What a distinction a altering regulatory setting makes.
Roughly 9 months after suggesting {that a} younger copy buying and selling platform may solely function as a result of it flew “underneath the radar” of regulators, Robinhood has introduced its personal entry into the house with “Robinhood Social,” a brand new characteristic that can permit customers to observe and manually replicate the trades of outstanding traders.
The transfer represents a putting about-face for the web brokerage, which has traditionally been cautious about options that would appeal to regulatory scrutiny. The corporate famously ditched its celebratory digital confetti characteristic forward of its 2021 IPO after regulators raised considerations about gamifying buying and selling, making its embrace of copy buying and selling, one other probably gamified characteristic, all of the extra notable.
This wariness was on full show in December, when in a conversation with this editor about upstart copy buying and selling platform Dub, Robinhood CEO Vlad Tenev instructed that such platforms may function primarily due to their smaller dimension, proposing that “copy buying and selling may grow to be of higher curiosity to regulators” and that Dub might not but be underneath the “magnifying glass” due to its “comparatively smaller dimension.”
Now, Robinhood is betting that the regulatory panorama has modified sufficient to soundly enter the copy buying and selling market.
The timing is especially notable given the pointed criticism Robinhood confronted earlier this yr from Dub’s 23-year-old founder Steven Wang, who has positioned his platform as a extra educationally-focused different to conventional buying and selling apps.
“I’ve a variety of respect for what [CEO] Vlad [Tenev] has executed in making buying and selling free,” Wang informed me again in February. “However on the finish of the day, making it tremendous simple to commerce with out knowledgeable steering, with out training, is de facto simply playing for the broader inhabitants.”
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Wang has persistently argued that Dub’s strategy – which incorporates danger scores, risk-adjusted returns, and portfolio stability metrics – represents a safer different to platforms like Robinhood. In his dialog with TechCrunch, Wang was additionally important of Robinhood’s choice to supply meme cash like TRUMP, saying the incentives are “misaligned between these huge platforms which might be public firms now that must become profitable.”
Tuesday’s information, introduced at Robinhood’s company event earlier within the day, dropped at thoughts the likelihood that Robinhood had, the truth is, acquired four-year-old Dub, which formally launched simply final yr and has thus far raised $47 million in funding from traders. However reached for remark, a Robinhood spokesperson responded through electronic mail, “No, this isn’t an acquisition, we’re constructing our personal platform in Robinhood.” A request for remark from Wang was not returned by press time.
Robinhood’s model of copy buying and selling differs meaningfully from platforms like Dub and established gamers like eToro, which has supplied copy buying and selling to U.S. customers for years by way of its CopyTrader characteristic. Whereas eToro permits automated copying of different merchants’ portfolios in real-time (with U.S. customers restricted to copying solely different U.S. merchants attributable to rules), Dub permits customers to routinely copy whole portfolios for a $10 month-to-month subscription, and Robinhood Social would require customers to manually replicate trades, a distinction that will assist deal with regulatory considerations.
The platform, set to launch early subsequent yr, will characteristic verified merchants and show the actions of well-known traders and members of Congress. In contrast to the casual copy buying and selling that occurs on social media, Robinhood would require id verification and proof of precise portfolio positions. The plan, in response to the corporate, is to first invite 10,000 Robinhood Social customers to check out the service earlier than rolling it out extra broadly.
The launch comes at a time when the regulatory panorama is quick evolving. Crypto firms have been scrutinized closely underneath the Biden administration, whereas quite a few crypto firms have grow to be publicly traded firms in current months, their path eased by the Trump administration’s crypto-friendly stance. In the meantime, copy buying and selling – lengthy widespread in Europe however closely restricted within the U.S. – could also be gaining acceptance lastly.
Seen by way of that lense, Robinhood’s entry into copy buying and selling represents extra than simply one other characteristic launch; it may sign the opening of floodgates for a wave of latest platforms. If Robinhood can efficiently negotiate the authorized panorama that has lengthy restricted copy buying and selling within the U.S., different fintech outfits appear prone to observe go well with. eToro’s successful May IPO, which raised $310 million and noticed shares surge 29% on their debut, has already demonstrated robust investor urge for food for copy buying and selling platforms.
Whether or not this potential wave is sweet information or dangerous for retail traders – or it should principally serve to spice up fintech valuations – is an open query. For proper now, Robinhood’s shareholders are in all probability the clearest winners.