What difference does a changing regulatory environment make?
Around nine months after suggesting that the young copy trading platform could only work because it flew under the regulator’s radar, Robinhood announced its own entry into the space with “Robinhood Social” with a new feature that allows users to follow and replicate prominent investors’ trades and manually.
The move represents an impressive face for online brokerages. This has been historically cautious about features that could attract regulatory scrutiny. The company is famously abandoned its congratulatory digital confetti feature ahead of its 2021 IPO after regulators raised concerns about the adoption of gamerization and copy transactions.
This vigilance was fully on display in December. When we had a conversation with this editor about the Upstart copy trading platform DUB, Robinhood CEO Vlad Tenev suggested that such platforms could work primarily due to their small size, “copy trading could raise more interest for regulators,” suggesting that Dub is still “not under the glass that will expand.”
Now, Robinhood is betting that the regulatory landscape has changed enough to securely enter the copy trading market.
The timing is particularly noteworthy given the pointed criticism Robin faced earlier this year. 23-year-old founder Stephen Wang positions the platform as a more educationally focused alternative to traditional trading apps.
“What do I respect? [CEO] Vlad [Tenev] The king told me in February. “But at the end of the day, without expert guidance, very easy to trade without education is simply a gamble for a larger population.”
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Wang consistently argues that Dub’s approach, including risk scores, risk-adjusted returns and portfolio stability metrics, is a safer alternative to platforms such as Robinhood. In a conversation with TechCrunch, Wang was also critical of Robinhood’s decision to offer Trump-like meme coins, saying the incentives are “misstructed between these big platforms, which are public companies that need to make money right now.”
Tuesday’s news was announced at a Robinhood company event earlier that day, bringing back the possibility that Robinhood actually bought the four-year-old Dub. But reaching for the comment, a Robinhood spokesperson responded via email. “No, this is not an acquisition. We are building our own platform within Robinhood,” King said in an email: “It’s been verified to see Robinhood launch something in our space, and they show that what we’re building is a threatening enough for its core business.
The king added: “Their approach is very different. Robinhood Social is built for active traders,” and Dub is “built for a totally different audience. The vast majority of people who don’t have time, experience or desire to be active traders.”
Whether Robinhood sees it that way or not, the version of copy trading is very different from platforms like Dubs like Etoro and established players like Etoro, who have been offering copy trading to users over the years through the copy trader feature. Etoro allows for automatic copying of other traders’ portfolios in real time (US users are limited to copying only to other US traders due to regulations), but DUB allows users to automatically copy the entire portfolio with a $10 subscription per month, while Robinhood Social requires users to manually replicate the trade.
The platform, which is set to be launched early next year, will feature verified traders and showcase the activities of well-known investors and council members. Unlike the informal copy transactions that occur on social media, Robinhood requires ID verification and proof of actual portfolio position. The plan, according to the company, is to first invite 10,000 Robinhood social users to test the service before rolling out more widely.
Launching occurs at a time when the regulated landscape is rapidly evolving. Crypto companies have been heavily scrutinized under the Biden administration, but a large number of crypto companies have become publicly available in recent months. On the other hand, copy transactions – long and common in Europe, but significantly limited in the US – could ultimately be accepted.
The entry into Robinhood’s copy deal seen through that lens represents more than just the launch of another feature. It can inform you of the opening of a floodgate for waves of new platforms. If Robinhood can successfully negotiate a legal situation where copy transactions in the US have been restricted for a long time, it seems likely that other Fintech outfits will follow suit. Etoro’s successful May IPO raised $310 million and surged 29% in its debut, but it already shows the strong investor desire for a copy trading platform.
Whether this potential wave is good or bad for retail investors, or whether it helps to boost fintech ratings is an open question. For now, Robinhood shareholders are probably the most obvious winners.
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