Robinhood Embraces Copy Trading Amid Shifting Regulatory Landscape: Signaling a Potential Floodgate for Fintech Platforms

The regulatory landscape has significantly shifted, opening new opportunities for brokerage platforms.

Nearly nine months after implying that a fledgling copy trading platform could thrive due to regulatory evasion, Robinhood has unveiled its entrance into the sector with “Robinhood Social,” a feature allowing users to emulate trades of prominent investors.

This move signifies a dramatic reversal for the online brokerage, which traditionally has been cautious about features that might draw regulatory attention. The company once abandoned its celebratory digital confetti feature before its 2021 IPO due to regulators’ concerns over trade gamification, making Robinhood’s subsequent embrace of copy trading – another potentially gamified feature – more striking.

In a previous conversation regarding upstart copy trading platform Dub, Robinhood CEO Vlad Tenev suggested that smaller platforms could operate primarily because of their limited size, hinting at potential regulatory interest and implying that Dub might not yet be under scrutiny due to its smaller user base.

Now, Robinhood appears confident that the regulatory environment has evolved sufficiently to support copy trading initiatives.

The timing is particularly significant given earlier criticism Robinhood faced from Dub’s 23-year-old founder Steven Wang, who advocated for his platform as an educationally-focused alternative to traditional trading apps. In a February conversation, Wang expressed reservations about platforms like Robinhood, saying they make trading accessible without expert guidance or education, amounting to gambling for the masses.

Wang has consistently argued that Dub’s approach – which incorporates risk scores, risk-adjusted returns, and portfolio stability metrics – offers a safer alternative to platforms such as Robinhood. In his conversation with media outlets, Wang also criticized Robinhood’s decision to offer meme coins like TRUMP, stating that the incentives are misaligned for big platforms seeking profits.

Reports of a potential acquisition between Robinhood and four-year-old Dub, which debuted last year and has raised $47 million from investors, have circulated since Tuesday’s announcement at Robinhood’s company event. However, a Robinhood spokesperson clarified via email that this is not an acquisition; instead, they are developing their own platform under the Robinhood brand. A request for comment from Wang remains unanswered.

Robinhood’s approach to copy trading differs from platforms like Dub and established players such as eToro, which has offered copy trading to U.S. users through its CopyTrader feature for years. While eToro enables real-time automated copying of other traders’ portfolios (with US users limited to copying only other American traders due to regulations), Dub allows users to automatically copy entire portfolios for a $10 monthly subscription. Robinhood Social, set to launch early next year, will require manual replication of trades and will verify participating traders while showcasing the activities of famous investors and members of Congress.

The platform plans to invite 10,000 users to test the service before releasing it more broadly. The evolving regulatory landscape may provide an opportune moment for Robinhood’s entrance into copy trading, with crypto companies facing increased scrutiny under the Biden administration but recently gaining public status through IPOs. Meanwhile, copy trading – common in Europe but heavily restricted in the U.S. – may be on the verge of acceptance.

Robinhood’s entry into copy trading signifies more than just a feature launch; it could signal the beginning of a wave of new platforms if Robinhood can successfully navigate the legal landscape that has long limited copy trading in the US. The success of eToro’s May IPO, which raised $310 million and saw shares surge 29% on debut, demonstrates strong investor interest in copy trading platforms.

Whether this potential wave benefits retail investors or primarily boosts fintech valuations remains to be seen. For now, Robinhood’s shareholders appear to be the primary beneficiaries.