Robinhood Embraces Copy Trading After Warning Competitors About Regulatory Risks

What a quality a changing regulatory situation makes.

Roughly 9 months aft suggesting that a young transcript trading level could only run because it flew “under nan radar” of regulators, Robinhood has announced its ain introduction into nan abstraction pinch “Robinhood Social,” a caller characteristic that will let users to travel and manually replicate nan trades of salient investors.

The move represents a striking about-face for nan online brokerage, which has historically been cautious astir features that could pull regulatory scrutiny. The institution famously ditched its celebratory digital confetti feature up of its 2021 IPO aft regulators raised concerns astir gamifying trading, making its clasp of transcript trading, different perchance gamified feature, each nan much notable.

This wariness was connected afloat show successful a December, erstwhile successful a conversation pinch this editor astir upstart transcript trading level Dub, Robinhood CEO Vlad Tenev suggested that specified platforms could run chiefly because of their smaller size, proposing that “copy trading could go of greater liking to regulators” and that Dub whitethorn not yet beryllium nether nan “magnifying glass” because of its “comparatively smaller size.”

Now, Robinhood is betting that nan regulatory scenery has changed capable to safely participate nan transcript trading market.

The timing is peculiarly notable fixed nan pointed disapproval Robinhood faced earlier this twelvemonth from Dub’s 23-year-old laminitis Steven Wang, who has positioned his level arsenic a much educationally-focused replacement to accepted trading apps.

“I person a batch of respect for what [CEO] Vlad [Tenev] has done successful making trading free,” Wang told me backmost successful February. “But astatine nan extremity of nan day, making it ace easy to waste and acquisition without master guidance, without education, is really conscionable gambling for nan broader population.”

Wang has consistently based on that Dub’s attack – which includes consequence scores, risk-adjusted returns, and portfolio stableness metrics – represents a safer replacement to platforms for illustration Robinhood. In his speech pinch TechCrunch, Wang was besides captious of Robinhood’s determination to connection meme coins for illustration TRUMP, saying nan incentives are “misaligned betwixt these large platforms that are nationalist companies now that request to make money.”

Tuesday’s news, announced astatine Robinhood’s company event earlier successful nan day, brought to mind nan anticipation that Robinhood had, successful fact, acquired four-year-old Dub, which officially launched conscionable past twelvemonth and has truthful acold raised $47 million successful backing from investors. But reached for comment, a Robinhood spokesperson responded via email, “No, this is not an acquisition, we are building our ain level successful Robinhood.” A petition for remark from Wang was not returned by property time.

Robinhood’s type of transcript trading differs meaningfully from platforms for illustration Dub and established players for illustration eToro, which has offered transcript trading to U.S. users for years done its CopyTrader feature. While eToro allows automatic copying of different traders’ portfolios successful real-time (with U.S. users constricted to copying only different U.S. traders owed to regulations), Dub allows users to automatically transcript full portfolios for a $10 monthly subscription, and Robinhood Social will require users to manually replicate trades, a favoritism that whitethorn thief reside regulatory concerns.

The platform, group to motorboat early adjacent year, will characteristic verified traders and show nan activities of celebrated investors and members of Congress. Unlike nan informal transcript trading that happens connected societal media, Robinhood will require personality verification and impervious of existent portfolio positions. The plan, according to nan company, is to first induce 10,000 Robinhood Social users to trial retired nan work earlier rolling it retired much widely.

The motorboat comes astatine a clip erstwhile nan regulatory scenery is accelerated evolving. Crypto companies were scrutinized heavy nether nan Biden administration, while galore crypto companies person go publically traded companies successful caller months, their way eased by nan Trump administration’s crypto-friendly stance. Meanwhile, transcript trading – agelong communal successful Europe but heavy restricted successful nan U.S. – whitethorn beryllium gaining acceptance finally.

Seen done that lense, Robinhood’s introduction into transcript trading represents much than conscionable different characteristic launch; it could awesome nan opening of floodgates for a activity of caller platforms. If Robinhood tin successfully discuss nan ineligible scenery that has agelong constricted transcript trading successful nan U.S., different fintech outfits look apt to travel suit. eToro’s successful May IPO, which raised $310 cardinal and saw shares surge 29% connected their debut, has already demonstrated beardown investor appetite for transcript trading platforms.

Whether this imaginable activity is bully news aliases bad for unit investors  – aliases it will mostly service to boost fintech valuations – is an unfastened question. For correct now, Robinhood’s shareholders are astir apt nan clearest winners.