It’s been quite volatile in the online stock trading sector over the last few weeks. An investor group of millions, known as WallStreetBets on Reddit, caused stocks like GameStop to suddenly skyrocket. Banded together on social media, investors bought the stock in bulk after it was targeted as a short seller. Not only did this force GameStop’s stock to rise, it also forced Wall Street hedge funders to buy more. Despite the fact that GameStop has been struggling, it suddenly enjoyed a boom in value. This was all because investing apps like Robinhood make it easy for all to trade stocks.
The combination of social media and online stock trading apps looks to be a powerful one. Many investing apps like Robinhood are available today, and many have easy-to-use features for the novice investor. But likewise, social media offers a mobile and accessible forum to share insights and respond. In essence, this looks to be taking power away from Wall Street and empowering the average Joe. Never before has it been so easy to trade stocks, much to the dismay of some hedge fund traders.
“[GameStop Stock] is about sending a message. … For all the recessions [Wall Street] caused. For all the jobs and homes people have lost. For all the people that can’t pay for college because minimum wage has stagnated while wall street gets rich. For all the retail traders they left holding the bag. For all the times they got bailed out with our tax money while we got nothing.” – WallStreetBets member on Reddit
How Online Stock Trading Apps Caused the GameStop Turmoil
Access to information offers power, and that’s exactly what allowed Reddit investors to trigger the GameStop debacle. Citron Research, and others, routinely publish information about stocks that hedgefunders plan to short sell. This means hedge fund traders sell off shares anticipating the stock price will drop. They then buy the shares back at a lower price, earning notable value. WallStreetBets, however, spoiled their plans as the group of 6 million investors began buying GameStop stock. This drove the price up instead of down. It also forced hedge funds to repurchase their stock to avoid long-term setbacks, which further increase the stock price.
Investors using online stock trading apps didn’t purchase GameStop only to mess with Wall Street. Many believed recent changes at GameStop provided reason for hope in the near future. But for others, they enjoyed exerting some muscle against their Wall Street counterparts. Because anyone can use investing apps like Robinhood, previous barriers to financial success are fewer. And since GameStop’s stock prices boomed, similar scenarios have played out all over the world. This is the impact social media and online stock trading apps are having.
“Robinhood has actually been adding a tremendous amount of new accounts, both leading into the past week, but also experienced record growth during some of the most challenging days operationally this past week.” – Devin Ryan, JMP Securities analyst
Numerous Online Stock Trading Apps from Which to Choose
Over the last several years, a variety of investing apps like Robinhood have emerged. Certainly, Robinhood has received a great deal of attention recently because of the GameStop situation. In fact, the Menlo Park-based Robinhood had over 600,000 downloads in a single day afterwards! With such dramatic shifts in stock prices, Robinhood found itself seeking investor and credit supports. And undoubtedly, it will be strengthening its capital resources and technology infrastructures as a result. But it’s not alone. Several online stock trading apps will likely be looking to do the same in the near future.
- WeBull – This China-owned is one of the popular online stock trading apps currently. It allows users to trade in stocks, options and ETFs with no commissions of contract fees for online stocks. It also requires no minimum deposit either. It is nearly as popular as investing apps like Robinhood, having over 800,000 downloads in January alone.
- Sofi – Though not as large as investing apps like Robinhood, Sofi remains a great choice. Sofi requires only $1 as a minimum deposit, and it trades in stocks, ETFs as well as cryptocurrencies. (For more on cryptocurrency and its regulation, check out this Bold Business story.) Sofi charges not fees for online stock or ETF trades, and there is only a 1.25% markup on cryptocurrencies. It boasted 121,000 downloads in January.
- TD Ameritrade – This is one of the well-known online stock trading apps that offers a wide variety of services. It requires no minimum deposit, and for online stock, ETF and options trades, it has no commission fees. However, broker-assisted trades cost $25, and options contracts have a 65-cent flat fee. Regardless, TD Ameritrade remains popular with 370,000 downloads in January.
- Acorns – This is one of the smaller online stock trading apps and is referred to as microinvesting. It only costs $1 a month, and it is clearly geared more toward saving. For example, Acorns allows you to invest change from debit card transactions on a regular basis. It is also extremely easy to use, which is why it is gaining in popularity.
- eToro – Many investors state eToro is one of their favorite online stock trading apps. For one, it has no trading limits. This makes it look attractive compared to investing apps like Robinhood who recently restricted GameStop trading. It also has no commission fees and offers a wide variety of research and analysis tools. The downside is it only trades about 1,000 stocks and requires a $200 deposit, however.
Investing Apps Like Robinhood Are Getting the SEC’s Attention
In the aftermath of the Reddit’s group’s activities, several lawmakers have called for deeper investigations. Anything that creates such market volatility deserves attention, and the SEC is monitoring the situation closely. Thus far, the SEC believes such activities are legitimate as long as transparency, fairness, and regulatory compliance exists. But some wonder if we’re now entering a new disruption of financial markets. Certainly, online stock trading apps have been around for a while. But using personal investing apps in combination with social media in innovative ways may be emerging. If investing apps like Robinhood truly achieve a democratization of investing, then eminent change may be coming. (For more on the personal investing app boom, check out this Bold Business story.)
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