Amid a frenzy of speculative retail trading activity in the market, Robinhood's CEO is stressing that the majority of the stock trading app's clients are long-term investors.
"Most of our customers are, you know, what's called buy and hold," CEO of Robinhood Vlad Tenev told Andrew Ross Sorkin on CNBC's "Squawk Box" on Wednesday. "Obviously the passive ones don't get as much attention out in the public."
Wild trading activity, specifically short squeezes, are happening all over the market, orchestrated by motivated retail investors who are explicitly trying to crush Wall Street hedge funds that are betting against certain troubled stocks. The small investors are using online chat rooms like Reddit to plot their next moves, pushing these embattled stocks higher and forcing the hedge funds to cover their short bets.
GameStop, a brick-and-mortar videogame retailer which was heavily shorted by hedge funds, is up more than 125% this week, bringing its year-to-date rally to nearly 700%.
Without speaking specifically to GameStop, Tenev said Robinhood, which pioneered commission-free trading, has "processes that respond to increases in volatility in certain names, by doing things like raising the margin requirements." This policy would increase how much money an investor using leverage and derivatives must have in their brokerage account after a stock purchase.
"Like other brokerages do, we monitor volatility, and we take steps as appropriate, like raising the margin requirements," said Tenev. "I do think it's wrong to assume though that most of our activity is characterized by trading of volatile stocks."
In May of 2020, Robinhood said it had about 13 million customers; however, due to the retail trading boom during the pandemic, JMP Securities estimates the brokerage added 3 million more than that by the end of 2020, based on app download data from SimilarWeb. Atom Finance, a financial-technology firm that provides consumers with investment research, told CNBC that 10.96% of its clients on Robinhood traded GameStop's stock on Monday when the wild moves took off.
Atom Finance, which gathers data by connecting to the brokerage accounts of its more than 100,000 clients, said about 10% of E-Trade clients. 4.2% of Fidelity clients, 11% of Interactive Brokers clients and 10.5% of TD Ameritrade clients were trading GameStop on Monday.
Tenev said Robinhood is focusing its efforts during these volatile times on creating a reliable service, investing in stability and educational tools. The CEO said the popular app can't cave to the whims of the market on a particular few days or week.
"As you've seen with this market, there's things happening, different things happening every week," he said. "I think we have to avoid, you know running our business as if we're responding to, you know, what's in the news on a weekly basis."
The Silicon-Valley startup is seeing investing become more relevant for everyday people.
"We're seeing retail investors become a larger and more significant force in the markets," said Tenev. "The U.S. stock market has been one of the biggest engines of wealth creation in history."
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