It’s been a wild start to 2021 for the popular trading app, Robinhood.
Robinhood has gained popularity over the last couple of years, particularly with novice, millennial investors because of its commission-free, mobile-trading app that offers people the ability to invest in stocks, ETFs, options, and even cryptocurrencies.
There was a time last year when many IPO hawks couldn’t wait for Robinhood to make the move to Wall Street, with thoughts the trading-app could become one of the biggest IPOs of the year.
Perhaps getting a nudge from the recent IPO filing of trading-app rival eToro, Robinhood finally made the leap this week. The company has filed confidential paperwork to pursue an IPO earlier this week.
The news comes after a whirlwind start to the year as the pandemic helped draw new retail investors to its stock trading app, which put Robinhood smack in the middle of a Reddit-fueled trading frenzy in January, where the app saw an influx Robinhood of up to 3 million users, JMP Securities estimated.
On top of the hot water Robinhood found itself in when it decided to restrict trading on GameStop (GME), the highly-shorted stock that Reddit traders chose to buy in mass numbers, the company has long been criticized by financial planners for what’s hidden in the fine print. This includes warning Investors against buying stocks “on margin,” largely because buying shares with borrowed money can quickly lead to unexpected losses that exceed what was originally invested.
Earlier this month, before its IPO filing, Robinhood had revealed its lending to help customers buy stock “on margin” (where someone borrows money to purchase stock, options or other securities) rose by $2 billion in the second half of 2020. An important note for potential IPO investors: by the of 2020, Robinhood had $3.4 billion in outstanding margin loans, up more than 400% from the $650 million it had outstanding at the end of 2019.
As CBS News points out, Robinhood’s stock loans have not always produced positive results for the company and its customers, which could be enough reason to give IPO investors pause.