https://www.newyorker.com/magazine/...=bounceX&mbid=CRMNYR012019&utm_term=TNY_Daily Early on the morning of January 19th, Cody Herdman woke to the vibration of his smartphone alarm under his pillow. He immediately checked the finance app Robinhood for the trading price of a company called GameStop. Herdman, who is nineteen, is a freshman computer-science major at Dakota State University, where until recently he played center for the Dakota State Trojans football team, and he had been investing in the stock market for a month. Robinhood, which offers zero-commission trading in stocks and cryptocurrencies, pitches itself as an enlightened version of Wall Street; its stated mission is to “democratize finance for all.” Herdman’s friend Chase Bradshaw had introduced him to trading on the app, which now consumed much of the time that he used to spend playing video games. With a thousand dollars that his father had given him, Herdman had invested in a handful of securities, buying 11.5 shares of BioCryst Pharmaceuticals, which makes specialized medicines for rare diseases; five shares of Virgin Galactic, the spaceflight company founded by Richard Branson; six shares of Corsair, a gaming-equipment manufacturer; and five shares of Nordic American Tankers, an international oil-tanker operator; as well as 0.007 of a bitcoin. (Robinhood allows the purchase of fractional shares.) He felt a surge of excitement every time he saw a green number indicating that one of those stocks had gone up in value. All Herdman’s previous investments had been based on research into how global events might affect the fortunes of the various companies, but he had also been contemplating buying shares in GameStop, a struggling video-game retailer, after reading posts hyping the stock on an investing forum on Reddit called WallStreetBets. As the stock’s price crept up, from around fourteen dollars a share in mid-December to almost forty a month later, he felt annoyed for not having acted sooner. That morning, as soon as the stock market opened, Herdman sold nearly everything in his Robinhood account, leaving him with around twelve hundred dollars in cash. Grabbing a clean T-shirt from a plastic bin under his bed, he dressed and rushed to his history class. As his professor delivered a lecture on Coney Island in the eighteen-hundreds, Herdman tracked the market on his phone from a seat in the back of the room. In his dorm after class, he bought shares of GameStop, whose ticker symbol is GME, in two bursts—first 13.77 shares, then sixteen—using all of the cash in his account. As he ate a microwaved pepperoni Hot Pocket, he watched the numbers on his screen. Within forty minutes, GameStop had jumped two dollars. Herdman decided to sell his only remaining non-GameStop holding—a clean-energy stock he’d expected to do well under the Biden Administration—and used the proceeds to buy 6.3 more shares of GME. “I was, like, screw it,” he told me recently. “I’m going all in.” Herdman, as Dakota State proudly announced when he signed to play for the Trojans, a little more than a year ago, is six feet two and two hundred and eighty pounds. He grew up in Aurora, Colorado. He has a full, ruddy face, thick black hair, and a goatee, and has a crucifix tattooed on his formidable right biceps. His mother, Karen, a former local TV news reporter and a highly ranked master in Tang Soo Do, a Korean martial art, told me that Cody had always been strong. By the time he was fifteen, she said, he could leg-press five hundred pounds and was a two-time power-lifting state champion. “I told him, ‘A time will come when you’re glad to be bigger than everyone else.’ And when he got the football scholarship I said, ‘See, I told you,’ ” she said. “Cody’s one of those kids, he never has to study for anything. He remembers everything. He picks up stuff really quick—if he’s interested in it.” In the next few days, Herdman monitored the online chatter about GameStop. He was convinced that the price would continue to climb. He’d read about previous instances when large numbers of small investors had organized online and caused a stock to rise, such as in 2008 with Volkswagen, which had quadrupled in price in two days. The prospect of being part of such a movement was so enticing to Herdman that, one night at the gym, he called his mother to ask for more money. Herdman’s father is a retired electrician; his mother now teaches martial arts. The family finances had been tight in the past, but she said that she could give him about two hundred and fifty dollars, and told him to talk to his father, Jerry. Herdman explained the situation to his father as clearly as he could. Several large hedge funds, including Melvin Capital, a twelve-billion-dollar fund, had borrowed GameStop shares and had sold them short, betting that they would go down and that the company might go out