Robinhood (NASDAQ:HOOD) is now facing a new trading investigation after the company won its case over the manipulative ‘meme stock’ halts.
The 11th U.S. Circuit Court of Appeals in Atlanta ruled 3-0 in its favor regarding the trading restriction of 13 meme stocks back in 2021.
These stocks included AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME), and Bed Bath & Beyond (OTCMKTS:BBBY), among others.
In a proposed class action, shareholders of the 13 stocks alleged that they suffered damages because they were restricted from trading.
Now Robinhood Markets says it’s being investigated for its trading execution, the latest in a string of regulatory and legal proceedings faced by the online brokerage.
“The New York Attorney General is conducting an investigation into brokerage execution quality. We are cooperating with this investigation,” Robinhood said in a recent filing.
Robinhood previously settled a New York state probe into its cybersecurity and anti-money-laundering practices and paid a $30 million fine. The company has also:
Paid $65 million to settle a Securities and Exchange Commission charge that it didn’t sufficiently disclose its business deals with high-speed trading firms
Paid $70 million to settle multiple allegations from the Financial Industry Regulatory Authority, including investigations into options trading and technology outages.
Agreed to pay $10 million to resolve a multistate investigation into allegations that it harmed retail investors, including by failing to supervise technology that resulted in outages and locked millions out of trading in March 2020.
On social media, retail investors argue that Robinhood’s victory over the ‘meme stock’ halts has been a major injustice to investors worldwide.
“The online brokerage has faced heightened regulatory scrutiny during the past several years. In March 2020, several service outages prevented its customers from trading. Then, in early 2021, the so-called meme-stock frenzy spurred the brokerage to restrict trading,” says Bloomberg.
Robinhood said in the Thursday filing that it’s paid about $175 million in the past few years to resolve actions brought by the Securities and Exchange Commission, the Financial Industry Regulatory Authority and several state regulators.
Other Recent Robinhood News
Robinhood active users have now declined by a whopping 3,200,000 this year according to the company’s latest report.
As a result, transaction-based revenue declined 5% in the second quarter.
Monthly active users also decreased to 10.8 million, one million fewer compared to the previous quarter and 3.2 million fewer than the year prior per Reuters.
Earnings per share in the second quarter were $0.03, beating analysts’ average estimate of a loss of $0.01, according to Refinitiv data.
“We’ve been talking about for the last several quarters how we want to be lean and scrappy from a cost perspective, and we’ve been keeping our eye on that very closely,” Jason Warnick, Robinhood’s chief financial officer, told reporters.
Robinhood (NASDAQ:HOOD) stock fell more than -6% on Thursday based the decline in users report.
“The company reported higher second-quarter revenue on Wednesday as interest rates continued to increase the online brokerage’s interest income, achieving profitability for the first time as a public company even as it saw fewer users.
Net interest revenue soared 243% to $442 million in the second quarter compared to a year earlier, as the brokerage’s margin investing business benefited from the U.S. central bank’s monetary policy tightening campaign to combat decades-high inflation.”
Mizuho Americas Senior Financial Technology Analyst Dan Dolev says Robinhood could be the next Charles Schwab.
“I’m actually seeing results being very, very strong and, to me, that’s more important than a data point on users,” Dolev says of Robinhood’s second quarter results.
Robinhood (NASDAQ:HOOD) will launch a new 24-hour trading service next week, making the company the “first brokerage to enable customers to trade individual stocks at their convenience — 24 hours a day, 5 days a week.”
The announcement came after the company laid out the goal of 24/7 trading recently.
Under the new 24-hour market, Robinhood would offer trading from 8 p.m. ET Sunday to 8 p.m. ET Friday for 43 securities, according to a report from the Wall Street Journal.
The new trading will roll out next week with all customers expected to have access by June.
Stocks confirmed to trade will be Apple, Amazon, and Tesla stock.
Robinhood has also applied for a Futures Commission license in March and expects to launch futures trading by the end of 2023 if approved.
“It’s the next step in evolving the market to how it should work, which is 24/7, and more like a piece of software rather than a brick-and-mortar institution that’s tied to U.S. east coast working hours,” Vlad Tenev told the WSJ.
“We’re continuing to ship aggressively, increase customer satisfaction, and deliver strong financial performance on the path to GAAP profitability.”
The company is hoping to gain some increased engagement from investors it had during the COVID-19 pandemic, according to the report.
