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📌 Main takeaway:
Key takeaways
- The retail brokerage is launching a new derivatives exchange in a bid to expand its prediction markets offering.
- Robinhood stock has more than tripled year to date, making it one of the biggest gainers in the S&P 500.
Robinhood’s latest project raises the stakes in prediction markets.
The US stock brokerage, which gained popularity by offering tranches of stocks to retail investors, has launched a futures and derivatives exchange in a bid to expand its business in prediction markets. Robinhood (HOOD) announced Tuesday that the exchange will be run through a joint venture with market maker Susquehanna International Group.
Its shares were up 10% as of Wednesday afternoon, cementing Robinhood’s place among the biggest gainers within the benchmark S&P 500 index.
Why does this matter to you?
Robinhood has built its business on catering to individual investors, starting with fractional stocks, and more recently offering banking and mortgage services to some of its most active users. As its business grows, the brokerage company appears to be positioning itself to attract larger clients.
Robinhood aims to be a one-stop-shop for trading in stocks, cryptocurrencies, and event contracts as well as banking and mortgage services. While it faces fierce competition from rivals like Polymarket, which announced yesterday that it has received regulatory approval to resume operations in the US, Robinhood could also attract partners who want to get into the event markets action but don’t have the infrastructure to do so.
Robinhood’s new venture comes with an acquisition — a 90% stake in MIAXdx, a CFTC-licensed financial derivatives clearinghouse; The deal is expected to close in the first quarter of next year. The remaining shares will be held by Miami International Holdings (MIAX). The company said that its new exchange will serve the business of financial derivatives and other trading platforms with futures commissions.
A Robinhood spokesperson said its derivatives business “plans to continue partnering with multiple DCM/DCO partners,” referring to the entities where derivatives contracts are executed and settled. The spokesman said: “There will be no changes in the short term” for this company’s customers. Robinhood offers some of its event contracts through Kalshi, another dominant player in prediction markets.
“Prediction markets are really on fire,” Robinhood CEO Vlad Tenev said during the company’s third-quarter earnings call earlier this month, according to a transcript provided by AlphaSense. Robinhood has doubled the volume of that business every quarter since launching about a year ago, according to the company, reaching 2.3 billion contracts in the third quarter.
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