of business. Millions of individual investors on Robinhood and other apps had decided to buy the shares—not so much because the company showed promise but simply in order to push the stock price up. As long as Herdman and the other investors kept buying, they would trigger a “short squeeze,” forcing the hedge funds to pay exorbitant amounts to buy the stock back. Herdman told his father, “Seeing these hedge funds get screwed is good for everybody.” Jerry supported Cody’s investing as a valuable learning experience, but he always counselled him not to trade more than he could afford to lose. Cody asked about cashing in some savings bonds that he had been given when he was a baby; his mom later agreed to lend her son a hundred dollars against the bonds, which hadn’t yet matured. On Monday morning, Herdman bought four more shares of GameStop, which was trading at close to ninety dollars. He waited a few minutes, and then decided to draw two thousand four hundred and thirty dollars from his Robinhood margin account, which allowed him to borrow money from the company to invest. He purchased another twenty-seven shares, bringing his total to around sixty-seven shares. “At least this is only boring for ninety minutes.” Cartoon by Maggie Larson On January 27th, the stock hit three hundred and eighty dollars a share, fifteen hundred per cent higher than it had been two weeks earlier. Herdman’s Robinhood account showed a gain of about twenty-five thousand dollars—a “ridiculous” amount of money, to his mind. He took a screenshot of his profits and sent them to a group of friends on Snapchat. “Oh my god, dude,” one of his friends wrote back. “You made as much money in a month as I’ve made over the course of a year.” Reddit users’ goal to inflict pain on the hedge funds appeared to be working. Dozens of news articles reported that Melvin Capital, which was managed by Gabriel Plotkin, a forty-two-year-old trader, was showing a loss of more than thirty per cent for the year, partly due to its GameStop short. Before launching Melvin, in 2014, Plotkin had been a portfolio manager at S.A.C. Capital, the fourteen-billion-dollar hedge fund founded by Steven A. Cohen. In 2013, S.A.C. was indicted for insider trading, and, as part of a settlement, was required to pay $1.8 billion in penalties and fines. Cohen shut down S.A.C. He now runs Point72 Asset Management and owns the Mets. In late January, Point72 invested seven hundred and fifty million dollars in Melvin Capital’s main fund. In a move portrayed by the financial press as an emergency bailout, Citadel, a hedge fund managed by Kenneth C. Griffin, also invested two billion dollars. Plotkin denied that the new investments were due to a financial emergency. Griffin said at the time, “We have great confidence in Gabe and his team.” VIDEO FROM THE NEW YORKER Taunting Death, Finding Transcendence, and Bombing Hills on a Skateboard Early the next morning, Robinhood made a startling announcement: “In light of recent volatility,” it had “restricted transactions for certain securities to position closing only.” Robinhood would not allow any of its users to purchase new shares of GameStop or other “meme stocks”—those that were trading wildly after being promoted on social media—including AMC Entertainment and BlackBerry. Robinhood users could only sell shares that they already owned. The move was sure to have the effect of halting the rise in GameStop shares—to Herdman, it looked like a manipulation of the market that would directly benefit the hedge funds. After the stock market opened, GameStop plunged from $347.51, where it had closed the night before, to a low of $112.25. Herdman’s portfolio dropped sixty-six per cent, to ten thousand dollars. Other brokerages placed temporary limits on trading in GameStop, but Robinhood’s ban was one of the most restrictive, and most of the online anger focussed on it. Someone posted on Reddit, “robinhoods whole shtick is that they allow the little guys to enter the market. guess they don’t actually give two shits about the little guy and i hope they lose a ton of users from this.” The investors challenging the Wall Street establishment attracted both Democratic and Republican supporters. Representative Alexandria Ocasio-Cortez tweeted that Robinhood’s restrictions were “unacceptable,” and said that she would support a congressional hearing into the company’s “decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.” Senator Ted Cruz, of Texas, retweeted her message, adding, “Fully agree.” Some Robinhood employees saw the restrictions as selling out their users, and felt insulted when management attempted to improve morale by distributing forty-dollar credits for the food-delivery app DoorDash to employees. On February 18th, the House Financial Services Committee, headed by Representative Maxine Waters, held a hearing to