Robinhood recently launched an interesting new feature, “Robinhood Social.” Today, users can even copy & mirror trades done by expert investors! The company’s CEO, Vlad Tenev, did express some alarm over the rise of copy trading platforms. Their growing popularity will lead regulators to take a tougher look at them due to the risks they pose.
Tenev underscored that many smaller copy trading platforms could be doing this with lower levels of scrutiny than larger firms. He stated that “copy trading could become of greater interest to regulators,” indicating that as this trading method gains traction, it may prompt a closer examination from regulatory bodies.
The soon-to-be-launched Robinhood Social functionality will allow users to observe and replicate trades of verified successful traders. That was true even of some famous investors, and members of Congress themselves! The new initiative is set to kick off in early 2023. Before they fully open their gates, the company plans to allow 10,000 users to beta test the service on an invitation-only basis.
Robinhood has been particularly keen to monitor moves across the competitive landscape of copy trading platforms. The company had been intently looking into acquiring Dub. This four-year-old startup released into the wild last year and has quickly raised a whopping $47 million in funding. Dub’s cutting-edge model empower users with more intelligent, humanlike insights into their trading decisions. It achieves this by using risk scores, risk-adjusted returns, and portfolio stability measures.
Robinhood has decided against acquiring Dub. A spokesperson stated, “No, this is not an acquisition; we are building our own platform in Robinhood.” This decision illustrates Robinhood’s commitment to developing its unique offerings in the copy trading space rather than merging with existing competitors.
Unlike Robinhood Social, platforms like eToro let users automatically mirror other traders’ portfolios in real-time and with no pre-gameroom qualification. And lately, eToro has been catching eyes for their successful IPO back in May, which raised an impressive $310 million. Consequently, demand was so strong that its shares rocketed 29% on debut.
Unlike other trading simulators, Robinhood’s new feature makes users imitate trades on their own. This is what distinguishes it from other products that automate the process of copying. This important difference gives power to the people—specifically individual users—allowing them to control their data. This goes a long way in resolving some of the regulatory worries associated with copy trading.
The regulatory landscape around trading platforms has come under harsher scrutiny, especially following the Biden administration’s crackdown on crypto firms. Over the last several months, a slew of crypto firms have conducted SPAC mergers. They’ve capitalized on the last administration’s hands-off approach to cryptocurrency regulation.
Tenev’s outlook on the changing trading environment rings true to sentiments shared by other industry leaders. One such expert noted, “At the end of the day, making it super easy to trade without expert guidance, without education, is really just gambling for the broader population.” This comment further illustrates the importance of holding platforms, such as Robinhood, accountable to provide robust education and guidance to consumers engaging in risky trading practices.
Aside from its new feature, Robinhood has raised concerns in the past over its user engagement tactics. The company eliminated its celebratory digital confetti feature ahead of its 2021 IPO following regulatory concerns regarding the gamification of trading.
In addition to their planned Robinhood Social launch, Robinhood is checking all those boxes, too. It tries to encourage creativity and exciting use of the platform, while checking the box for regulators. Beyond its specific impact, the company more broadly represents an arc throughout the financial technology industry. It moves gracefully through compliance mazes all the while providing cutting edge services to its users.
