Robinhood is expanding its zero-commission trading services to two more US states, Arkansas and Tennessee. The company, founded in February 2013, became popular in offering commission free trading for stocks, cryptos, options and ETFs through its Robinhood App.
According to CNBC, Robinhood has raised $363 million in capital valuing the company at $5 billion. Robinhood has grown exceptionally over the last few years it has been in operation, in clientele, service offering and coverage.
In February 2018, Robinhood limited trading to only two cryptocurrencies; Bitcoin (BTC) and Ether (ETH). Its services were only available in four US states. As of July 2018, the firm added Litecoin (LTC) and Bitcoin cash (BCH) to its offerings. The services are now available in 17 more states.
Between July and August 2018 Robinhood became available in seven more states and users could also trade in Dogecoin (DOGE) and Ether Classic (ETC). Arkansas and Tennessee brings the tally of Robinhood coverage to twenty four US states: Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Indiana, Iowa, Massachusetts, Michigan, Mississippi, Missouri, Montana, New Jersey, New Mexico, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Virginia, and Wisconsin.
How does Robinhood make profit?
Zero-commission on trading offered by Robinhood does not mean zero profits for the company. According to the company’s website, “Robinhood Financial makes money from its margin trading service, Robinhood Gold, which starts at $6 a month. Additionally, Robinhood earns revenue by collecting interest on the cash and stocks in customer accounts, much like a bank collects interest on cash deposits.” This in effect means that Robinhood operates on a fractional reserve system and could become vulnerable to bank runs in the future.
Robinhood has over 4 million operational accounts. The company’s revenue is a direct function of its active customers as it earns interest from money stored in customers’ accounts like conventional banks.
Robinhood is seeking to be a household financial solutions company. The firm is diversifying from stock brokerage, cryptocurrency trading and options. It is noticeable with the current expansion that Robinhood will soon cover all US states. What is not clear is if the company has interests in expanding to overseas markets.