investigate, called “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.” Herdman and countless other Robinhood users made plans to transfer their accounts to the online brokerage owned by Fidelity Investments, the seventy-five-year-old financial-services company. The following night, Herdman lay on his bed scrolling through WallStreetBets. In one post, titled “This Is for You, Dad,” someone using the name Space-peanut had written, “I remember when the housing collapse sent a torpedo through my family. My father’s concrete company collapsed almost overnight. My father lost his home.” Around the same time, the author claimed to have seen “hedge funders literally drinking champagne as they looked down on the Occupy Wall Street protesters.” The poster said that, as a result of the loss, his father had descended into alcoholism, and existed as only “a shell of his former self, waiting for death.” More than seven hundred people commented on the post. Herdman thought of his own father, who, when Cody was a boy, had suffered a serious back injury on the job, and was given a hundred-and-twenty-five-thousand-dollar settlement, which he invested in the stock market and lost when the market collapsed in 2008. He had resorted to self-medicating with alcohol and painkillers. Around the same time, Herdman’s mother had lost work doing public relations for various martial-arts studios. Herdman started typing. “This is about more than just money, it’s about fucking these hedge fund managers until they understand what we’ve all gone through because of them,” he wrote. “I am holding to ensure my parents can live comfortable lives at the expense of the assholes that almost cost them their lives. This is for you, Dad.” Robinhood was founded in 2013 by Vlad Tenev and Baiju Bhatt, who met as undergraduates at Stanford University. They have argued that putting the investing tools used by the wealthy into the hands of nonprofessionals could help reduce inequality. Tenev likes to cite Thomas Piketty, the author of “Capital in the Twenty-first Century,” who has described the wealth gap as an investing gap. The investing advantages enjoyed by the rich go beyond access to the stock market, though; wealthy investors, unlike the relative newcomers who make up Robinhood’s base, have access to the most sophisticated financial information and opportunities, and can usually afford to lose the money they risk on stocks. The commission-free trading that Robinhood offers its users has been so popular that its competitors, including Fidelity, Charles Schwab, and E-Trade, were driven, in October, 2019, to cut their commissions of around five dollars per trade to zero. Brian Barnes, the C.E.O. of M1, a competitor of Robinhood’s that focusses on long-term saving and investing, said the app’s influence has been profound. “They’re the first company that introduced premier user experience and design in a mobile application to finance, and they also dramatically lowered the cost of investing,” he said. “They’ve encouraged an entire population who wasn’t buying stocks to buy stocks. There’s a lot to thank them for.” ADVERTISEMENT Robinhood makes money in several ways, including by investing cash its customers have sitting in their accounts, the way banks do, and by charging five dollars a month for a “Gold” level of access, which gives users a margin account from which they can borrow money to trade with. The majority of Robinhood’s revenue comes from trading volume: the more a user trades, the more the company makes. In this way, Barnes explained, the interests of Robinhood’s users often conflict with those of the company. The average person builds wealth through long-term investing rather than by rapidly trading in and out of stocks. Barnes described Robinhood as “more financial entertainment than investment management or wealth building. What they’ve created is an incredibly fun, exciting, legal casino in your pocket.” Charlie Munger, the ninety-seven-year-old business partner of Warren Buffett, the celebrated long-term-value investor, has criticized the frenzied day trading the company has facilitated among people with little prior knowledge. “It’s really just wild speculation,” he told the Wall Street Journal in February. “I think that we’re crazy to allow it.” Robinhood has become successful in Silicon Valley by following a trajectory similar to that of other tech companies: behaving aggressively in pursuit of fast growth. In the first four months of 2020, more than three million people opened Robinhood accounts, bringing the total number of users to more than thirteen million. The median age of Robinhood’s users is thirty-one; about half of them are first-time investors. Representatives for Robinhood decline to say whether the majority of its users make or lose money, pointing out that other companies offering similar services don’t release