance to fulfill its customer stock orders.
In May, Robinhood said it had 13 million users. This week, it became the most-downloaded free app in Apple’s App Store, according to Apptopia, a data provider.
Critics have accused the company of encouraging people to gamble on stock market movements and risk big losses. Brokerages including T. Rowe Price, Schwab and Fidelity have imitated Robinhood by lowering their trading fees to zero. Many of them were also hit by the crush of trading this week.
Robinhood has had no trouble raising money over the last year, drawing $1.3 billion in venture capital backing and boosting its valuation to nearly $12 billion. Its other investors include the venture capital firm DST Capital, New Enterprise Associates, Index Ventures and Andreessen Horowitz.
Yet the company has faced many issues, including fines from regulators for misleading customers. Last March, it raised more money after its app went down and left customers stranded and nursing big losses, leading to a still ongoing lawsuit.
In recent weeks, many online investors have used Robinhood to make bets that pushed up the price of GameStop, AMC Entertainment and other stocks that had been widely shorted — or bet against — by hedge funds. That changed on Thursday after the company curbed customer trading in the most popular stocks.
Article source: https://www.nytimes.com/2021/01/29/technology/robinhood-fundraising.html
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