- Why Robinhood Blocked Gamestop
Amidst the GameStop Short Squeeze, Robinhood (a brokerage trading app for the US) decided to restrict the buying of $GME stocks (and a few others) for retail investors, slowing down the momentum of the movement.
This may be due to Robinhood’s business model:
- Robinhood doesn’t make money from brokerage fees
- Instead, Hedge funds pay them to obtain their order flows from approx. 13 million users in their database (i.e. similar to Front-running)
- In essence, app users are not Robinhood’s customers, they’re the product. The real customers are the hedge funds.
Things become tricky when:
- App users (retail investors) are using Robinhood to buy $GME stocks in their war against the hedge funds (i.e Melvin Capital).
- Basically, Robinhood is being used to directly attack their own customers.
- This is probably the root cause of Robinhood implementing the trade restrictions.
Seeing Robinhood siding with Wall Street, Main Street was not happy with this at all. By restricting $GME trades, people are questioning the reality of the “free market” being truly free as the rules of the game seem to change whenever the ‘big players’ start losing.
I think it’s ironic that with a name like Robinhood, you’d think they would be helping the underdogs, taking from the rich and giving to the poor. Well, I guess it’s folklore for a reason.