The meme stock exchange period is over, and the online trading sites that have been brought in are struggling to look for another source of profit.
Robinhood enjoyed huge profits from meme investors upgrading to AMC, GameStop, and the short-term stock last year. In contrast, the company currently expects significant action to allow investors to lend their securities to short-sellers.
In the first quarter of the year, the average monthly active users of Robinhood dropped to 15.9 million from 17.7 million last year and 17.3 million in the last quarter. Also, the average per capita organization income remains at $53, lower than last year’s $137 and $64 last quarter.
Transactional revenue – the revenue collected from investors’ purchases – represents about a third of the organization’s revenue for the quarter. However, it has dropped by 48% since last year.
Robinhood has introduced many new features to expand its revenue and bring back customer growth as a means of retaliation.
The company said it had extended its trading hours at the end of March. Additionally, it shipped crypto wallets to its customers in early April. This month, the company decided to offer another stock lending system where customers can borrow shares of their companies from other people participating in the market while collecting billing rates.
The securities lending industry is flooded, with global share lenders raising $828 million in April 2022 – up 20% from April 2021, according to research firm DataLend. Robinhood hopes to keep part of that away from big organizations like BlackRock and State Street.
“We’re excited to break down yet another barrier and democratize product that has been historically preserved for the wealthy with high barriers entry,” said Robinhood’s chief brokerage officer, Steve Quirk, in a blog post regarding the new program.
Robinhood clients need to have an account value of $5,000 plus reported revenue or a trading experience of $25,000.
Quirk described the program as a way for customers to “put their investments to work while keeping it simple” and “add a potential source of passive recurring income to their portfolio.”
Many point out that there is often an extended barrier to intentional borrowing.
Stock borrowing is an essential part of short-term liquidity, in which investors get collateral and then immediately enter into an agreement with the estimated cost reduction. Then, investors hope to repurchase the stock on the given day and return it to the original stock owner for a fee.
However, stocks do not perform as expected, and if a balance is established, the borrower is obliged to repay the collateral anyway. Short sellers who outline a business usually send it out at a higher rate when stocks with innumerable short-term earnings go up in cost.
Those times have almost overthrown multimillion-dollar firms and high-profile financial backers.
Stock lending is a dodgy thing for short-sellers, as well as for moneylenders. There is no guarantee that Robinhood’s clients who are lending stock will be compensated, assuming that the large short press is too massive for the company to pay for it.
“There is a risk that Robinhood Securities could default on its obligations to you under the Stock Lending Program and fail to return the securities it has borrowed,” the company cautioned. “If Robinhood Securities defaults and is unable to return loaned securities, you will not be able to trade such securities as usual.”