Robinhood IPO
Get exposure to Robinhood – both before and after its initial public offering (IPO) – with the world’s leading provider of CFDs.1
Start trading today. Call +44 (20) 7633 5430, or email sales.en@ig.com to talk about opening a trading account. We’re here 24/5.
Contact us: +44 (20) 7633 5430
Start trading today. Call +44 (20) 7633 5430, or email sales.en@ig.com to talk about opening a trading account. We’re here 24/5.
Contact us: +44 (20) 7633 5430
Why trade Robinhood's IPO with IG?
With us, you can trade Robinhood’s IPO before the company lists using our exclusive Robinhood grey market. Once the IPO is complete, you can also buy and sell the company’s shares with CFDs2. But, bear in mind it can take a few hours for US stocks to become available on the day of their IPO.
Trade pre-IPO
Take a position on Robinhood before it lists with our exclusive grey market3
Speculate on Robinhood
Open a position on the future price of Robinhood shares using CFDs
Trade on margin
Gain full exposure with a small initial deposit, but remember that with leverage comes increased risk
What's on this page?
What's on this page
How to trade the Robinhood IPO
Seize your opportunity on the award winning web-based platform and mobile trading app:
- Before the listing
- After the listing
Before the listing
Trade Robinhood ahead of its listing with our exclusive grey market. The price reflects what our clients expect Robinhood’s market cap to be at the end of its first trading day.
With the Robinhood grey market, you’d:
- ‘Buy’ (go long) if you think the market cap will be higher than the price indicated
- ‘Sell’ (go short) if you think the market cap will be lower than the price indicated
After the listing
Get exposure to Robinhood shares in the same way as any other listed company on the stock market by speculating on share price movements using CFDs
Trading the Robinhood IPO
Trading in Robinhood shares
When you trade Robinhood shares with us, you’ll use CFDs to speculate on the stock’s future price movements. You won’t take ownership of the underlying assets when trading, which means you can speculate on both rising and falling prices and, in some countries, get various tax benefits.4
Plus, you’ll only need a small deposit – known as margin – to open your position, while still getting exposure to the full value of the trade. It’s important to note that while leveraged trading can magnify your profits, it can also magnify your losses. This makes it important to manage your risk appropriately.
Open a share trading account - apply today
Open a share trading account - apply today
Fast execution on a huge range of markets
Enjoy flexible access to more than 17,000 global markets, with reliable execution
Deal seamlessly, wherever you are
Trade on the move with our natively designed, award-winning trading app
Feel secure with a trusted provider
We have over 45 years of experience offering a truly market-leading service
*IG Group’s total markets
Open a share trading account - apply today
Open a share trading account - apply today
Fast execution on a huge range of markets
Enjoy flexible access to more than 17,000 global markets, with reliable execution
Deal seamlessly, wherever you are
Trade on the move with our natively designed, award-winning trading app
Feel secure with a trusted provider
We have over 45 years of experience offering a truly market-leading service
*IG Group’s total markets
When could the Robinhood IPO happen?
The Robinhood IPO could take place in the second quarter of 2021. Robinhood stated that the IPO is expected to happen after the Securities and Exchange Commission (SEC) completes its review process, if market and other conditions permit.
Our analysis on the Robinhood IPO
By Sam Dickens
Background
Robinhood is a US stock trading app thought to be used by around 20 million investors. Launched in 2013, Robinhood have managed to entice the next generation of US share traders by offering zero commissions, an easy-to-use app and fractional share dealing.
While Robinhood’s growth has impressed, they have also singlehandedly forced other US brokers to slash commissions to zero in order to remain competitive. This has led to a number of monster mergers between some of the largest brokers and banks in the US market.
In October 2020, Charles Schwab purchased TD Ameritrade to create a company with over $6 trillion in client assets and 28 million accounts. At the same time, Morgan Stanley acquired E*TRADE to create a wealth platform with $3.3 trillion in client assets.
Revenues
Instead of generating revenue from trading commissions, Robinhood makes money through some “behind the scenes” activities.
A major source of revenue is known as payment for order flow (PFOF), where a broker directs client trades to an off-exchange trading venue in return for a fee. This practice is banned in the UK and Europe as it creates a conflict of interest as firms are thought to be incentivised to direct client trades to the venue providing the biggest kick-back instead of ensuring the client receives the best price available.
Another way Robinhood earns money is by investing client cash in money markets to earn a small yield. However, with the Federal Reserve slashing its policy rate to zero in the wake of the coronavirus pandemic, the revenue opportunity here has diminished.
The combination of zero interest rates and the inability to receive a kick-back on order flow saw Robinhood pull plans to launch in the UK last year.
Other sources of revenue include margin lending, its premium “Gold” service (which gives users additional benefits for $5 a month) and securities lending, where it loans a client’ stock to a third party who wishes to short the short in exchange for a fee.
Valuations
Since 2013, Robinhood has raised over $5.6 billion, which fuelled its tremendous growth. And while many industries have suffered during the pandemic, Robinhood and other investment platforms have seen a surge in demand as retail investors piled into the stock market, betting on a market recovery.
It is therefore no surprise that Robinhood plans to capitalise on this stock market exuberance through their initial public offering (IPO), which is expected to happen in the second quarter of 2021.
Investors will have to wait to see what valuation will be given to the company, but it will likely be in excess of the $11.7 billion price tag it was given in its latest funding round in September 2020 – which raised $460 million. Latest reports suggest the company may achieve a $40 billion valuation.
