Robinhood’s growth depends on the loyalty of the next generation of traders

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Robinhood has attracted a new generation of investors into the stock market. Its next challenge will be to capture successful customers.

The US-based broker went public last month, taking advantage of the massive demand for a commission-free application that makes stock trading so simple that it can be compared to a game. Robinhood’s stock price surged 50% last week in one day, The move triggered volatile “memetic stocks” such as GameStop, which are popular among its customers.

regardless Robin Hood The ability to attract stable, long-term investors is critical to its future income growth. But customers, analysts and competitors say it still has a long way to go.

The most important funds in the brokerage industry are “sticky” funds, meaning that brokers can count on long-term capital to stay on their platform, rather than losing or transferring in risky bets.

Asset accumulation is critical to the rapid growth that Robinhood’s institutional supporters bet on, especially in the prospect of a decline in trading volume, investors will find other things to do in the later stages of the financial crisis. Pandemic.

However, Robinhood may be difficult to get rid of and “Gamification“Investment. Customers interviewed by the Financial Times pointed out that Robinhood is where they play, while they hold larger and less active investments elsewhere.

“The money I have on Robinhood, I think’whatever happens, it will happen’,” said Nick Hogan, a Los Angeles entertainment manager who has been trading on Robinhood for a long time. “if [my investment] It collapsed, and it didn’t affect me much. It’s like the money you use in a casino. ”

Daniel Kaneb, an analyst with a natural gas company in Colorado, said that his use of “Robinhood is very interesting.” But he said that he used Boston-based fund manager and discount broker Fidelity, “for anything’real’, it’s like most of my mutual funds.”

“Fidelity’s institutional foundation makes it less…like a meme. I know it will appear tomorrow,” Kaneb said.

Other customers stated that they check their Robinhood account just like their accounts on a sports betting site, when they switch to stocks Live sports events cancelled At the beginning of the epidemic.

Some brokers reported that customers who saw that they were satisfied with the financial markets through Robinhood decided to add a more mature institution.

Thomas Peterfield, the founder and chairman of Interactive Brokers, told the Financial Times that he saw Robinhood invest a large amount of 50,000 to 100,000 US dollars in account transfers. “Every day we see about 10 accounts coming from Robinhood to Interactive Brokers. In a year and a half, I have only seen one person go the other way,” Peter Fei said.

Walter Bettinger, chief executive of discount broker Charles Schwab, told analysts last month that young clients may use a brokerage firm for certain types of transactions, “but they also have an account in Schwab, Their real money is there”.

Analysts said that Robinhood’s success with young investors and the surge in retail transactions have pushed a group of investors into the market, which the industry did not anticipate for the next 10 years. However, an industry analyst said, “When these young customers become richer, competition will occur.”

When Robinhood pushed the industry to reduce transaction commissions at the end of 2019, various income streams paid by customers, such as advice, savings products, and retirement plans, became more important for survival. Transaction-only platforms such as TD Ameritrade were quickly integrated.

The bar chart of Robinhood's customer base shows the average account size of major US brokers (USD)

Alois Pirker, head of wealth management research at Boston-based research company Aite-Novarica, said that diversified products “are a bet to see long-term capital develop your way.” Despite the great success in repopulating investment for young and low-income customers, “Robinhood has not taken any measures to achieve this effect. They are still very concerned about transactions,” Pique said.

Robinhood co-founder Vlad Tenev testify Speaking to the House Financial Services Committee in February, Robinhood’s average account size is about $5,000, while the median account size is only $240. The average account size of Schwab’s customers under 30 is five times that of US$25,000.

In ETrade, a Subsidiary According to data from research firm BrokerChooser, Morgan Stanley’s average account size exceeds $130,000.

For the three months ending March 31, as Robinhood criticized According to its initial public offering documents, during the rise of GameStop meme stock, due to its decision to stop trading during periods of high volatility, the broker lost more than $4.1 billion in assets from 206,000 accounts transferred on its platform. During the same period, the broker earned more than $12.5 million in fees by charging users to transfer accounts to other brokers.

Robinhood co-founder Vlad Tenev stated that the average account size of the broker is about $5,000 © Brendan McDermid/Reuters

Robinhood said: “Most of our customers are more willing to buy and hold,” adding: “Building a portfolio and making long-term investments has never been easier or more enjoyable.”

The broker pointed out that it stated in its introduction before and after the IPO that it is a “safety first” company and is investing to establish the stability of its platform and investor education.

Experts say that Robinhood has changed the market, and now almost all major brokerage companies offer commission-free trading. The question is whether Robinhood can change the market’s perception of it.

“The advent of Robinhood has made it very easy to conduct transactions via smartphones… But on the other hand, it all seems to be related to games,” said Itay Goldstein, professor of finance at the Wharton School of Business in Philadelphia .

He added: “Robinhood has the potential to enter a previously untapped market, but they must also avoid things that are not serious and out of touch with fundamentals.”

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