Hey there, financial baddies! I’m trying that out to see if it sticks, but idk, let me know what you think in the comments. Anyhoo, I recently made an IG post about the apps I used to start investing in, and I feel like I have so much more to say about one of the apps in particular.
Robinhood… I started using Robinhood in 2020 and stopped in 2021, but my ride with Robinhood was wild. Robinhood is technically under the umbrella of investing, but in my opinion, it’s more accurately described as a trading app.
If you don’t know what trading or day trading is, I will explain below. But first, let me give you the whole background of:
How I got into Robinhood,
Why I stopped using Robinhood, and ultimately,
It helped me find myself as an investor and grow my net worth.
Watch the YouTube video here.
2020 was a wild time, if you can recall, and the stock market was insane. The S&P 500 gained more than 16% percent compared to the average return of around 8% annually that investors come to expect.
New people were entering investing and the stock market to take advantage of these gains, and Robinhood - I don't know, took advantage of that? Accelerated that? It’s hard to know if it was the cause or effect, but it was for sure a catalyst of some sort in my life and for some people around me.
Robinhood was giving away free stocks for joining; they were all over Reddit and YouTube (and I will caveat that this was before the Game Stop Saga situation - and I was not privy to or a part of that, so...) What I'm saying is Robinhood was a disruptor in my life, and with my newfound financial freedom from debt and a high-paying job - I had extra income because my spending had been ground to a halt during quarantine.
So, I signed up and funded my account.
My experience with Robinhood
My experience with Robinhood was that to invest, I could purchase stocks and plan to hold on to them, or I could immediately sell them for profit when the shares went up. Obviously, selling them immediately for profit made more sense to me at the time, but in retrospect, I was missing perspective on why I was investing. If I can give anyone advice, it's to consider these three things:
Why are you investing?
What are your goals for investing?
What is your tolerance for risk?
This last one is very important context for what I am about to tell you next. Once, I began funding my account and buying shares, I was allowed to start options trading. Now, in apps, you have to be approved. What the criteria are for approval, I do not know, but I know I was approved in a day to begin placing spreads with very little knowledge of what I was doing.
For those of you who don’t know, Options are a form of derivative contract that gives buyers of the contracts (the option holders) the right (but not the obligation) to buy or sell a security at a chosen price at some point in the future(definition from Investopedia).
So I started out trading with some low-cost contracts, mainly calls for oil companies MRO, MPC, etc., and I had some wins and I had some losses but nothing enormous. I would say I made about $250 off of successful trades. The guy I was dating at the time invited me to join some groups - chats about options, and in these groups, people were trading the big dog stocks and winning. Things the top leaders of the S&P 500 - APPL, MSFT, TSLA. Those were the options contracts that were going to give you the money.
So, I just had to get in on it because, again, I had no direction, no goal (but to make money), no strategy, and no expectations set in the reality of the risks I was taking. And it certainly was a risk because my first big contract I placed on an APPL call was for $800 and I lost $600 out of that trade. Before we get into my issues with Robinhood, I want to acknowledge that any actions I took on the app are my own. No one forced me to sign, start day trading, start options trading, and lose $600. I was acting on my poor, with poor financial education and little investor knowledge or strategy. That being said as a sociologist, I do think there are some external factors that play into why I made some of those choices and decisions.
My issues with Robinhood
So, let’s get into my issues with Robinhood.
I am not a fan of technology using human psychology against you to get you to do things. While I am aware that this is how most technology works, I particularly think these tactics are dangerous for beginners when it comes to investing. The gamification of the application UI does make it easy to use and intuitive for users, but this is also dangerous.
1: The Gamification of Investing
The app uses a color system to indicate how you should feel about your portfolio - if you lose money the entire interface changes to a red schema. I don’t like the red/green color scheme that indicates to the user how they should feel. At the core of it, losing is bad, and winning is good. I now believe that investing should be removed from core emotions because emotions can make for irrational investing decisions.
2: Application Notification
This is another psychology-based complaint. The app notifies you entirely too much. I don’t like being notified of things by application. I don’t like having a robot overlord to tell me to do things or what I might be interested in. But in this case, I had every incentive to want to follow every single thing happening in my account and the market at the time. I wanted to know about shifts and swings so I could sell or buy things. I didn't want to miss a potential opportunity, so you bet I was up in the morning when Robinhood notified me trading was open, and every single time, one of the assets I owned moved up or down.
