The term of the meme stock market is almost over and acquired web-based trading forums are struggling to find another source of profit.
Robinhood announced huge profits from meme investors rising to AMC, GameStop, and short-term stock last year. Interestingly, from now on, the corporation expects that important work should allow investors to borrow their securities from short sellers.
In the first quarter of the year, the monthly active users of Robinhood dropped to 15.9 million from 17.7 million last year and 17.3 million in the last quarter. Additionally, the average per capita income remains at $53, lower than $137 last year and $64 last quarter.
Transactional revenue – revenue collected from investors’ acquisitions – accounts for about 33% of the organization’s revenue on a quarterly basis. However, it has dropped by 48% since last year.
As a retaliation, Robinhood has presented new products to expand its income and revive user growth.
The organization said it had extended its trading hours in March. In addition, it distributed crypto wallets to its customers in April. This month, the organization has provided another stock borrowing platform where customers can receive shares of their organizations from other market participants while collecting billing rates.
The securities lending industry is in shambles, with lending banks around the world raising $828 million in April 2022 – up 20% from April 2021, according to DataLend. Robinhood hopes to get a 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 customers need to have a record worth $5,000 in addition to the reported revenue or trade experience of $25,000 to be able to join the new program.
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 for a purpose.
Stock borrowing is a critical element of short-term trading, in which investors get collateral and immediately enter into an agreement with a cost-cutting measure. Then, investors hope to repurchase the stock on the given day and return it to the original stock owner for payment.
But stocks do not always work as the market expects, and assuming equity is set, the borrower is obliged to repay the guarantee at any rate. As a result, short-term brokers often sell the stock when stocks have significant short-term interest rates.
Those times have almost cost millions of firms and high-profile financiers.
Stock borrowing is dodgy for short-sellers and lenders. There is no guarantee that Robinhood clients who are lending stock will be compensated, accepting that a huge short-squeeze is too large for the organization to pay for.
“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.”
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