Robinhood made $331 million from clients’ trading activity in Q1 2021

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Robinhood raked in a document quantity of income from buyer trades in the primary quarter of 2021, because the retail trading juggernaut nears its public debut.

The millennial-favored inventory trading app collected $331 million in cost for order stream – the cash brokerage corporations obtain for steering shoppers’ trades to market makers – in the primary quarter of 2021, in line with a current Securities and Exchange Commission regulatory submitting.

This compares with the $221 million Robinhood earned from cost for order stream in the fourth quarter of 2020 and the $91 million earned in the primary quarter of 2020.

Robinhood and others in the net brokerage trade depend on what’s generally known as payment for order flow as a income in lieu of commissions. The pioneer of “free trading,” Robinhood’s enterprise mannequin hinges on the back-end funds, in the absence of commissions. 

Market makers, akin to Citadel Securities or Virtu, pay e-brokers like Robinhood for the precise to execute buyer trades. The dealer receives a small charge for the shares which might be routed, which may add as much as tens of millions when clients commerce as actively as they’ve this yr.

Robinhood — which is anticipated to go public on the Nasdaq in the primary half of 2021 — made $133 million in cost for order stream from fairness trades, whereas $198 million got here from choices trading.

The growth in order stream coincided with document retail trading activity and new buyer accounts throughout the trade.

The Silicon Valley start-up discovered itself in the center of a firestorm in January amid the quick squeeze in GameStop, which was partially fueled by Reddit-driven retail traders. JMP Securities estimates Robinhood added almost 6 million new shoppers in the primary two months of the yr.

Payment for order stream is a typical apply, however it’s typically criticized for its lack of transparency. The GameStop trading mania shined a lightweight on the income stream and plenty of legislators scrutinized the apply. Main Street argued that it offers Robinhood causes to incentivize extra trading.

Over the weekend, legendary investor Warren Buffett mentioned Robinhood has “become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half.”

Robinhood rebutted that “people are tired of the Warren Buffetts and Charlie Mungers of the world acting like they are the only oracles of investing.”

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— With reporting from CNBC’s Kate Rooney.

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