Robinhood Is the New Juul

Since the coronavirus crisis sent markets into a tumble, I’ve received frantic phone calls from friends looking for stock tips. And I don’t blame them. As Baron Rothschild once said, “The time to buy is when there’s blood in the streets.” But the real opportunity isn’t for people like me and you, but for brokerages that are roping us in. A new generation of easy-to-use trading apps, led by Robinhood, Acorns, and Square’s Cash App, is gearing up for a massive explosion in user growth. These apps are doing the same thing that made the vaping product Juul a smash hit: attract young people by creating a beautiful, polished interface for something that is ultimately toxic.

In Robinhood’s own words:

Robinhood’s mission is to democratize finance for all. We believe that everyone should have access to the financial markets, so we’ve built Robinhood from the ground up to make investing friendly, approachable, and understandable for newcomers and experts alike.

The tent-pole feature for making Robinhood user-friendly has been zero-commission trades. However, a seasoned stock trader would immediately recognize that “free” comes at a price. The most obvious catch is that the brokerage will offset those fees by playing games with the bid-ask spreads…