Latest Robinhood News 2023
Robinhood (NASDAQ:HOOD) is currently being sued in a class action lawsuit by Klafter Lesser LLP, Pessah Law Group, and PC and Chelin Law Firm in California.
The firms are seeking to represent investors who held call options on the Robinhood trading platform as of the close on January 27, 2021 to purchase any of the following stocks:
American Airlines Group Inc. (NASDAQ:AAL), AMC Entertainment (NYSE:AMC), BlackBerry Limited (NYSE:BB), Bed Bath & Beyond Inc. (NASDAQ:BBBY), GameStop Corp. (NYSE:GME), or Nokia Corporation (NYSE:NOK).
The latest Robinhood class action lawsuit alleges that on January 28, 2021, Robinhood prohibited purchases of the stocks underlying the affected options on its platform and also prohibited purchases of the exercise of the affected options, and only allowed the closing out of such positions.
The lawsuit further alleges that during the period January 29, 2021 through February 4, 2021, Robinhood imposed significant limits on any purchases and continued to prevent the exercise of the affected options on its trading platform.
Consequently, the value of the affected options dropped dramatically and remained suppressed throughout the month, causing investors to suffer big losses, says the press release.
Robinhood might also have another lawsuit coming their way from AMC Entertainment.
The trading platform falsely published information stating the movie theatre company had filed for bankruptcy.
Macroaxis is giving Robinhood (NASDAQ:HOOD) a 74% probability of bankruptcy based on their analysis of the company’s current fundamentals.
Robinhood Markets probability of bankruptcy is used to show its chance of financial distress over the next two years of operations under current economic and market conditions.
As of May 4, 2023, EBITDA is expected to decline to about (1 B).
“Our calculation of Robinhood Markets probability of bankruptcy is based on Altman Z-Score and Piotroski F-Score, but not limited to these measures.
To be applied to a broader range of industries and markets, we use several other techniques to enhance the accuracy of predicting Robinhood Markets odds of financial distress.
The Probability of Bankruptcy SHOULD NOT be confused with the actual chance of a company to file for chapter 7, 11, 12, or 13 bankruptcy protection.
Macroaxis simply defines Financial Distress as an operational condition where a company is having difficulty meeting its current financial obligations towards its creditors or delivering on the expectations of its investors.”
Based on the latest financial disclosure, Robinhood Markets has a probability of bankruptcy of 74%.
This is 82.9% higher than that of the Capital Markets sector and significantly higher than that of the Financials industry.”
Robinhood Bankruptcy News
Recently, Robinhood falsely noted on its trading platform that AMC Entertainment had filed for bankruptcy.
“What the DUCK !!!!! I am getting multiple reports that Robinhood briefly posted today that AMC filed for bankruptcy.
How can companies like Robinhood do this?
So ludicrous, so wrong, so irresponsible.
On Friday, we report Q1 earnings, and will announce our sizable cash position,” said AMC CEO Adam Aron in a statement on social media.
The CEO even ran a poll suggesting suing Robinhood where more than 26,000 people supported the action.
Macroaxis has given AMC Entertainment a 10% less chance than that of Robinhood to file for bankruptcy.
Will Robinhood go bankrupt?
I personally doubt it, but the analysis conducted by Macroaxis is interesting nonetheless.
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Robinhood is an online investing platform that offers commission-free stocks with high-yield cash management offerings.
This popular stock market trading app does not charge commission for stocks and cryptocurrency trading.
Robinhood, the financial technology company offers trading in stocks, ETFs, other options, and cryptocurrency.
Moreover, this online brokerage provides web and mobile-based services which will allow you to invest and trade easily.
Additionally, the mobile-based services of this platform have made it stand out from its other competitors.
You may be wondering about many questions arising in your head about Robinhood & Robinhood stock.
Here in this article, you’ll find the answers to your queries and get to know all the details about this popular online brokerage like- How does it make money, the pros & cons of Robinhood, Robinhood stock price, the behavior of Robinhood in cryptocurrency & its future, and benefits of long-term investing in stocks & cryptos.
With more than 13 million users, Robinhood is the best platform for active investors or younger investors who want commission-free trading and investing on mobile.
If you want to invest in cryptocurrencies like Bitcoin, Ethereum, Dogecoin, you can use this mobile and web trading platform to invest long term.
Apart from it, Robinhood (a popular stock trading app) went public in July 2021 and its share price was set at $38 for IPO (Initial Public Offering).
