The stock trading craze of early 2021 boosted Robinhood Markets Inc.’s earnings. to new heights.
When its clients buy and sell stocks and options, Robinhood directs these orders to high-speed traders who pay the start-up broker for the right to execute many of these trades. The business, known as order flow payment, generated about $ 331 million in revenue for Robinhood in the first quarter, according to a securities deposit late last week. That’s more than triple the $ 91
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Millions of amateur investors downloaded the Robinhood app in the first quarter, attracted by the accumulation of memes popular on Reddit’s WallStreetBets forum. Such rapid consumer and revenue growth is likely to attract potential investors to Robinhood’s upcoming initial public offering, one of the most anticipated announcements of the year. The strength of her business by January prompted new and existing investors to inject a whopping $ 3.4 billion into the company just three months ago.
Robinhood needed this capital injection to continue to support the rally fueled by Reddit. After the clearing house that helped complete Robinhood’s deals asked it to publish billions of dollars in additional collateral that it did not have, Robinhood limited consumers’ ability to buy shares in GameStop Corp. and other high-quality stocks at the end of January.
The decision sparked dozens of customer complaints, dozens of lawsuits against Robinhood and a social media campaign to delete the app around early February. But these trends ultimately did not affect Robinhood’s business. Revenue in February from Robinhood’s order flow payments totaled about $ 121 million, or nearly 7 percent more than in January.
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Robinhood has other sources of revenue, including a subscription service called Robinhood Gold, and fees it collects by lending from customers to short sellers, but paying for the flow of orders is the largest. The practice has been controversial for years, with critics arguing that it encourages brokerage firms to maximize revenue at the expense of clients.
Last year, Robinhood agreed to pay $ 65 million to the Securities and Exchange Commission to mislead customers for years about their reliance on these deals. Robinhood does not admit wrongdoing.
In March, an SEC official told lawmakers that the agency was considering whether to review procurement agreements.