Robinhood: when a stock market app goes public – Economics

When Robin Hood is mentioned, hardly anyone is likely to think about stocks. The avenger of the poor? This does not go well with the Ferris wheel called the financial market. But at least in the United States, the terms stocks and Robin Hood have entered into an astonishing symbiosis in recent months: a successful stock app that is now venturing to go public in the United States also operates under the name distinctive.

Robinhood wants to debut on the New York floor this Thursday, the company has raised up to $ 2.3 billion with its IPO. The app offers its users a clear promise: you can trade stocks with just a few clicks on your mobile phone – and on favorable terms as well. With such advertising slogans, the company has already attracted more than 22 million users to its platform, including many young shareholders who first opted for stocks during the corona crisis.

Like German low-cost brokers, Robinhood also relies on discounts in its business model: instead of handling customer orders itself, Robinhood forwards purchase orders to specialist trading houses with names such as Citadel or Virtu. These traders then obtain the corresponding shares; thanks to clever algorithms, they can sometimes even offer prices better than the “best price on the reference exchanges”.

But the economic model is more and more at the center of the concerns of the American supervisory authorities: the calculation of the “best price on the reference exchanges”, for example, makes it possible to ignore particularly small orders. In addition, some private investors see another conflict of interest. The Robinhood contracts broker Citadel is not only a securities trading house, the group also includes a hedge fund. Some investors are wondering if hedge fund managers are already aware of certain information about the order situation of private investors in the Robinhood app before other market participants.

The company made headlines in January when it suddenly stopped trading some stocks. The stocks that have made the buzz on the net, such as the titles of the video game distributor Gamestop or the AMC cinema chain, suddenly no longer have the possibility of negotiating with private investors. Experts suspected: the broker had to secure part of his clients’ transactions with so-called clearing houses with his own money – and ultimately get to safety.

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