Pavlo Gonchar | LightRocket | Getty Pictures
Robinhood raked in a report quantity of income from buyer trades within the first quarter of 2021, because the retail buying and selling juggernaut nears its public debut.
The millennial-favored stock-trading app collected $331 million in fee for order movement – the cash brokerage corporations obtain for guiding purchasers’ trades to market makers – within the first quarter of 2021, in line with a latest Securities and Change Fee regulatory submitting.
This compares to the $221 million Robinhood earned from fee for order movement within the fourth quarter of 2020 and the $91 million earned within the first quarter of 2020.
Robinhood and others within the on-line brokerage trade depend on what’s generally known as fee for order movement as a income in lieu of commissions. The pioneer of “free buying and selling,” Robinhood’s enterprise mannequin hinges on the back-end funds, within the absence of commissions.
Market makers, comparable to Citadel Securities or Virtu, pay e-brokers like Robinhood for the suitable to execute buyer trades. The dealer receives a small payment for the shares which are routed, which might add as much as hundreds of thousands when prospects commerce as actively as they’ve this 12 months.
Robinhood — which is predicted to go public on the Nasdaq within the first half of 2021 — made $133 million in in fee for order movement from fairness trades, whereas $198 million got here from choices buying and selling.
The increase so as movement coincided with report retail buying and selling exercise and new buyer accounts throughout the trade.
The Silicon Valley start-up discovered itself in the course of a firestorm in January amid the brief squeeze in GameStop, which was partially fueled by Reddit-driven retail buyers. JMP Securities estimates Robinhood added almost 6 million new purchasers within the first two months of the 12 months.
Cost for order movement is a standard apply, nevertheless it’s usually criticized for its lack of transparency. The GameStop buying and selling mania shined a light-weight on the income stream and plenty of legislators scrutinized the apply. Most important Avenue argued that it provides Robinhood causes to incentivize extra buying and selling.
Over the weekend, legendary investor Warren Buffett stated Robinhood has “change into a really important a part of the on line casino facet, the on line casino group, that has joined into the inventory market within the final 12 months or year-and-a-half.”
Robinhood rebutted that “individuals are bored with the Warren Buffetts and Charlie Mungers of the world appearing like they’re the one oracles of investing.”
Develop into a better investor with CNBC Professional.
Get inventory picks, analyst calls, unique interviews and entry to CNBC TV.
Signal as much as begin a free trial at this time.
— with reporting from CNBC’s Kate Rooney.