Robinhood CEO says most customers are ‘buy and hold’ amid GameStop trading frenzy
Amid the frenzy of speculative retail activity in the market, Robinhood’s CEO emphasizes that the majority of the stock trading app’s customers are long term investors.
“Most of our customers are buy and hold,” Robinhood CEO Vlad Tenev told Andrew Ross Sorkin at CNBC’s “Squawk Box” on Wednesday. “Obviously the passives don’t get that much public attention.”
Wild trading activity is going on all over the market, especially short squeezes, staged by motivated retail investors who are explicitly trying to wipe out Wall Street hedge funds that are betting against certain troubled stocks. The retail investors are using online chat rooms like Reddit to plan their next moves to drive these competitive stocks higher and force the hedge funds to cover their short bets.
GameStop, a brick and mortar video game retailer that has been severely slashed by hedge funds, is up more than 125% this week, bringing its rally to nearly 700% year-to-date.
Without speaking specifically to GameStop, Tenev said that commission-free trading pioneer Robinhood “has processes that respond to increases in volatility on certain names, such as by increasing margin requirements.” This policy would increase the amount of money an investor using leverage and derivatives would need to have in their brokerage account after buying stocks.
“Like other brokers, we monitor volatility and take appropriate action, such as increasing margin requirements,” said Tenev. “I think it is wrong to assume that the bulk of our activity is characterized by trading in volatile stocks.”
In May 2020, Robinhood said it had approximately 13 million customers. Given the retail boom during the pandemic, JMP Securities estimates brokerage will have added 3 million more by the end of 2020, based on app download data from SimilarWeb. Atom Finance, a financial technology company that provides investment research to consumers, told CNBC that 10.96% of its clients at Robinhood were trading GameStops stock on Monday when the wild movements began.
Atom Finance, which collects data by connecting to the brokerage accounts of its 100,000+ customers, said about 10% of e-trade customers. 4.2% of Fidelity customers, 11% of Interactive Brokers customers and 10.5% of TD Ameritrade customers were trading with GameStop on Monday.
According to Tenev, in these volatile times, Robinhood is focused on creating a reliable service, investing in stability and educational tools. The CEO said the popular app can’t give in to the whims of the market on certain days or during the week.
“As you’ve seen in this market, different things happen every week,” he said. “I think we need to avoid having you run our business as if we were responding to the news weekly.”
The Silicon Valley startup sees investments becoming more relevant for everyday people.
“We are seeing retail investors become a bigger and more significant force in the markets,” said Tenev. “The US stock market has been one of the greatest engines of wealth creation in history.”
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