Robinhood Extends Trading by 4 Hrs After Revenue Slump, Plans for 24/7 Service like Crypto

The most popular retail trading platform is upping its FinTech game. Robinhood Markets (HOOD) announced an extension of its trading window by four hours. Previously, investors could’ve tapped into Robinhood brokerage from 9 AM to 9:30 AM (ET) and 4 PM to 6 PM (ET).

The new trading hours are expanded by opening earlier for the pre-market trading, starting from 7 AM (ET) and closing at 8 PM (ET).

Robinhood Plans to Offer 24/7 Trading in the Future

Furthermore, the next big step for Robinhood is to completely ditch the traditional trading hours and go full 24/7. Although the date for the 24/7 transition hasn’t been revealed, Robinhood frames the move as a result of listening to customer feedback.

“Our customers often tell us they’re working or preoccupied during regular market hours, limiting their ability to invest on their own schedule or evaluate and react to important market news.”

Interestingly, after suffering the reputational hit stemming from the GameStop/AMC short squeeze, Robinhood still wears the “democratize finance” mantle. Perhaps, for a good reason. Although at one point the company faced 49 lawsuits for restricting trading, the federal judge in Miami dismissed the big one at the end of January.

Chief US District Judge Cecilia Altonaga came to the conclusion that the lawsuit is invalid because users signed the Robinhood customer agreement.

“may at any time, in its sole discretion and without prior notice to me, prohibit or restrict my ability to trade securities.”

If other lawsuits deliver the same outcome, Robinhood has little to fear. While its pay-for-order-flow (PFOF) business model enabled the company to offer zero-commission trading in 2014, Robinhood was the first broker to do so. In turn, the company triggered a new era of retail trading where other brokerages had to offer the same service.

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A Needed Boost for Robinhood Amid Falling Revenue and Monthly Active Users

It is very tricky to uphold the “democratize finance” brand while having been known to restrict trading under dubious circumstances. As a result, Robinhood suffered waves of customer loss. This was first noticeable when Robinhood’s monthly active users (MAUs) dropped from 21.3 million in Q2 2021 to 18.9 million in Q3 2021.

The MOA hemorrhaging continued into Q4 2021 with a further reduction to 17.3 million. Accordingly, Robinhood’s 2021 earnings report turned into a major disappointment with Average Revenue Per User (ARPU) having decreased by 39%, from Q4 2020’s $106 to $64 ARPU. Within this context, it is understandable why Robinhood extended trading hours with the end goal of offering 24/7 service.

After all, the diminishing user base would then have a greater window in which to increase Robinhood’s ARPU. In anticipation of this strategy working, HOOD investors have shored up the stock upon receiving the news from yesterday into today by 20%.

24/7 Trading Could Increase Risk for Retail, Make Stock Market like Crypto

After-market trading is not something to be trifled with. The Securities and Exchange Commission (SEC) explicitly lists the big downsides. Among them is reduced market liquidity because there are fewer opportunities to convert stock into cash. Likewise, retail traders would have to face more institutional and professional traders.

In turn, just these two elements are likely to increase price volatility. This is further exacerbated in the age of social media influencers. Last summer, the phenomenon of retailers succumbing to influencers became known as the Portnoy Top effect, dubbed after “Davey Day Trader” of Barstool Sports.

In other words, social media influencers became a substitute for more time-consuming technical and fundamental analysis. We have seen an identical situation play out with meme coins such as Dogecoin (DOGE). Wholly reliant on Elon Musk’s Twitter escapades, DOGE may have generated big gains for some but left the rest holding the bag.

Given that Robinhood openly stated that daily life prevents granular investment engagement, 24/7 stock trading is poised to create a similar dynamic of fear of missing out. Just as 24/7 trading becomes accessible, so too would the dam of social media trading tips burst open into a 24/7 flood, to retail investors who may not be aware of the risks involved.

Edit (2nd April 2022, 6:43 PM GMT) – Changed “9 PM” to “9 AM” and “MOAs” to “MAUs” as the initial version had a typo.

Do you think expanded market exposure will leave more retail investors at the mercy of pros who can exploit the new market environment? Let us know in the comments below.