Why Robinhood Markets Stock Is Rocketing Higher Today
Key Points
The SEC scrapped its previous $25,000 margin account requirement for pattern day traders.
Since Robinhood primarily serves smaller, retail customers, this could be a positive short-term development for the stock.
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Shares of online financial services platform Robinhood Markets (NASDAQ: HOOD) are up 10% as of 3 p.m. ET on Wednesday after the company received some good news from the Securities and Exchange Commission (SEC). The SEC announced that it was removing the requirement for a $25,000 margin account previously necessary for day-traders. Now, day-traders -- who make four or more intraday trades in five days -- only need to hold sufficient equity in their account to cover the exposure of their trades. This move could drive increased trading among retail investors, whom Robinhood primarily serves, which is why the stock reacted so positively.
Robinhood stands to benefit not only from additional trading revenue but also from new Gold subscription sign-ups and deposits as retail traders look to capitalize on this less-restrictive day-trading. While my Foolish instinct is to think that free-wheeling day-trading isn't necessarily a boon for the average retail investor -- and is a detriment in reality -- it is hard to argue that it won't be a positive short-term financial development for Robinhood.
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In its latest quarter, Robinhood grew sales, deposits, and Gold subscribers by 52%, 35%, and 60%, respectively. Today's news helps reinforce this growth. Adding further intrigue to the stock, Robinhood now boasts 11 businesses that generate over $100 million in sales, is expanding into international markets, and has massive growth potential from its booming banking and prediction market operations.
That said, Foolish investors interested in the stock would be wise to "make your portfolio reflect your best vision for our future," as Motley Fool co-founder David Gardner puts it. While the company's growth is certainly alluring, granting retail investors free rein over day trading and prediction markets tends, in my opinion, to result in transactions more akin to gambling than investing. I've happily held my Robinhood shares, as I originally viewed the company as a reasonable facsimile of what its name implied for retail investors. However, I don't really love today's news -- or its expansion into prediction markets. That said, I'm not going to overreact and will likely just keep holding.
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Josh Kohn-Lindquist has positions in Robinhood Markets. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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