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Home Markets

Robinhood plans to offer retirement accounts

by Rohit Yadav
July 25, 2021
in Markets, News, Tech, Trending
Reading Time: 2 mins read
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Robinhood NASDAQ

Robinhood on NASDAQ (Source: thestreet.com)

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In a webcast with users of its trading app wanting to join in its initial public offering, which is expected to price next week, CEO and co-founder Vlad Tenev said on Saturday that Robinhood Markets Inc is contemplating opening U.S. retirement accounts.

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On its platform, the online brokerage has around 18 million funded investment accounts, the majority of which are owned by regular traders.

Robinhood may reach a large market by offering individual retirement accounts (IRAs) and Roth IRAs, which provide tax benefits to people saving for retirement. According to the Investment Company Institute, Americans had $12.6 trillion in IRAs at the end of March, up 2.8 percent from the end of December.

Robinhood NASDAQ
Robinhood on NASDAQ
(Source: thestreet.com)

Because of the penalty for withdrawing funds, IRAs are more suited to long-term investments than the day-to-day trading of stocks, options, and cryptocurrencies that some users use Robinhood for.

“We find indications that the bulk of our clients are basically purchase and hold,” Tenev stated in his webcast.

Robinhood, which is aiming for a $35 billion value in its IPO, has stated it will give 20% to 35% of the shares to its customers, which is an uncommon step for such a high-profile sale. Because the retail investors Robinhood has solicited are excluded and must buy shares on the open market, many IPOs see a spike in first-day trading volume.

Earlier this year, Robinhood introduced its IPO Access platform, which allows customers to participate in other businesses’ initial public offerings (IPOs) provided it can negotiate arrangements with the investment banks managing them.

Facing a Boycott?

On Reddit and other social media, some individual investors are advocating for a boycott of Robinhood’s IPO due to the company’s handling of the January’meme’ stock-trading craze. On the basis that it was essential for the financial and operational health of its platform, Robinhood put limits on buying GameStop Corp and other companies that hedge funds had bet against.

In a webcast on Saturday, Tenev stated that Robinhood has made investments in the reliability of its platform in order to avoid a repeat of the disaster.

The Rise to fame

Over the last 18 months, Robinhood’s popularity has surged as a result of coronavirus-induced social constraints that have kept many retail investors at home. Its stated aim is to “democratise finance for all” by letting users to trade equities, exchange-traded funds, options, and cryptocurrencies without paying a fee.

The brokerage has been chastised for generating the majority of its revenue through “payment for order flow,” in which it gets fees from market makers in exchange for routing transactions to them but does not charge customers for individual deals.

Robinhood co-founders to receive stocks
Image Credits: Robinhood

Critics claim that the technique, which is employed by many other brokers, presents a conflict of interest since it encourages brokers to deliver orders to the person who pays the highest fees. Robinhood claims that it directs transactions based on what is the most cost-effective for its consumers, and that collecting a commission would be prohibitively expensive.

Jason Warnick, Robinhood’s chief financial officer, left the door open for the business to modify its policy if required.

According to a filing with the stock exchange, Robinhood was formed in 2013 by Stanford University roommates Tenev and Baiju Bhatt, who will own roughly two-thirds of the voting power following the sale.

After the presentation, Robinhood client Minjie Xu, a software developer in Missouri, was disappointed, citing worries that the service was expensive.

Tags: IPOIRAsRetirement accountsRobinhood
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Rohit Yadav

Hi! I'm Rohit, If you like reading about markets, technology and business, you've come to the right place. Catch me: [email protected]

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