Robinhood, the buying and selling app that took the United States by storm through the pandemic lockdowns, is having one other go at cracking the UK market.
The firm, a key beneficiary of the craze in so-called “meme” shares which took maintain in 2020 and 2021, first introduced plans for a UK launch in 2020.
On that event, having opened a ready record for would-be shoppers in 2019 that reportedly attracted 300,000 potential prospects, it shelved plans as a way to focus on its dwelling US market following an explosion of curiosity there.
More lately, in August final yr, it sought to purchase Ziglu, a UK-based cryptocurrency buying and selling app, for $170m just for the deal to fall via.
It will now be hoping that it’s third time fortunate.
A compelling provide in a aggressive market
The provide for would-be prospects is fairly compelling however, with the likes of Freetrade, eToro, Trading 212 and Revolut all now providing commission-free share buying and selling, it must be.
Robinhood is providing commission-free buying and selling of greater than 6,000 US-listed shares and ADRs (American Depository Receipts) with no international alternate charges and prospects will be capable to commerce across the clock and out of hours.
Vlad Tenev, Robinhood’s co-founder and chief government, factors out that, through the latest turmoil at OpenAI, plenty of prospects and market individuals had been tweeting screenshots from Robinhood of the share value of Microsoft – a serious investor within the AI enterprise and which provided its ousted (and later reinstated) chief government, Sam Altman, a job virtually instantly.
He advised Sky News: “We are offering those US stocks 24 hours a day, five days a week through our 24 hour market, we became the first major broker in the US to offer round the clock trading of individual named stocks.
“That’s a functionality that you simply will not discover elsewhere.”
He said that, over time, the ability to trade UK and European stocks on the platform would become available.
But perhaps the kicker is that the business will be offering customers an interest rate of 5% on any uninvested cash in their brokerage account.
That is something Mr Tenev clearly hopes will lure customers away not only from commission-free trading rivals – most of whom are relative upstarts in the industry – but also some sector’s established big guns such as Hargreaves Lansdown, AJ Bell and Interactive Investor, which is owned by the fund manager Abrdn.
It is also worth noting that Robinhood only offers an interest rate of that magnitude to its premium customers in the US.
The big profit question
One big question here is how Robinhood will be able to offer a proposition like this to UK customers and remain profitable.
In the US, it can offer commission-free trading by accepting payments from market-makers – the market professionals who quote two-way prices at which they will either buy or sell a security – to execute the trades made by its customers.
But this practice, known as “cost for order move”, is not allowed in the UK.
Mr Tenev’s response is that payment for order flow now only accounts for a small portion of Robinhood’s revenues in the US – perhaps because some US regulators have been pondering about the desirability of the practice.
He said: “If you have a look at Robinhood’s enterprise, truly, previously couple of quarters, we have diversified it tremendously.
“More than half of our revenue comes from net interest. And that’s through a number of offerings, we collect a small spread on the cash, even though we do offer 5% interest.
“We provide inventory lending, which shares curiosity generated by shares, prospects are holding of their account with prospects, but in addition generates income for the agency. So we have continued to diversify. And fairness is cost for order move, which you talked about, is true round 5% of our income.
“And we’ve been growing our revenues. So what we aim to do is, again, offer the best economics to our customers and make it clear to customers that they’re getting an unbelievable value proposition and experience with Robinhood.
“But in fact, the enterprise is sustainable. And we would function at thinner margins than the incumbents. But the enterprise nonetheless makes cash. We’ve demonstrated that and we’re persevering with to diversify it over time.”
Will the UK be keen about inventory buying and selling?
Another huge query is whether or not the UK will ever be as keen about inventory buying and selling as within the US.
Even there, transaction volumes have slipped in latest months as Americans have returned to the workplace, sporting occasions – a rival attraction for these considering punting slightly than investing – have resumed and the financial savings constructed up by households through the lockdowns have been run down.
If Robinhood can get Britons shopping for shares actively once more, will probably be thanked by Jeremy Hunt, the chancellor, who lately introduced plans for a doable provide of the federal government’s remaining shares in NatWest with the phrases “it’s time to get Sid investing again”, a reference to the profitable “Tell Sid” promoting marketing campaign in 1986 that persuaded greater than 1.5 million folks to put money into shares of British Gas when it was privatised by Margaret Thatcher’s authorities.
Robinhood has been criticised within the US for encouraging the “gamification” of buying and selling. The criticism reached a peak after a 20-year previous Robinhood buyer killed himself in June 2020 after operating up losses of $750,000 on the choices market.
Mr Tenev insists Robinhood has discovered from the expertise. The app now consists of many extra instructional assets geared toward serving to shoppers make investments extra knowledgably and to make extra knowledgeable selections.
Regulators shall be watching carefully, although, to make sure that buyers will not be being inspired to take reckless dangers.
Source: information.sky.com”