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Robinhood’s new index will track customers’ favourite stocks: how useful is that?

Robinhood Investor Index is designed to track the performance of the 100 investments most popular among its user base, but you can neither invest in the index nor bet against it

Robinhood Investor Index

Robinhood’s new index will track customers’ favourite stocks. Source: unsplash.com

The new “Robinhood Investor Index” gives investors a peek into the favourite stocks of the millions of the exchange’s social-media-savvy customers who present a significant market power. Such an index could be of great interest to financial experts who monitor the activities of small investors to predict stock-market moves. Besides, Robinhood customers can better understand what their peers are up to.

As you know, amateur investors flooded the market with the onset of the pandemic. Robinhood was among their favourite services due to the low cost and intuitive trading app. Moreover, collectively such investors managed to outwit the Wall Street bets, sending volatile meme stocks such as AMC and GameStop sky-high. 

Nevertheless, Robinhood users pay attention to more solid stocks as well. In particular, the new index shows that its users favour Tesla, Apple, Amazon, and Ford Motor. Meanwhile, AMC is only in fifth place by popularity. It would have ranked higher, though, if the movie chain hadn’t issued preferred equity units last month. 

The position of stock in the index is weighted by “conviction,” defined as the percentage of assets in a customer’s portfolio devoted to that share. 

Robinhood has no plans to license its index to providers of ETFs and there is no direct way to invest in the index or bet against it. However, concerns arise that sophisticated hedge funds or high-frequency trading firms could use the index indirectly to place bets against Robinhood’s customers.

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Nina Bobro

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https://payspacemagazine.com/

Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.