Robinhood’s IPO in question after the GameStop saga

Investors waiting for the chance to buy shares in Robinhood, the online trading app that helped democratize stock investment by eliminating transaction fees, would have seen the recent GameStop drama with concern.

Many traders blame Robinhood for the collapse of the video game dealer’s stock after soaring by about 1700% in just a few days and losing only 90% of its value the following week. The fact that the online brokerage bans or restricts the purchase of GameStop and other so-called meme shares has fueled the suspicion. It works closely with the hedge funds that are losing billions of dollars on their short positions.

Robinhood was hoping to announce this year through a stock exchange or other direct listing (he hired Goldman Sachs for it). Has the trading app damaged its reputation enough that a public offering is not well received?

Robinhood offered a very plausible explanation for his actions that had nothing to do with rescuing short sellers.

When an investor buys or sells a stock, it takes some time before the trade is settled. Although it seems almost instantaneous in your brokerage account, the T + 2 requirement, as it is called, means that the actual trade does not settle for two days (it was even longer in earlier years). Because the separate Robinhood Securities section of the trading app is needed to make deposits with the clearing houses to cover the operations, the extreme activity of the massive short-term trading firm forced Robinhood to buy certain shares until it could raise enough capital.

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Robinhood says it was just a handful of stocks that drove up virtually the entire trading volume – a situation that CEO Vlad Tenev described as an unprecedented event.

With such a large concentration in just a few stocks, Robinhood had to devise ways to reduce the risk. While the clearing houses were originally looking for billions of dollars in deposits, the imposition of trade restrictions and the payment of about $ 700 million were the result.

But putting the toothpaste of rumors back in the tube is not easy. Market maker Citadel Securities is Robinhood’s largest client and generated about $ 12.4 million in market surveys in December alone, while the separate Citadel hedge fund helped save co-hedge fund Melvin Capital from falling under the weight of its GameStop. short game not to drop. Therefore, many remain convinced that the trading app is being put under pressure to block transactions to give the hedge funds time to cover their short positions.

Although regulatory walls have been erected between the hedge fund and its security company (and between Robinhood’s trading platform and its security side), many people still believe that the barriers can be easily scaled when billions of dollars were at stake.

For an app called Robinhood launched with the statement “Let them trade!” it was a bit of an irony that his actions saved the billionaires of hedge funds from ruin while slamming the door on small investors’ ability to make a profit.

Many traders have abandoned the app after restricting the purchase of GameStop shares. According to one analyst, about 40% of the Robinhood retailers who left the app went to Square’s Cash App, while Fidelity, Stash and TD Ameritrade also saw an influx of new customers.

On the face of it, this indicates possible problems with an eventual IPO. Robinhood has made a few other mistakes over the past year that have caused dissatisfaction among users, but it can be most damaging to suppress this reputed investor uprising with the corpse of an iron glove.

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Yet Robinhood should not be really worried. Even though some investors fled, many said they would return. As alleged by PT Barnum, there is no such thing as bad publicity. Even at the height of the controversy, the app was downloaded 600,000 times in one day, indicating that the brouhaha Robinhood simply gave millions of dollars in free ads.

Apptopia says that Robinhood is still the most popular trading app worldwide in terms of downloads, far surpassing the number 2 app Webull.

Traders are already moving towards their next stock targets. Marijuana producers such as Tilray and Aurora Cannabis rose by only 50% and 21% respectively in one day, which according to one portfolio manager was caused by ‘the Reddit army and friends’.

Whether they used Robinhood to boost the stock is unknown, but the popularity of the trading app remains largely unlimited and its issuance will undoubtedly still be a hit.

Rich Duprey has no position in any of the listed shares. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.

The Motley Fool is a CURRENT content partner that provides financial news, analytics and commentary designed to help people take control of their financial lives. Its contents are manufactured independently of the USA TODAY.

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Investors waiting for the chance to buy shares in Robinhood, the online trading app that helped democratize stock investment by eliminating transaction fees, would have seen the recent GameStop drama with concern.

Many traders blame Robinhood for the collapse of the video game dealer’s stock after soaring by about 1700% in just a few days and losing only 90% of its value the following week. The fact that the online brokerage bans or restricts the purchase of GameStop and other so-called meme shares has fueled the suspicion. It works closely with the hedge funds that are losing billions of dollars on their short positions.

Robinhood was hoping to announce this year through a stock exchange or other direct listing (he hired Goldman Sachs for it). Has the trading app damaged its reputation enough that a public offering is not well received?

Robinhood offered a very plausible explanation for his actions that had nothing to do with rescuing short sellers.