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Why Robinhood is having trouble with Reddit

Here’s everything you need to know.

robinhood logo on blurred background
Image: KnowTechie

In January, during a flurry of trading, Robinhood shut down trading and disappointed a lot of would-be investors. It even found itself to be the victim of several lawsuits. Disgruntled investors resented how Robinhood just shut down trading when things had risen to a frenzy.

The reason for the market mania was because some investors who were in the know had been tipping each other off in the chatrooms of Reddit, a social media company. Some of the disgruntled investors even tried to sue Reddit over this. However, both Reddit and Robinhood can relax. They’re both legally covered so any lawsuits that come their way don’t have a snowball’s chance in hell. Nice try, though.

Legally, Reddit cannot be held responsible for the activity of its users under a law called ‘Section 230‘. This applies as much to other Internet platforms as it does to Reddit. This law has been around since the start of Internet chatroom activity. For Robinhood, it’s protected by the User Agreement found on its website. This proclaims that the company may shut down trading at its discretion at any time without prior notification.

For all this controversy, Reddit will probably blame Robinhood and Robinhood will probably blame Reddit. But at least for now, both of them are safe. That’s a great relief to both companies. It might be tough on the investors, though.

How Did This Happen

Interest in stock market trading has always been a thing. But with the advent of cryptocurrency, starting with the original Bitcoin, the market has experienced renewed interest. People who might not have been otherwise interested in investments are now interested. When you consider how a single Bitcoin, in just over a decade, has gone from being worth USD $1 to USD $50,000, it’s obvious what the attraction is money. Or rather, easy money.

That’s everyone’s dream and few people’s attainment. Internet forums like Reddit have been an invaluable support to investors. In the anonymous chat rooms of the virtual world, tips and tricks are exchanged. When someone hears of a good tip, they share it with their friends. In a Reddit chat room, word can spread like wildfire and before anyone knows, a bidding frenzy can start.

Whether or not it ends well remains to be seen. The outcome can be totally different every time. Redditors are generally anonymous. As a community, though, they are vocal and fiercely loyal. They come on the forum with a username and join subreddits. A subreddit is a community within Reddit that reflects the interest of the user. Now, when it comes to investment and financial subreddits, there may be many of them.

But, on the other hand, the user may join one, or he or she may join many. There are numerous cryptocurrency subreddits. Some cover every kind of crypto, some cover only Bitcoin, others may cover different cryptocurrencies. In many cases, these subreddits are a great support to newbie investors. There are lots of tips to be had and plenty of good advice.

Why the Market Mania Occurred

Someone had a tip. A super fantastic tip. They couldn’t wait to share. The news spread like wildfire. Now, it’s good to get a tip. Yes, and it’s good to share. But the problem with tips is that if too many people share it, the demand for the shares in question goes through the roof. The price is then affected. This was the problem facing Robinhood that day.

If they allowed everyone to trade, the super conditions for the trade wouldn’t exist anymore. The bidders came in from far and near. The excitement was palpable. But Robinhood knew that if things kept on going the way they were going, there would be the ultimate disaster.

Of course, they were absolutely right. So they shut down the bidding. They left their investors in the lurch. They didn’t mean to do it but they had to do it anyway. They disappointed a veritable crowd of excited people. The rage turned to madness. Anger. Devastation. Okay, no-one had really lost anything.

But disappointment is a powerful emotion. When you’re in the USA and you’ve been let down, what do you do? You sue. It’s that simple. Later on, you may discover that the person or organization that you attempted to sue has a protection clause. But you’re not thinking of that right now. So you go ahead and sue and find out afterward that you can’t. Does the hurt subside in time? Perhaps. But it leaves a nasty aftertaste.

When You Invest, Do It Right

Seriously, people, this is not the way to invest. Do you need to go back to elementary school and learn all over again? No. But you come better prepared next time. Hey, tips on Reddit can be great. But in the end, there’s no substitute for eating your peas and drinking your milk and just going back to the market and studying the form. Call a meeting with your investment advisor. Check your portfolio. See what’s working and what isn’t.

Robinhood is rumored to be up to all sorts of tricks. Google Dogecoin and see what comes up, ’nuff said, okay? At your leisure, check out BestBrokerReviews. No gimmicks, just straightforward investments. No tips and tricks. Only hard work and honesty. So talk to your advisor, study the form, and best of all, get back in there. Invest with a cool head. The results will be cool too. I practically guarantee it.

Don’t try to put your money on the latest gimmick. Your blood pressure probably won’t be able to stand it. A cool approach will always win the day. So don’t go running to invest in the latest tip you got on Reddit. Take it slow and feel much better.

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Chris has been blogging since the early days of the internet. He primarily focuses on topics related to tech, business, marketing, and pretty much anything else that revolves around tech. When he's not writing, you can find him noodling around on a guitar or cooking up a mean storm for friends and family.

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