Robin Hood (HOOD) – Get Robinhood Markets Inc. Reports Something to worry about.
The brokerage, which wants to democratize finance and attract a new generation of investors, is facing a slowdown in trading volumes that is affecting the cryptocurrency market and the wider financial market.
As cryptocurrency prices tumbled, stocks hit a 40-year high on recession fears and the Fed raised interest rates to curb inflation, Gen Z, the brokerage’s pursuit, appeared to have suffered heavy losses.
Shares of Robinhood have halved this year and were last trading around $8.70. Shares hit $85 less than a year ago.
Whether and by how much things will improve for Robinhood is unclear as new competitors have entered its space.
Perhaps the strongest of these rivals has just emerged: FTX US, the U.S. subsidiary of cryptocurrency exchange FTX.com, co-founded by 30-year-old billionaire Sam Bankman-Fried.
FTX US has just announced that it will offer all users the opportunity to trade stocks on its platform. The service is open to all investors, whether they buy or sell cryptocurrencies. They will pay for the transaction.
“FTX Stocks is now live for US users!” FTX US President Brett Harrison tweeted. “Residents of all 50 states (yes, including New York!) as well as PR and USVI can enroll.”
“Trade hundreds of stocks and ETFs via the web (https://ftx.us/stocks) and the FTX US Pro mobile app,” he added.
The platform also plans to add options trading in the near term. This comes just days after Robinhood rolled out options trading on cash accounts for eligible users.
FTX US also said it would not accept controversial practices, such as order flow payment mechanisms or profit sharing mechanisms affecting Robinhood.
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This practice is unique to the U.S. market and allows trading outside the open market.
Basically, retail investors, high-frequency traders and institutional investors trade simultaneously in international markets. But in the U.S., retail orders can be traded privately with market makers, a structure designed to give retail investors better prices.
Robinhood and FTX US have a common holder
Traditionally, retail investors went to their brokers and said they wanted to buy and sell stocks of this and that. The stock is traded on an exchange where you can buy it for $5.02 or sell it for $4.96. These prices on the stock exchange are known as the best bid and ask prices in the country.
They are set by market makers and high-frequency electronic traders who are in the business of buying from sellers and selling to buyers.
The difference between the bid price (bid) and the ask price (bid) stems from what market makers say they are taking on risk by making these trades.
Retail brokers won’t send their clients’ orders directly to the stock market because they’ll face price competition from large institutional investors such as hedge funds. Instead, the broker pays the market maker, who executes the order and is supposed to get a better price for the client.
But for defenders of retail investors, such as the investor advocacy movement #WeTheInvestors (www.we-the-investors.org), there is a duopoly among market makers, which is bad for retail investors.
The SEC is investigating the practice.
The looming competition between FTX US and Robinhood is interesting as Bankman-Fried recently acquired 7.6% of Robinhood’s capital. Continued speculation cast doubt on whether the billionaire would try to acquire Robinhood.
“this [Robinhood] I think it’s an attractive investment, and the company has a lot of areas to grow and innovate,” Bankman-Fried told Axios in May.
He left the door open for a possible partnership with Robinhood.