Are young investors leaning towards Robinhood trading?

The Covid-19 pandemic has been the harbinger of many changes. Verticals across industries had to cope with the new normal in ways they would not have otherwise imagined. In the domestic and international scenes, the string of nation-wide lockdowns gave rise to a new set of retail investors who have flooded the markets.

These investors, fondly christened as ‘Robinhood investors,’ currently seem to be running the stock market. Who are these investors and what is this trend? Here are the fascinating details behind this phenomenon.

Who are they?

To answer this, we’ll need to begin at the basics. What is Robinhood? Robinhood is a financial service and brokerage firm based out of the state of California. The stock brokerage firm primarily caters to youngsters, beginners, and millennial investors who’re just stepping foot into the world of share trading. The platform saw a massive increase in its user base – by more than three million – in the first half of 2020.

The retail traders who make use of Robinhood’s platform are tagged as Robinhood investors or traders. They’ve recently captured the spotlight for their massive investments in penny stocks, struggling stocks, battered and beaten-up stocks and even the stocks of bankrupt companies in the US. Following this development, the tag ‘Robinhood investors’ has, by extension, also come to include all-new, young and amateur investors all over the world who aggressively make investments in battered and beaten up stocks.

Luring young traders

The meteoric rise in the user base of Robinhood can be traced back to the platform’s intuitive user interface, easy account opening process, the possibility of trading in fractional shares, and above all, commission-free trading. Offering such irresistible features, it’s no surprise that the firm has managed to lure young millennials and first-time traders onto its brokerage platform.

The recent influx of Robinhood investors in the market can also be attributed, at least in part, to the Covid-induced lockdowns enforced by nations throughout the world. The situation forced many people out of their jobs, and with no steady stream of income backing them up, they turned to the stock markets as a means of making some money. The wide variety of low-cost brokerage firms and their simple account opening processes meant that anybody with some cash could access and invest in the stock markets, often with little to no trading knowledge.

Prospects

Rounding back to Robinhood investors, many financial experts in the U.S. widely believe that they’re the driving force behind the recent recovery of the American stock markets - perhaps only temporarily. These investors, with their heavy bets on penny stocks and troubled stocks, may have salvaged the stock markets despite the country’s slowing economy, for a while at least.

This narrative has quickly caught on like wildfire, with financial experts in many countries agreeing that this trend could be shaping up the stock markets. But what’s the scene like in India? Are the young people who’re newly entering the stock markets merely a part of the Robinhood phenomenon, or are they driven by a more lasting motivation?

Contrary to popular belief, Indian investors are not taking the Robinhood investing route.

In India, nearly all discount brokerages and full-service broking platforms reported a huge surge in the number of new accounts opened with them since the pandemic came to the fore. Complementing this, there has also been an increase in the number of Demat accounts opened, with the Central Depository Services Ltd (CSDL) reporting a 2.6 million increase since March 2020.

But unlike the ephemeral Robinhood trend, India’s new influx of investors appear to be in it for the long haul. The uncertainties induced by the Covid-19 crisis have served as a wakeup call, urging people who previously never ventured into the markets to take their first steps into investing.