Before Robinhood, anyone who wanted to invest in stocks would be charged between $5 to $10 a trade. They also needed to invest a minimum of $500 to open an account.
Vladimir Tenev and Baiju Bhatt (co-founders) had previous experience building these systems and saw the extraneous costs as little more than gatekeeping people out of investing.
“We are not setting any account minimums, which we think unlocks a market of investors who couldn’t do this before,” said Bhatt to CNBC at launch. “We see Robinhood as unlocking the microinvestor market.”
Robinhood was popular even before launch. In 2014, 340,000 people had signed up to the app’s waitlist, by March 2015 (a month before it launched), that figure had doubled to 700,000. Fans from Europe, Australia and South America filled Robinhood’s forums, pleading for the app to launch in their country.
That dedication has remained, despite most of the stockbroking apps lowering minimum deposit and commissions, in some cases to zero, to entice younger users.
Even though Robinhood advertises itself as a “free” app, it still generates income through a process called payment for order flow. Essentially, when a person trades on the app, Robinhood sends that trade to a larger entity, which is able to leverage thousands of orders at once for a slight advantage. The larger entity then compensates Robinhood for the orders.
This process has received some criticism, especially after Robinhood halted trades of GameStop and BlackBerry stock. Investors accused Robinhood of bowing to pressure from the market makers who execute the larger trades.
Payment-for-order-flow is also controversial as it incentivises Robinhood to find the highest bidder, not the leader who will execute the trade fastest. Robinhood generates around 50 percent of its revenue from the practice.
The company generates the other 50 percent of its income from account interest and Robinhood Gold, which lets users trade on margin, make larger deposits and access professional reports from Morningstar.
Robinhood seems unconcerned with growing internationally, it cancelled plans for the UK and Australia in 2020. Several free-trade accounts have emerged in both countries, Robinhood would also struggle to generate as much revenue as payment-for-order-flow is banned in the UK.
Robinhood added cryptocurrency trading in 2018, which includes all of the major currencies like Bitcoin, Ethereum, Dogecoin and Litecoin.
In January 2021, Robinhood was at the centre of Reddit’s /r/WallStreetBets battle against hedge funds. Thousands of activist investors bought GameStop stock, forcing a “short squeeze” on the hedge funds. Robinhood suspended trading of GameStop stock for a few days, which caused a wave of backlash against the startup, as the move was seen as appeasing Wall Street.
We’ve collected data and statistics on Robinhood, including its users, revenue, transactions and competition. Read on below to find out more.
Robinhood key statistics
- Robinhood generated $682 million in payment-for-order-flow revenue in 2020, a 514 percent increase year-on-year
- It added $3.4 billion to its balance sheet during the GameStop stock squeeze, after suspending trades for a week (TechCrunch)
- In May 2020, Robinhood revealed it had 13 million active users (NYT). We expect that number has climbed to 20 million
- It was recently valued at $20 billion pre-IPO, although secondary shares have valued the company at $40 billion (Quartz)
- Robinhood user average age is 31 (NYT), which is an increase of five years since the app launched in 2015 (WSJ)
|Launch date||18 April 2013|
|HQ||Menlo Park, California|
|People||Vladimir Tenev and Baiju Bhatt (co-CEO’s), Jason Warnick (CFO), Gretchen Howard (COO)|
|Industry||Stockbroker and cryptocurrency|
*2015 to 2018 only covered payments-for-order-flow, which accounted for between 55 to 75 percent of Robinhood’s revenue in those years
Robinhood competitors and alternatives
|E-Trade||Offers a large variety of investable securities, but still has a commission fee. Purchased by Morgan Stanley for $13 billion in 2020|
|Charles Schwab||Similar to E-Trade, but recently reduced most commissions to zero to compete with Robinhood|
|Freetrade||Robinhood’s closest alternative in the UK, although it doesn’t use payment-for-order-flow|
|eToro||Another popular trading broker with younger generation, popular across Europe|
|Coinbase||Robinhood’s main competitor in the cryptocurrency market|
Robinhood assets under management vs competitors
|TD Ameritrade||$1.3 trillion|
|Charles Schwab||$3.8 trillion|
* Assets under management means the total market value of all investments a company holds.
Robinhood average account size vs competitors
How does Robinhood make money?
Robinhood makes most of its revenue through a process called payment-for-order-flow. Large entities, called market makers, execute hundreds of thousands of Robinhood trades at once and pay them for it.
Who owns Robinhood?
DST Global, Sequoia Capital, D1 Capital Partners, IVP, TSP Consumer Partners and Ribbit Capital have all lead investment rounds in Robinhood, although it is unclear how much each venture capital firms owns. Robinhood co-founders Vlad Tenev and Baiju Bhatt both maintain some ownership of the app, although until the IPO, we will not know how much.
When is Robinhood going public?
Robinhood intends to IPO on March 31, 2021, according to Pitchbook.