Did Robinhood lose its investor base forever?

The fee-free stock trading app operator had hoped for the best, but it turned out like it always does.

| More on:
Green tipped arrows in bullseye with green dollar sign

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

GameStop -- the mall-based videogame chain -- was dying slowly for years until Robinhood investors came along to try and save it. Over five frenzied days of trading last week, GameStop stock grew five-fold in price -- at one point Friday, it was up by more than seven-fold -- bringing some long-term GameStop investors' gains to more than 1,625% just in the month of January.

Urged on by social media posters on Twitter, Reddit, and TikTok, and attracted by advertisements from the commission-free, smartphone app-based brokerage, lots of new investors joined Robinhood and used its no-fee trading platform to purchase options in and shares of GameStop. Some of those investors then quickly moved on to other heavily shorted equities, AMC Entertainment, BlackBerry and Nokia among them.

One by one, shorts were squeezed, share prices surged, and investors got richer ... until all of a sudden the gains stopped. Some major brokerages, including Robinhood, ceased trading on several highly volatile stocks. The abruptness of the move left investors confused and upset, unclear of why this was happening, and unaware of the complex inner workings of brokerages that might have caused it to happen.

And so the complaining began:

Watch on TikTok

As of Monday, the company had settled upon the compromise of limiting trading in just eight specific stocks:

Company Maximum Shares Traded Per Account Maximum Options Contracts Per Account

AMC (NYSE: AMC)

10

10

BlackBerry (NYSE: BB)

700

700

Express (NYSE: EXPR)

20

20

GameStop (NYSE: GME)

1

5

Genius Brands (NASDAQ: GNUS)

600

600

Koss (NASDAQ: KOSS)

2

n/a

Naked Brand (NASDAQ: NAKD)

600

n/a

Nokia (NYSE: NOK)

2,000

1,000

But this was a compromise Robinhood's users had never bargained for, nor agreed to -- and they didn't take it well. 

Watch on TikTok

Watch on TikTok

In short, in the absence of a quick and clear explanation of federal regulations that might have necessitated the move and any about Robinhood's (and others') liquidity problems, the company's investor base concluded that Robinhood management was simply in league with the hedge fund operators. It was, so the thinking went, limiting trading in order to protect the hedge funds' "billions" from the "normal people."

(In fact, in a lawsuit filed last Thursday, aggrieved Robinhood traders alleged just this: That "Robinhood's actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood's customers.")

Now, the company is facing some significant legal headaches and potential liability. After growing its user base from 3 million to 13 million last year alone (according to NBC), Robinhood is at risk of squandering all that growth, and losing the faith of its clients. Management insists that its loyalty to "everyday investors" remains unchanged, that it never wanted to prevent people from buying the stocks in question, and only limited trading because of "clearinghouse-mandated deposit requirements."    

But some Robinhood users aren't buying it. They want an apology from the CEO, a clearer explanation of what went wrong -- and a promise to fix it. Failing that, many of them may simply leave Robinhood -- forever.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in Rural Funds Group right now?

Before you buy Rural Funds Group shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Rural Funds Group wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Rich Smith has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

Woman relaxing and using her Apple device
International Stock News

16 words from Warren Buffett that should have Apple stock investors excited

Let's see what Buffett had to say and what it means for investors.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Prediction: Warren Buffett may be shifting out of his Berkshire Hathaway CEO role, but he's not done investing

Let's take a closer look at what may be ahead.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Here's why I'm not too worried for Alphabet despite Apple's potential new AI-powered Safari search

Investors panicked when the possibility was floated, but take a step back and look at the bigger picture.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
International Stock News

Should you buy Nvidia before May 19?

Nvidia has been firing on all cylinders, and we may have a chance to hear more about this top AI…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
International Stock News

Should investors be concerned about Berkshire Hathaway's record $348 billion cash position and third consecutive quarter of no stock buybacks?

Here's what the treasure trove of cash and lack of buybacks signal, and if Berkshire is still an excellent value…

Read more »

Woman in business suit holds both hands out with a question mark above each hand.
International Stock News

AMD vs. Nvidia: Which artificial intelligence stock should you buy on the dip?

Which of these two chip stocks is the better option right now?

Read more »

Woman and man calculating a dividend yield.
International Stock News

Greg Abel is taking over for Warren Buffett at Berkshire Hathaway. Here's what you need to know.

It's hard to imagine the company without the investing legend at its helm.

Read more »

Happy family watching Netflix together.
International Stock News

Netflix stock gained 21.4% last month. Here's how.

Is Netflix on track for a long blockbuster run? Check out what's fuelling investor excitement about the media-streaming veteran right…

Read more »