Robinhood users split over whether they would pay a fee to trade, poll finds
The markets have changed trading in stocks by offering trading in stocks and cryptocurrencies with no upfront fees. Mizuho analyst Dan Dolev is now wondering what happens if the company starts charging fees.
To find out, the analyst surveyed more than 200 Robinhood users. The results have been mixed for Robinhood. A large portion of users were undecided as to whether they would leave the platform, according to the survey. For the rest, a slightly higher portion would remain even if they had to pay fees – and even more would remain if Robinhood’s competitors also charged fees.
First of all. Robinhood has not announced its intention to charge a fee, and there is currently no reason to believe the company will. He made a lot of money without charging users, mainly by sending client orders to high frequency traders who pay Robinhood to execute them, a practice known as payment for order flow. Robinhood has already made over $ 1 billion in revenue in the first half of the year.
But payment for the order flow can be compromised. Securities and Exchange Commission Chairman Gary Gensler said Barron in August that the ban on payments is “on the table”. These payments represent 80% of Robinhood’s income, so the company should find a way to replace that money.
Dolev surveyed 225 Robinhood users who trade in stocks. When asked if they would stay with Robinhood even if there was a fee, 32% said they would likely stay, 40% were undecided, and 28% said they would likely leave. Mizuho then asked people who said they would leave if their answer would stay the same even if other apps were charging a fee as well. Of that group, 40% (or 25 of those surveyed) said they would always leave, while 19% would stay and 40% were undecided. In total, 11% of total users would leave if Robinhood and other brokers added fees.
Asked whether he would charge a fee or commission if payment for order flow was banned, Robinhood highlighted comments from executives on plans to diversify its revenue streams. In an interview with Barron Responding to Gensler’s comments, Robinhood General Counsel Dan Gallagher said he believed multiple brokers would earn commissions if payment for the order flow was banned.
“The idea of banning it is pretty draconian, especially since it’s the income that allows us to provide commission-free transactions with no minimum balance,” said Gallagher. He expects commissions to return “for certain brokers” if the SEC forbids it.
One positive thing for Robinhood that the survey showed is that users of the platform also like other attributes of the site beyond the lack of commissions (which all of the other big brokers now offer as well), Dolev wrote. .
“In this regard, we were encouraged to find that ‘free trade’ was ranked only second (36%) behind ‘ease of use’ (41%) as the most important virtue, along with the quality of interface (16%) and brand confidence (7%) ranking lower, ”Dolev wrote.
Dolev is pricing the Robinhood stock (ticker: HOOD) at Buy with a price target of $ 68. Shares rose 3.2% on Tuesday to $ 42.25.
Write to Avi Salzman at firstname.lastname@example.org