The Ethics of Brokerage Apps

While brokerage apps such as Robinhood, Ameritrade, and Fidelity have been rising in popularity for several years now, the January GameStop c0ntroversy has brought to light the potential impact of these apps, negative and positive.

What are Brokerage Apps? Robinhood and other applications are online stock trading and investing apps that eliminate the need for brokers. They are typically commission-free with zero fees, so these applications have attracted large groups of Millenials and Generation Z to the free market.

The Argument For Brokerage Apps The apps discussed above are appealing for various reasons, and many people are attracted to these platforms simply because of their accessibility. Robinhood allows all traders of all financial backgrounds to invest. Instead of prompting users with how many shares of a company they want to buy, they prompt them with how many dollars they would like to invest in the company. This allows more users to access the platform, and these same users can invest in stocks such as Amazon without having to shell out over $3,000 for one share. These apps have undoubtedly enhanced the inclusivity of the free market, particularly within the youth and future generations. The median age of Robinhood users is 28, a stark contrast to the traditional norm of investment banking. Additionally, these apps promote financial literacy and provide simple, digestible explanations for typically complex topics such as the stock market. The ease of accessibility of the Robinhood app allows young/new investors to have learning experiences while also getting to know more about the stock market in general. Nothing beats real-life experience, and Robinhood enables that to happen. However, it is not Robinhood’s intention to leave people out

in the dark and just throw away their money. Robinhood has an expansive “Library,” which has articles explaining even the most basic levels of market knowledge, such as “what is the stock market?” In the end, Robinhood knows that its demographic is less knowledgeable about the market, but they do a lot to recover from this weakness of theirs.

The Argument Against Brokerage Apps While the accessibility and education promoted through these apps are impressive, this accessibility also comes with potential costs. Robinhood has recently been in the news for market manipulation after the app blocked the trading of a few stocks that were involved in Reddit Wall Street Bets. The people involved with the Reddit trading were mainly people who learned about it from social media, so by blocking them from trading, Robinhood kept normal users from trading while Wall Street was still open. Technology failures have also been a big issue for Robinhood. Because stock values can change so quickly, even quick app crashes can greatly impact people who are trading at the time of the crash. Compounding this issue is Robinhood’s lack of responsive customer service, so people who face these issues aren’t able to get in touch with anyone for help. Robinhood has also recently dealt with privacy issues; 10,000 accounts were breached in October of 2020, which raises questions about the security of the app. Users had raised red flags for months in advance, which further points to the unresponsiveness of Robinhood’s customer service team.

What do you think? These brokerage apps are a seemingly permanent feature of our current life, so how can we ensure that these applications promote safe, ethical investing? The question may be focused on the balance between freedom and regulation, or safety and accountability. As these apps enter our professional, political, and social lives, it is important that we these factors in mind.