Also, Robinhood was listed on the Nasdaq stock exchange under the symbol “HOOD.”
Recently, Robinhood’s CEO Vlad Tenev said that the company is planning to release the feature that allows customers to trade stocks outside of market hours.
The company named this feature, “Hyper-extended hours.”
According to Bloomberg, Robinhood stock is the favorite stock of Cathie Wood’s ARK funds and they’re purchasing the stocks every week since October 2021.
Last week, ARK Funds have bought about 2.45 million shares of Robinhood markets.
Robinhood Business Model- How the company generates income
With no minimum and no fees for trading in stocks, cryptos, and ETFs, the company has to generate income as a business to be sustainable.
This online brokerage makes money from market makers and some other ways.
Here are the ways through which the company generates revenue.
Payment for Order Flow
In 2021, the company generated 75% revenue through the process payment for order flow (PFOF), in which the company directs their customer’s orders equity and options to a particular market maker and the company receives payment for this compensation.
Hence, PFOF is the major income stream for the company.
Payment for order flow unfortunately plays against retail investors.
The SEC has talked about banning the practice since it allows market makers to manipulate the stock prices.
Stock Loan Income
Robinhood generates revenue by lending margin securities to counterparties.
Furthermore, the company keeps all money it generates from lending your stock and does not share it with you.
This is a big problem because large financial institutions make more money from the user while orders are processed through dark pools.
Borrowing Uninvested Cash
Robinhood generates income by borrowing uninvested cash and depositing this cash in interest-bearing accounts.
Membership Fees for Robinhood Gold
Robinhood Gold program is a paid subscription service that allows users to benefit from premium features like margin trading, Level II Market Data, professional research, and enhanced quick access to deposits.
It is also one of the income sources of the company.
Robinhood Gold costs $5 per month.
Also, it gives a free trial of 30 days.
What can you invest in on Robinhood?
Robinhood is a popular trading platform that allows the user to invest in stocks, cryptocurrencies, Exchange Traded Funds (ETFs), and options.
If you want to do commission-free trading in stocks, ETFs, and cryptocurrencies, then Robinhood is great for you.
Moreover, the company allows the investors to buy portions of stocks without paying the full share price.
It gives a free stock upon making referrals and opening the account.
When it comes to investing in cryptocurrencies, Robinhood allows to trade in several digital currencies including Bitcoin, BitcoinCash, Ethereum, Ethereum Classic, Litecoin, Bitcoin SV, and Dogecoin.
Most importantly, Robinhood has introduced IPO access for traders.
Besides, Robinhood does not offer the ability to invest in mutual funds, forex, bonds, and futures options.
The pros and cons
Simple, Easy to Use, and Easy to navigate
Free stock, ETFs, Cryptocurrency Trading
No account minimum
Cash management accounts
Margin investing and Fractional shares
Limited customer support
No mutual funds and retirement accounts
Limited investment offerings
Limited investing research and trading tools
The Pros explained
Robinhood, the popular brokerage in the US, is extremely easy to use and accessible for people of any age and any income.
Robinhood is a mobile-first company that differentiates it from other companies.
Its trading app and web-based platform are well-designed and more than enough to trade.
The new investors or inexperienced users can easily trade on it due to its simple and user-friendly features.
When it comes to costs, Robinhood provides commission-less trading with no minimum fees.
You can invest in stocks, cryptos, options, and ETFs for free.
Furthermore, the company offers fractional share trading, and you can invest in expensive stocks without much capital.
Additionally, it gives quick access to deposited cash.
The account opening process in Robinhood is fully digital and free.
Rather you get free stock upon opening the account and by referring the new members.
Last but not least, the company offered IPO access in July 2021 to benefit its users.
If you trade often, the savings can be huge on this platform due to the lower cost.
The Cons explained
Along with plenty of advantages, there are a few cons of it.
Robinhood does not offer to trade in mutual funds, bonds, and futures trading.
The research, educational resources of this financial company is limited.
It provides basic tools for the services and users can access professional research by purchasing paid membership of Robinhood Gold.
The customer support available in this stock trading app is limited.
Although, the company had made necessary improvements to its customer service in the last year.
The Robinhood scandal has blown up after the freezing of buying ‘meme stocks’ in 2021.
The company lacks full trust from retail investors after restricting the rights to buy specific stocks from its users.