I don't have an addictive personality (at least, I don't think I do). But I am a regular ass human being with a brain somewhat similar to the average and when applications use human psychology against human brains, it works. I mean, you have to be very hyper-aware to recognize things like that. And I am now but I was not back them. The app was constantly pinging me, and I was constantly responding, looking for the dopamine hit of my account in the green or seeing red and immediately figuring out more stupid human ways to turn it back green by spending more money.
3: Education, Customer Service, and Lack of
For all the praise I gave to the UI and UX above, I will give them a ding for UX in making two pivotal things available to users. One of those being educational materials on investing or trading in general and the second being the navigation of finding helpful information regarding your brokerage account.
When I started options trading, there was a guided tutorial (tutorial meaning they walked me through a real-life trade) using pop-ins like I was in a popular click-and-point survival game that starts with F and ends with NAF. The bubbles popped up to show how to make my way through buying a contract - there was a screen to show me the potential gains and potential losses, and then I clicked purchase or buy or whatever the confirmation was, and I had my first options contract. Do I know exactly what happened to explain it in detail to you all? No, and I would say that's a problem. If I can accomplish a task without explaining to myself or others how to do it or what I did, then that feels like a problem. I feel that Robinhood could do a better job on the education front. Maybe it's different now, but that is what I recall, so do with that information what you will.
Regarding the second point, when I began realizing that I wanted to become a more educated investor, I naturally began looking for information on my options. Options like transferring my stocks out of Robinhood and into another brokerage.
When I say this information was harder to find than Davy Jones's locker, I mean it. Again, maybe this has changed since then, too. But in my experience, the information on the help site, page, and menu is buried so deep, and it's so convoluted to navigate, and that is a turn-off for me. I feel like two options should be at the top of any application: subscription services, mailing list, how to open an account, and how to close my account. Aside, from just selling all my assets and pulling the money out, I had to dig to find an option to transfer my assets to another provider.
When I did find this page, it either didn't link anywhere or wasn't enough information because I had to email (not call - the only option is email) someone to request information on how to start the process. I contacted the help email and it took weeks to get a response. And even longer to get my assets transferred and my account closed.
4: Social Impact
My final reason for leaving Robinhood brings me to the social impact of it all. Now, I am not a journalist; I'm not a scientist; I’m a person with an opinion, a Reddit account, and too much time and willingness to sleuth around. So, all of these things happened in real life during my time with Robinhood or shortly after I left them, and I compiled them here just to put the nail in the coffin of this blog post. Again, do with them what you will but this exercise in digging up the past made me feel hella justified in my decision to leave.
Robinhood was fined in 2021 by the FINRA for not disclosing how they make money to customers. TR:DL: Robinhood does not charge fees for holding a regular brokerage account - they make money on transactions but were fined in 2021 by the FINRA for not disclosing how they made money to customers. Article link here.
Then came the whole GAME STOP situation, but the impact of what they were doing (They being Robinhood) was essentially stopping the free trading and not fulfilling transactions for customers. The irony of it all.
Then there was a tragic and senseless loss of life from a customer, who I suspect did not know what he was doing on this gamified app and made a trade that resulted in a ‘glitch' (I’m not sure how they explained it). But the end result is someone lost their life because they thought they created a situation in which they were out millions of dollars, which they didn't have. Article here.
Ultimately, Robinhood contributed to my net worth of $100k
I ultimately credit Robinhood with being a catalyst or 'gateway' app for me to start becoming a smarter investor. After, leaving I chose to begin educating myself about investing and to stop gambling with my money. Because, let's be real, that is what I was doing.
I started making smarter decisions, like taking advantage of tax-advantaged accounts and researching who I wanted to be as an investor. I know that while I have a semi-aggressive approach to passive investing, I have a very conservative approach to things like day trading.
Not for those of you still using Robinhood - I'm not your mom; you can do what you want.
And I'm speaking to people of similar socio-economic status to myself. People who do not have access to financial education still may not have financial education to make informed and more strategic decisions about investing. There are resources. And Robinhood is not a resource I recommend unless you have prioritized other very accessible things like 401k, IRAs, and other investment vehicles first. If you want to begin building wealth and net worth, here are some applications I recommend.
Learning Options Trading: Think or Swim
Beginners Brokerage Accounts: Stash
Retirement and Brokerage Accounts: E*Trade
If you are working for an employer who offers a 401K, that is the lowest hanging and honestly strongest wealth-building vehicle you have access to. Here is a blog post I wrote on choosing investments in a 401K.
Thanks for reading! And please share this article with someone and subscribe for more investing and finance blogs.
Yaya
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