Free stock-trading apps are leaving a mark on stocks

Free stock-trading smartphone apps such as Robinhood, Firstrade and Stockpile are attracting a wave of new investors.

By Joseph N. Distefano

The Philadelphia Inquirer
July 3, 2020 at 5:40PM
In this Wednesday, Dec. 2, 2015, photo, Robinhood co-founders Vlad Tenev, left, and Baiju Bhatt pose at company headquarters in Palo Alto, Calif. Robinhood is a stock brokerage that does not charge any commissions for its more than 1 million customers to buy and sell shares. "During the next 10 years, we are going to create an international company that will be like nothing the financial services industry has ever seen," says Bhatt. (AP Photo/Ben Margot) ORG XMIT: CABM204
Co-founders Vlad Tenev, left, and Baiju Bhatt's Robinhood is a stockbrokerage that does not charge commissions for its more than 1 million customers to buy and sell shares on the markets. The company is based in Palo Alto, Calif. (The Minnesota Star Tribune)

Free stock-trading smartphone apps such as Robinhood, Firstrade and Stockpile are attracting a wave of new investors, and are helping to prop up U.S. stock markets despite the headwinds of the coronavirus.

Alongside such familiar stocks as Amazon, Facebook and Google, their investments have boosted shares of some obscure and money-losing companies, trading records show.

Investment professional Matt Topley, president of Lansing Street Investment Advisers in Ambler, Pa., compares the rush of new investors through free apps such as Robinhood to the day traders who fed the dot.com boom of the late 1990s, before the market's 2001 collapse. "This will not last long," he predicted.

How can apps trade for free? Robinhood said it gets paid by referring customers to a bank so they borrow to buy more. It also collects interest on clients' uninvested cash even at today's very low rates, and it sells their trade orders to big wholesale trading firms.

Robinhood, started by a pair of Stanford graduates in 2013, has become a special focus of market watchers. It claims more than 13 million users, and its data are tracked and posted by another startup, Robintrack.

In December, Robinhood agreed to pay $1.25 million to settle accusations by the Financial Industry Regulatory Authority that it had violated industry rules in 2016 and 2017 by failing to help customers trade stocks for better prices than offered by the trading firms paying Robinhood for business. The company denied wrongdoing.

A list of the top trades by Robinhood users for the week ending June 18 includes market-leading stocks such as Apple and Amazon — but also less-known and money-losing firms such as Urban One, which operates radio stations targeting Blacks, and Ideanomics, which sells electric-vehicle systems in China.

Robinhood users have logged more than 10,000 trades each in early June in Urban One and Ideanomics, which have not shown the stronger profits associated with higher stock values.

Urban One traded at between $1 and $2 a share earlier this year until this month, when the spread of the Black Lives Matter protests following the death in police custody of George Floyd in Minneapolis sparked a rush of investor interest in Black-focused companies, according to Barron's magazine.

The stock, first traded in 1999, hit an all-time high above $48 on June 19. The high was brief: It had lost half its value by June 24 though it remained far above earlier 2020 levels.

Ideanomics shares have been less than $1 for most of this year. But after the New York company made a flurry of announcements that it had arranged to sell electric-car systems in China and was making other asset deals, its stock was picked up by Robinhood users, trading surged and its shares rose above $3 for the first time since 2018.

That surprised Karen Hartley-Nagle, president of New Castle County Council in Delaware. Having reviewed the company's financial reports since the previous county government lent $3 million to the Delaware Board of Trade in 2015 (which Ideanomics later acquired), she knew Ideanomics has not been profitable despite previous flurries of new-business announcements.

Last fall, County Executive Matt Meyer rejected an Ideanomics request to accept the company's low-valued shares in lieu of cash. He had no comment on the sudden improvement in the company's stock price since it became a Robinhood darling. Ideanomics officials also declined to comment.

about the writer

about the writer

Joseph N. Distefano

More from Business

default

Amazon paid more than $52 million for three parcels at the Eagan campus, which is under development.

In this June 7, 2018, photo the logo for the Vanguard Group is shown on correspondence in Zelienople, Pa. Vanguard said Monday, July 2, that it will stop charging commissions to trade most of its competitors’ exchange-traded funds. (AP Photo/Keith Srakocic)