The S&P 500 Index price was 3380.16 on 14th February, 2020 and dropped to 2304.92 on 20th March, 2020 (which was a drop of 31.81%) and went on to 3397.6 on 21st August, 2020 (back to normal).
The NASDAQ index was 9731.18 on 14th February, 2020 and dropped to 6879.52 on 20th March, 2020 (which was a drop of 29.30%) and went on to 11,311.80 on 21st August, 2020 (which is 64.43% increase from the drop, and 16.24% increase from normalcy).
So, in short, this pandemic has done nothing but improve the stock market scenario, while the economy is dying, unemployment is at its all-time peak, businesses are shutting down, the stock market is being pumped.
This is mainly due to brokerage firm Robinhood, as people are out of jobs, they are trying their luck on the stock market for the first time and getting good returns of it. The number of trades and users nearly doubled due to the pandemic.
Features of Robinhood attract a huge user-base that have limited money to invest and no prior experience.
Fractional Shares: People can buy fractions of a share
No account minimum required to open a trading account
Free Trades: Allows people to trade without having to pay any commission
Good bundle of stock selection and suggestion
Robinhood has seen an increase in 3 million new trading accounts during the lockdown and trades accounting to 150 Billion USD. It makes it too easy for individuals to trade and earn money, without any much effort. Since Robinhood customers have been saved from paying a total of 5 Million USD as commission.
The average assets per account are estimated to be 1000 - 5000 $, which is pretty low compared to its competitors, but studies suggest these figures could blow up in times to come.
If it's so simple and charges no commission, how does it earn money?
Robinhood gets half of its revenue from ‘payment for order flow’ – which means companies pay Robinhood to be suggested more. It’s a controversial practice but often played by famous brokers like E * Trade, Charles Schwab, Ameritrade and Fanvest Wagering Exchange. Which means the orders are often placed privately instead of public exchange. Robinhood stated on their website “We send your orders to market makers that allow you to receive better execution quality and better prices. The revenue we receive from these rebates helps us cover the costs of operating business and allows us to offer you commission-free trading”.
So, to gain the trust of its users, it additionally offered 3% on their investment like if you add 1000$ then you get extra 30$ to trade, so a total of 1030$ (Checkings and Savings account). This was supposed to be a good move but turned to backfire as the company tried to operate as a bank, but is not.
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