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Robinhood generated record customer trading revenue in the first quarter of 2021 as the retail leader is close to making its public debut.
A popular millennial stock trading app has raised $ 331 million in payments for order flow, which money brokerage firms will receive for directing their clients̵7; trades to market makers for the quarter. The first of 2021, according to the latest filing by the Securities and Exchange Commission.
This compares with Robinhood $ 221 million received in process payments for the fourth quarter of 2020 and $ 91 million earned in the first quarter of 2020.
Robinhood and others in the online brokerage industry relied on what’s known as order-flow payments as a source of income instead of commissions. Robinhood’s pioneering “free trading” business model is based on back-to-back payments. End in the absence of commission
Market makers such as Citadel Securities or Virtu pay e-Brokers such as Robinhood for the right to execute their clients’ trades. Brokers receive a small fee for routed stocks that can add up to a million when clients are trading as actively as they have this year.
Robinhood, which is expected to go public on Nasdaq in the first half of 2021, earned $ 133 million for equity trading orders flow, while $ 198 million came from options trading.
The growing order flow coincides with unprecedented retail activity and new customer accounts across the industry.
The Silicon Valley startup found itself in the midst of a fire storm in January amid a brief squeeze on GameStop, some boosted by Reddit-driven retail investors JMP Securities estimates Robinhood added almost new clients. 6 million cases in the first two months of this year.
Paying for the order process is a common practice. But it has often been criticized for its lack of transparency. The GameStop trading frenzy has shed light on its revenue stream, and several legislators have scrutinized the practice.Main Street argued that it justified Robinhood to incentivize more trading.
Over the weekend, legendary investor Warren Buffett said Robinhood had “become a very important part of casinos, a casino group that entered the stock market in the last year or a year and a half.”
Robinhood blamed, “People are tired of the Warren Buffetts and Charlie Mungers of the world who act like them are just investment predictions.”
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– With reporting from CNBC’s Kate Rooney