Although a number of mergers in the industry have diminished the pool of competitors, the table below compares Robinhood to a few other US investment platforms using April 2021data.
| Valuation | Revenue (2020) | Customers | Client assets | |
| Charles Schwab | $121.4 billion | $11.691 million | 31.5 million | $6.9 trillion |
| Interactive Brokers | $31.4 billion | $2.218 million | 1.2 million | $71.5 billion |
| Robinhood | $11.7 billion | $682 million* | 13 million | $20 billion |
Source: SEC filings, IG.
*IG estimate. Robinhood generated $682 million from payment for order flow in 2020 which is estimated to make up around 50% of total revenue.
A $12 billion valuation prices Robinhood close to the amount Morgan Stanley paid for E*TRADE, which had fewer clients than Robinhood but 30 times the client assets.
But Robinhood has already managed to beat other brokerages in trading activity, which has helped fuel its trading revenue. In June 2020, Robinhood took $4.3 million daily average revenue trades (DARTs) compared to TD Ameritrade’s $3.8 million, Interactive Brokers’ $1.9 million, Charles Schwab's $1.8 million, and E*TRADE's $1.1 million.
Whether this is sustainable is another question, as market volatility is likely to return to more normal levels which will reduce levels of client acquisition and trading activity.
What’s more, the market values transactional revenue far lower than annuity-based revenue given their volatile nature. While Robinhood’s expected revenue growth may warrant a higher price multiple compared to other brokers, its reliance on trading revenue should offset this somewhat.
Future challenges
Although its client base is highly active, a major challenge for Robinhood will be encouraging people to entrust it with a larger part of their investing wallet. At present, it has an estimated average client balance of around $1,500 - a fraction of competitors, such as Charles Schwab, have an average of $135,000.
This trust is difficult to build and the company has not helped itself in the way it has positioned its app at the lower end of the market but offers the same complex products that more informed investors may use.
Robinhood also suffered a number of major outages recently as the app was overwhelmed during the coronavirus pandemic which has led to several investor lawsuits.
Robinhood also faced a civil fraud investigation last year over its failure to disclose its payment for order flow practice. Robinhood chose to settle with the Securities and Exchange Commission, paying a $65 million fine in December 2020.
What is Robinhood's business model?
Robinhood is a discount brokerage, which offers commission-free trading. It now boasts a customer base of over 13 million investors. It’s estimated that the firm generated approximately $180 million from trades in Q2 2020. Robinhood’s commission-free trading app has a sleek and simple user interface, which has attracted novice and tech-savvy investors alike, but it has particularly struck a chord with the vast majority of younger investors – the company’s average client is 31 years old.
Robinhood generates most of its income from payments for order flow – a practice where the firm receives compensation for directing orders to different parties, usually market makers. Payment for order flow is typically paid on a per share basis. However, Robinhood receives a fixed rate per spread which is higher than the average rate the other major brokers receive.
What's the outlook for Robinhood stock?
Robinhood has so far experienced rapid growth – increasing from 100,000 users in 2013 to 13 million users today. If the company does IPO, it has an estimated valuation of $11.7 billion.
However, as share trading commissions were drastically reduced by major online brokers throughout 2020, the speed of Robinhood’s growth has slowed – the company is no longer the stand-out, cheapest competitor. This could prevent share price growth over the long term if Robinhood doesn’t expand into other markets, although it’s client base is extremely loyal to the firm and as yet it hasn’t failed to raise capital in funding rounds.
Robinhood has also faced issues over its execution services, which could stunt any widespread adoption by more experienced investors. While most brokers have best execution practices, which they charge a commission for, Robinhood’s execution was far more simplistic – it reached out to whichever market makers had the cheapest and lowest costs. In fact, the Financial Industry Regulatory Authority (FINRA) fined Robinhood $1.25 million for failing to direct trades so that its customers received the best prices.
Without fixing these issues, it’s unlikely that Robinhood will compete with the major players and steal market share for professional clientele. But in terms of the millennial investors, Robinhood remains a firm favourite.
Get the latest IPO news
FAQs
What are grey markets and how do they work?
Grey markets enable traders to get exposure to a company before it lists on a stock exchange. When you decide to trade the grey market, you’re trading on the estimated market valuation of a company. The final valuation will only be known after the first day of trading – and it is based on the demand shown by the market that day.
So, if you think a company’s market cap will be higher than the grey market price, you’ll ‘buy’. If you think it will be lower than the grey market price, you’ll sell.
Where can I find the Robinhood grey market?
You can find the Robinhood IPO grey market in the ‘popular markets’ watchlist on our platform. Our exclusive grey market is the only way you can trade Robinhood before its listing.
Could I profit from the Robinhood IPO?
You could profit from the Robinhood IPO. Before the listing, you could take advantage of our exclusive grey market price – which moves to reflect expectations for the company’s market cap at the end of its first trading day. You’d profit if you correctly predict the direction of market movement. If your prediction is incorrect, you’d take a loss.
After the listing, you could make money by speculating on Robinhood shares using CFDs – you’d only profit if your prediction of the future share price movements were correct. So, you’d take a loss if your prediction is incorrect.
How do IPOs work?
An IPO occurs when a company decides to start selling its shares to the public. Most companies list shares to raise capital to fund expansion, pay debts, attract and retain talent, or monetise assets.
First, an audit must be conducted – considering all aspects of the company’s financials. Then, the business has to prepare a registration statement to file with the appropriate exchange commission. If approved, the company will list a defined number of shares at a price set by an investment bank. The shares will be available for sale through the chosen stock exchange.
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1 Based on revenue (published financial statements, October 2023).
2 Stock may take a few hours to be available to buy and sell on the day of listing for US IPOs.
3 We do not offer grey markets on all IPOs.
4 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
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