FORBES.COM OCTOBER 20 20128
ROBINHOODTHEINVESTIGATIONFORBES.COM OCTOBER 20 20Welcome to the stock market, Robinhood-style. Since
February, as the global economy collapsed under the weight
of the coronavirus pandemic, millions of novices, armed
with $1,200 stimulus checks and nothing much to do,
have begun trading via Silicon Valley upstart Robinhood—
the phone-friendly discount brokerage founded in 2013 by
Vladimir Tenev, 33, and Baiju Bhatt, 35.
The young entrepreneurs built their rocketship by applying
the formula Facebook made famous: Their app was free, easy
to use and addictive. And Robinhood—named for the legend-
ary medieval outlaw who took from the rich and gave to the
poor—had a mission even the most woke, capitalism-weary
Millennial could get behind: to “democratize finance for all.”
Covid-19 and the flow of government handouts have
been manna from heaven for Robinhood. The firm has add-
ed more than 3 million accounts since January, a 30% rise,
and it expects revenue to hit $700 million this year, a 250%
spike from 2019, according to a person familiar with the
private company’s finances. Not since May Day 1975, when
the SEC deregulated brokerage commissions, giving rise to
discount brokerages like Charles Schwab, has there been a
more disruptive force in the re-
tail stock market. Robinhood’s
commission-free trading is now
standard at firms including TD
Ameritrade, Fidelity, Schwab,
Vanguard and Merrill Lynch.
And Robinhood’s merry trad-
ers are moving markets: Certain
stocks—Elon Musk’s Tesla, mari-
juana conglomerate Cronos, ca-
sino operator Penn National
Gaming and even bankrupt car-
rental company Hertz—have be-
come favorites, swinging wild-
ly on a daily basis. For the first
time ever, according to Goldman
Sachs, options speculators like
the ones Robinhood has cultivat-
ed have caused single-stock op-
tion-trading volumes to eclipse
common-stock trading volumes,
surging an unprecedented 129%
this year.
“I think you’ve seen a unique
situation in the history of financial markets,” Tenev tells
Forbes, working remotely from his home not far from Robin-
hood’s Menlo Park, California, headquarters, which resemble
a beach house. “Typically when a market crash is followed by
a recession, retail investors pull out. Institutions benefit....
In this case, Robinhood customers started opening new ac-
counts and existing customers started putting in new money.
This bodes positively for society and our economy if millions
are investing when they otherwise wouldn’t have.”
Like any skilled trader, Tenev is talking his book. His
proclamations ring a bit hollow, though, once you look
more closely at what is actually driving his digital casi-
no. From its inception, Robinhood was designed to profitjust after midnight on Friday, July 31, and the Todd Capital
Options Community, a $20-per-month subscription Slack
channel favored by thousands of novice options traders, is
buzzing with life. Unemployment is soaring and govern-
ments worldwide are desperately trying to fend off econom-
ic collapse. But members of this online enclave are party-
ing, quite literally, like it’s 1999—the infamously frothy day-
trading year before the dot-com
bubble burst in March 2000.
Despite the pandemic, Ama-
zon, Apple, Facebook and Google
have just released jaw-dropping
financial results, a staggering
$205 billion in combined quar-
terly sales and $34 billion in earn-
ings during a stretch when U.S.
gross domestic product plunged
at an annualized rate of 33%. For
weeks, the club’s youthful mem-
bers have been loading up on
speculative call options using the
mobile trading app Robinhood.
Now they’re ready to cash in.
“Literally, NOTHING will
make me sell my AMZN 10/16
calls tomorrow. I don’t care what
happens.... I’m holding ev-
erything. Keep ya boi in your
prayers,” says one user named
JG. As dawn approaches, “NBA
Young Bull” announces: “Good
morning future millionaires... is it 9:30 yet?”
For these speculators, the adrenaline rush turned to eu-
phoria after Apple not only beat earnings expectations but
announced a 4-for-1 stock split, luring more small investors
to the iPhone maker’s stock party. At 9:30 a.m. Friday, when
trading begins, the call options on Apple and Amazon held
by many of these market newbies pay out like Las Vegas slot
machines hitting 7-7-7 as both tech giants gain a collective
quarter-trillion dollars in market value. Throughout the day
and over the weekend, a stream of posts scroll by from exu-
berant Robinhood traders going by screen names like “See
Profit Take Profit” and “My Options Give Me Options.” On
Monday, August 3, the Nasdaq index sets a new record high.IT’S
The Physics of Amateur Trading
Baiju Bhatt (left) and Vladimir Tenev met as physics
students at Stanford. Even the best modeling could
not have predicted that $1,20 0 stimulus checks
would propel them to billionaire status.