Robinhood’s growth relies on the loyalty of next-generation traders – .

Robinhood’s growth relies on the loyalty of next-generation traders – .

Robinhood made it big by persuading a new generation of investors to get into trading. Now all that remains is to convince those who are successful to stay.

The US-based broker listed its shares last month, capitalizing on a flood of demand for a commission-free app that made stock trading so easy it was compared to a game. Last week, Robinhood’s shares climbed 50% in one day, a move that pointed to volatile “memes” such as GameStop that have been popular among its clients.

Whether Robinhood can attract stable, long-term investors will be critical to its future revenue growth. But customers, analysts and competitors say there’s still a long way to go.

The most important money in the brokerage industry is “sticky” money, or long-term capital that brokers can rely on to stay with their platform, rather than lost in risky or transferred bets.

Asset accumulation is critical to the rapid growth that Robinhood’s institutional lenders are betting on, especially with the prospect of lower transaction volumes, as investors find other things to do in the later stages of the transaction. pandemic.

However, Robinhood may find it difficult to shake off its association with “gamifying” investing. Clients polled by the Financial Times noted that Robinhood is where they play, as they hold their larger and less actively traded investments elsewhere.

“The money I have on Robinhood, I consider it ‘whatever happens, happens’,” said Nick Hogan, an entertainment director from Los Angeles who has long traded on Robinhood. ” Yes [my investment] hangs, it doesn’t affect me that much. It’s like the money you would use in a casino.

Daniel Kaneb, an analyst for a Colorado natural gas company, said he used “Robinhood a lot for fun.” But he said he had used Fidelity, a Boston-based fund manager and discount brokerage, “for anything ‘real’ like most of my mutual funds.”

“Fidelity’s institutional base makes it less. . . meme-like. I know it will be there tomorrow, ”Kaneb said.

Other customers have said they viewed their Robinhood accounts as those of sports betting sites, having turned to stocks when live sports was canceled at the start of the pandemic.

Some brokers have reported seeing clients who had become familiar with the financial markets through Robinhood decide to add a more established institution.

Thomas Peterffy, founder and chairman of Interactive Brokers, told the FT he has seen large account transfers ranging from $ 50,000 to $ 100,000 invested from Robinhood. “Every day we see maybe 10 accounts coming to Robinhood’s Interactive Brokers. In a year and a half I’ve only seen one go the other way, ”said Peterffy.

Walter Bettinger, managing director of discount broker Charles Schwab, told analysts last month that young clients can use a brokerage for any given type of transaction, “but they also have an account with Schwab where their real money resides. “.

Robinhood’s success with young investors and the boom in retail have pushed a cohort of investors into the market that the industry didn’t expect for 10 years, analysts said. However, “competition will be what happens when these young customers get richer,” said an industry analyst.

When Robinhood pushed the industry to move away from transaction commissions in late 2019, the various sources of income clients pay for, such as advice, savings products, and retirement planning, became more critical to the business. survival. Trading-only platforms such as TD Ameritrade were quickly consolidated.

Diversified offerings “are table stakes to see long-term capital move your way,” said Alois Pirker, director of wealth management research for Boston-based research firm Aite-Novarica. And despite the overwhelming success of repopulating investments with younger, lower-income clients, “Robinhood hasn’t done anything in that direction. They’re still very business-oriented, ”Pirker said.

Vlad Tenev, co-founder of Robinhood, told the House of Representatives financial services committee in February that the average account size on Robinhood was around $ 5,000, while the median account size was only of $ 240. The average account size for clients under 30 at Charles Schwab is five times the size at $ 25,000.

At ETrade, a subsidiary of Morgan Stanley, the average account size is over $ 130,000, according to research firm BrokerChooser.

Vlad Tenev, co-founder of Robinhood, said the average account size at the brokerage was around $ 5,000 © Brendan McDermid / Reuters

In the three months leading up to March 31, when Robinhood came under fire during the GameStop stock rally meme for its decision to halt trading during times of high volatility, the broker lost over $ 4.1 billion in ‘assets on 206,000 accounts transferred out of its platform, according to a filing of its initial public offering. The broker earned over $ 12.5 million in fees by charging users for transferring accounts to other brokerages during the same period.

Robinhood said: “The majority of our clients prefer to buy and hold,” adding, “It has never been easier or more fun to build a portfolio and invest for the long term.

The broker pointed to presentations it made at the time of its IPO which stated that it was a ‘safety first’ company and that it was investing in building stability on its platform as well as in educating investors.

Robinhood changed the market, experts said, and now almost all of the major brokerages are matching their commission-free trading offer. The question is whether Robinhood can change the way it is viewed by this market.

“Robinhood has arrived and made trading from your smartphone super easy. . . but on the other hand, there is certainly a feeling that it all seems to be game related, ”said Itay Goldstein, professor of finance at Wharton Business School in Philadelphia.

He added, “Robinhood has the potential to tap into a market that was previously untapped, but they also need to move away from those things that are not serious and detached from fundamentals. “

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