Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Robinhood IPO

Get exposure to Robinhood before and after its initial public offering (IPO) – with the world’s No.1 provider of CFDs and spread bets.1

Start trading today. Call 0800 195 3100 or email newaccounts.uk@ig.com. We’re here 24 hours a day, from 8am Saturday to 10pm Friday.

Contact us: 0800 195 3100

Start trading today. Call 0800 195 3100 or email newaccounts.uk@ig.com. We’re here 24 hours a day, from 8am Saturday to 10pm Friday.

Contact us: 0800 195 3100

Why trade Robinhood's IPO with IG?

Trade pre-IPO

Take a position on Robinhood before it lists with our exclusive grey market

Speculate on Robinhood

Open a position on the future price of Robinhood shares using spread bets and CFDs

Buy Robinhood stock

Take ownership of Robinhood stock with a share dealing account or tax-efficient ISA2

Robinhood IPO: How to buy Robinhood shares

  • Before the listing
  • After 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’ if you think the market cap will be higher than the price indicated
  • ‘Sell’ if you think the market cap will be lower than the price indicated

What is a grey market and how does it work?

Sell
Buy
Updated
Change

Get exposure to Robinhood shares in the same way as any other listed company on the stock market by:

Trading vs investing in Robinhood shares

When you trade Robinhood shares with us, you’ll use spread bets or 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 get various tax benefits.2

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.

When investing in Robinhood shares via us, you’ll use a share dealing account or tax-efficient ISA.2 You’ll pay the full value of your investment upfront, taking ownership of the underlying asset. You’ll profit if the share price goes up or if the company chooses to pay dividends.

Learn more about buying and trading stocks

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Open a share trading account in minutes

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Deal seamlessly, wherever you are

Trade on the move with our natively designed, award-winning trading app

Feel secure with a trusted provider

With 45 years of experience, we’re proud to offer a truly market-leading service

Open a share trading account in minutes

Open a share trading account in minutes

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

With 45 years of experience, we’re proud to offer a truly market-leading service

Start trading now

Log in to your account now to access today’s opportunity in a huge range of markets.

Start trading now

Log in to your account now to access today’s opportunity in a huge range of markets.

When could the Robinhood IPO happen?

The Robinhood IPO could take places as early as the first quarter of 2021, as it has been reported that the company is seeking bank advisors.

However, the company has not yet publicly confirmed its timeline or presented a public filing. Given the number of issues the company has faced recently – power outages and fraud investigations – Robinhood could choose not to list yet.

Our analysis on the Robinhood IPO

By Sam Dickens

Background

Robinhood is a U.S. stock trading app now used by over 13 million investors. Launched in 2013, Robinhood have managed to entice the next generation of U.S. 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 U.S. 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 U.S. market.

In October, 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”, where a broker directs client trades to an off-exchange trading venues in return for a fee. This practice is banned in 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. In the first half of 2020, Charles Schwab, E*TRADE and TD Ameritrade made $127m, $205m and $560m, respectively. 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.

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 have raised over $2.2 billion fuel 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 plan to capitalise on this stock market exuberance by initiating their initial public offering (IPO), which is thought to be as soon as the first 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 it its latest funding round in September 2020 when it raised $460 million.

Although a number of mergers in the industry has diminished the pool of competitors, the table below compares Robinhood to a few other U.S. investment platforms with the latest data available.

Valuation Revenue (Q2 2020) Accounts Client assets
Charles Schwab $93.4 billion $2,450 million 28 million £3.8 trillion
E*TRADE $13.0 billion $716 million 5.2 million $600 billion
Interactive Brokers $22.6 billion $539 million 1 million $71.5 billion
Robinhood $11.7 billion $360 million 13 million $20 billion

Source: Bloomberg, SEC filings, IG.

*IG estimate. Robinhood generated $182 million from Payment for Order Flow in Q2 2020 which is estimated to make up around 50% of total revenue. We have used Q2 revenue as a comparison as this is the latest available estimate for Robinhood and was the last quarter E*TRADE reported revenue before being bought by Morgan Stanley.

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, 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 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 who has 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.

And the bad news doesn’t stop there. Robinhood also faces a civil fraud investigation over its failure to disclose its Payment for Order Flow practice. If Robinhood choose to settle with the Securities and Exchange Commission, it may have to pay a fine exceeding $10 million.

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 are 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.

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FAQs

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.

Yes, you could make money 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.

After the listing, you could make money by speculating on Robinhood shares using spread bets or CFDs – you’d only profit if your prediction of the future share price movements were correct. Alternatively, you could buy Robinhood shares outright and sell them at a later date for profit, if the share price rises.

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.

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.

Learn more about how IPOs work

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1 Based on revenue excluding FX (published financial statements, June 2020).
2 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.