this information. Tenev, the company’s C.E.O., revealed in February that the value of all its customers’ accounts was thirty-five billion dollars more than the total amount of money customers had deposited, although the distribution of this staggering profit is unknown. Last fall, Robinhood was valued at nearly twelve billion dollars; in March, it notified the Securities and Exchange Commission of plans to hold an initial public offering. Tenev is thirty-four and lives in Silicon Valley with his wife, Celina, and their two toddlers. Long and lean, he has a wide, pale face, dimples, and a mop of shiny dark hair. He was born in Varna, Bulgaria, and immigrated to the U.S. when he was five. When we spoke recently, he recalled that when he was a small child the power went out for several hours nearly every day, and in the evenings his mother and father huddled around a battery-powered radio. From the window of the family’s apartment, Tenev’s father would monitor the line at the grocery store, where people waited to buy milk and bread. Bananas, imported from Cuba, were a special treat. His father had once gone on a trip to Italy and brought back a small Lego set. “I thought it was the coolest thing in the world,” Tenev said. His mother worked for a book publisher, and his father was studying for a Ph.D. in economics. His father read “banned literature,” including Western economic theory, and refused to write his dissertation on Marxism, something that had been strongly encouraged. When the Cold War ended and Bulgaria’s Communist government fell, Tenev’s father applied for a scholarship at the University of Delaware, and moved to the U.S. in 1991, to pursue another Ph.D. in economics. A year later, Tenev’s mother joined his father, leaving Tenev behind with his grandparents. In the summer of 1992, when Bulgaria was in a severe economic crisis, Tenev’s “punk teen-ager aunt” accompanied him to America. Tenev and his parents moved into graduate-student housing in Hyattsville, Maryland, in an apartment complex filled with other immigrant families. Tenev’s father took a job as an economist at the World Bank, and Tenev’s mother, who had been working in a restaurant and at other odd jobs, enrolled in an M.B.A. program at Georgetown University (she, too, later joined the World Bank), and the family settled in Washington, D.C. Tenev says that he spent much of high school studying and playing with computers, trying to set himself up to be financially secure: “There was this fear that we’d get sent back to Bulgaria, or they’d lose their jobs.” “This one goes out to the anti-maskers in the comments section who helped my last video go viral.” Cartoon by E. S. Glenn During a summer research program at Stanford, Tenev met Bhatt, a fellow-undergraduate. Bhatt, too, was an only child of immigrants whose father was an academic. His parents had moved to the United States from India after his father was accepted into a Ph.D. program in theoretical physics at the University of Alabama in Huntsville. Bhatt, who speaks fluent Gujarati, grew up in Poquoson, a small town in Virginia. At Stanford, he majored in physics; Tenev majored in mathematics. They became inseparable friends. Tenev’s Stanford adviser, Larry Guth, recalled that Tenev had concerns about pursuing math as a career; one could spend years exploring a particular question only to have that research come to nothing. Tenev went on to begin a Ph.D. program at U.C.L.A., where he was astonished at how hard the other students worked for such small financial gain. “It’s obviously not a very lucrative profession,” he told me. The financial crisis was creating economic pain across the country, but new tech companies were launching and expanding at a brisk rate: Apple released the iPhone in 2007; Airbnb popularized home-sharing in 2008; and the following year Bitcoin was created. The buying and selling of stocks was growing increasingly automated. Trade orders now travelled from one computer to another, sometimes taking six or seven steps before being fulfilled. Tenev and Bhatt wanted to design a platform that would eliminate most of the steps, making each stock purchase or sale even faster. They started a company and called it Celeris, the Latin word for “quick.” The technology would allow them to take advantage of tiny price gaps in the market, for example, by buying a share of Apple on one exchange, and then selling it for a slightly higher amount on another exchange. Soon, Tenev and Bhatt decided to focus exclusively on software for high-speed trading, and formed a new company, called Chronos Research. Operating from a warehouse space in Bushwick, Brooklyn, they hired a group of engineers to develop the software, which they sold to hedge funds and investment banks. They renamed the product Zardoz, for a schlocky science-fiction film from 1974 starring Sean Connery.