IPO completely screwed up after a high price loss

The shares of the online broker Robinhood lost more than eight percent of their value on the first day of trading on the Nasdaq technology exchange. The company also proceeded extremely unusually beforehand.

The stock market debut had certainly been imagined differently in Sherwood Forest. The stock of the online broker Robinhood, which was issued for 38 US dollars, smeared when it started trading on the Nasdaq by around 8.3 percent and ended at $ 34.82. The daily low was even at 33.35 US dollars, which meant a loss of 12 percent. And that, although the shares were already much cheaper in the trade than originally planned. Because actually Robinhood had aimed for an issue price of 42 US dollars per share and thus an overall valuation of around 35 billion US dollars.

Robinhood is very successful as a trading app, but it is also quite controversial. Therefore, the share may be considered too risky for many investors. The company also pursued a peculiar strategy with its IPO, which according to Bloomberg is the seventh largest this year. Robinhood reserved a little more than a third of the shares for its own users. The shot backfired clearly. Usually it is the investment banks that keep the price reasonably stable in an IPO. However, this mechanism has been overridden from the start.

Does Robinhood attract too many inexperienced users?

Just this week we reported about a new Robinhood feature that is designed to counteract volatility in crypto prices. The special thing about the Robinhood trading platform is that it does not collect any fees from its users. Instead, the business model is based on commissions for brokering transactions. That is precisely what calls the critics to the scene. You accuse Robinhood of not acting like a stock exchange trader, but more like a gambling operator. In particular, the young and inexperienced users would be incited to particularly risky trades. The online broker of CEO Vladimir “Vlad” Tenev has also had to defend himself several times against allegations of market manipulation. But he always excuses himself by saying that he is trying nothing more than to “democratize” the financial market.

It wasn’t until the end of June that Robinhood closed one Comparison with the US financial regulator Finra. The authority accused the online broker of misleading customers, too lax controls on risky stock market bets and, moreover, technical mishaps. In total, the company had to shell out almost $ 70 million in this comparison. This amount consists of a $ 57 million fine and $ 12.5 million in damages.

You can find out more about the neobroker Robinhood in the August issue of the Kryptokompass – in the company of the month we devote ourselves in detail to the IPO and the question of whether it is worth getting started.