It’s a mobile solution that offers a cheap, easy way for users to invest in the stock market but the Robinhood trading app is achieving the kind of valuation growth most of its users can only dream of for their portfolios. The Californian fintech company Robinhood Markets has seen its valuation boosted by $2.6 billion in just a month after raising $200 million at a valuation of $11.2 billion.
The funding round comes just a month after the company raised $320 billion at an on-paper valuation of $8.6 billion – a capital gain of over 30%. Even Apple, which saw its valuation recently climb from $1.5 trillion to $2 million in just 49 days, netting a windfall for holders of its shares, is put to shame by that kind of value growth.
Robinhood’s trading app, which is not yet available in the UK despite months of speculation it may soon launch on these shores, is credited with attracting millions of mainly millennial investment beginners to dipping their toes into stock market trading. Founded in 2013 by Vladimir Tenev and Baiju Bhatt, the company claims to be “democratising finance”, by offering commission-free stock market trading.
In May Robinhood said it had 13 million users of its trading app in the USA. The latest investment round only involved one company, D1 Capital Partners, a technology investment vehicle that also has holdings in Google-parent Alphabet, Facebook and Netflix.
The company last month shelved plans to expand to the UK, saying that it had made the strategic decision to continue to focus on its domestic market. Around 250,000 Brits had signed up to a waiting list for the UK launch.
Despite being generally acclaimed as offering mainly young and inexperienced investors a launch pad to thinking about their financial future and introduction to sustained, long term investing, Robinhood has also endured recent controversy. The company was criticised after user committed suicide believing he had lost more than $730,000.
As well as traditional stock market trading, Robinhood also offers leveraged options trading. That allows investors to gamble on short-term market movements by multiplying the value of their cash stake using credit. If the trade comes off, that means profits are multiplied by the extent of the leverage used. But if it doesn’t and the financial instrument moves in the wrong direction to that expected, losses are similarly multiplied.
Robinhood has said that it will look into how it could make it more difficult for users to qualify for more sophisticated investment options suited to more experienced investors able to understand and manage heightened risk. Mr Tenev commented in a recent statement:
“We continue to be laser-focused on providing the best product and customer experience and democratising finance for all.”
The app’s no commission business model has, however, done much to ‘disrupt’, the retail investment sector, forcing more established rivals to respond to their challenge by cutting their own fees. The company instead makes money by selling its customers’ orders to high-frequency market makers, charging for margin loans on leveraged trading and investing cash balances sitting on user accounts.