Robinhood, the free stock trading app, suffered a prolonged outage on Monday, separating its 10m users from one of the best days for the US equity market since the financial crisis and denting its reputation ahead of its UK launch.
The outage began minutes after the US stock market opened and remained down throughout the day. The company did not provide a reason for the outage but confirmed the problem had been identified and was being addressed.
The break in service left Robinhood users on the sidelines of the best day for US stocks since December 2018 and the third-best day since the financial crisis. The S&P 500 gained 4.6 per cent, partially reversing the worst week for the market since the crisis as worries that the coronavirus would hit economic growth swept through global markets.
The outage sparked a backlash online from Robinhood users, who threatened to join rival platforms and sue the company. One user created a new Twitter profile calling for a class-action lawsuit and gained more than 4,000 followers by the end of the day.
Louis Avella, a 23-year-old construction worker from Brooklyn, had recently signed up to Robinhood. He had bought shares in VaxArt and iBioPharma, two penny stocks that had surged in recent days despite the sell-off. On Monday, he tried to sell shares in the companies but the Robinhood app failed to execute the trades. He lost thousands of dollars after VaxArt lost 18 per cent and iBioPharma dropped 10 per cent.
“When I went to sell there was an all-time high in some of my stocks and the thing just crashed,” Mr Avella told the FT. “It kept crashing and crashing. The stocks fell, and I lost several thousands [of dollars]. I don’t know what to do.”
The outage comes at a critical juncture for Menlo Park-based Robinhood, among the most disruptive of a wave of new companies that have challenged incumbents in financial services in the US.
Since it launched in 2015 large retail brokerages have mimicked its free-trading model and surrendered large chunks of their revenues — moves that led Charles Schwab, the industry leader, to acquire TD Ameritrade while E-Trade, the third-largest, was this month bought by Morgan Stanley for $13bn.
Rather than charge for trades, Robinhood makes money from supplying margin loans to customers, investing their cash balances and selling their order flow to big market-making groups.
In the UK, where the company aims to launch “in early 2020,” smaller start-ups such as Revolut, Freetrade and Trading 212 have emerged with similar offerings.
The outage also draws attention to Robinhood’s compliance record. Last year, the company paid $1.25m to settle charges from Finra, the US regulator, that it failed to properly handle the orders to trade it sends to broker dealers.
Late on Monday the company’s Twitter account retweeted an earlier statement offering apologies for the trouble caused.
“I will be moving off the platform ASAP and suggesting the same to everyone I’ve been referring,” tweeted Joshua Shlenker, in reply. “The outage is bad but the canned responses and lack of transparency is absurd.”