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Robinhood achieved a record amount of revenue from customer transactions in the first quarter of 2021, when the ginger of retail is approaching its public debut.
The Millennium Stock Trading app has raised $ 331 million to pay for the flow of orders ̵
That compares to $ 221 million in Robinhood earned from paying for order flows in the fourth quarter of 2020 and $ 91 million earned in the first quarter of 2020.
Robinhood and others in the online brokerage industry rely on what is known as order flow payments as a source of revenue instead of commissions. The pioneer of “free trading”, Robinhood’s business model depends on back payments, in the absence of commissions.
Market managers, such as Citadel Securities or Virtu, pay e-brokers such as Robinhood for the right to trade with customers. The broker receives a small fee for the transferred shares, which can reach millions when clients trade as actively as they have this year.
Robinhood – which is expected to go public on the Nasdaq in the first half of 2021 – made $ 133 million as payment for the flow of stock orders, while $ 198 million came from options trading.
The boom in order flows coincided with record retail activity and new customer accounts across the industry.
The launch in Silicon Valley came in the middle of a storm in January amid a brief contraction in GameStop, which was partially fueled by retail investors managed by Reddit. JMP Securities estimates that Robinhood added nearly 6 million new customers in the first two months of the year.
Paying for the flow of orders is a common practice, but is often criticized for its lack of transparency. GameStop’s trading craze has shed light on revenue streams, and many lawmakers have considered the practice. Main Street claims that it gives Robinhood reasons to stimulate more trade.
Over the weekend, legendary investor Warren Buffett said Robinhood “has become a very important part of the casino aspect, the casino group that has joined the stock market in the last year or a year and a half.”
Robinhood denied that “people are tired of Warren Buffets and Charlie Mangers of the world, behaving like the only oracles to invest.”
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– with a report by Kate Rooney from CNBC.