Zero-commission online brokerage Robinhood, which launched three years ago with plans to shake up the US (and eventually international) online brokerage market, has announced the launch of commission-free options trades.
Robinhood began with a limited release of its options trading today, with plans to expand to what it calls a “full release” early in 2018.
Robinhood first launched its commission-free equity trading service in 2014, after raising $13 million in VC and angel financing from rap stars Snoop Dogg, Nas and fellow musician Jared Leto in a round led by Howard Lindzon of Stocktwits, and Index Ventures. After growing its business with app-only investing, Robinhood raised $110 million earlier this year in a round led by Russian billionaire Yuri Milner’s investment group DST Global, valuing Robinhood at $1.3 billion. It has since launched a web-based trading platform which went live last month, and now options trading.
In addition to options trade execution, Robinhood said it will be offering clients Level 2 self-directed options strategies (buying calls and puts, selling covered calls and puts) as well as Level 3 self-directed options strategies such as fixed-risk spreads (credit spreads, iron condors), and other advanced trading strategies. Robinhood will be offering a proprietary Pricing Filter with streamlines the options tables, removing potentially misleading or superfluous information and hides options with little volume or liquidity where clients may receive an unfair fill. And, as for Robinhood equity investors, market data for options investors streams in real-time and is free of charge.
Vlad Tenev, Robinhood
Robinhood was founded and is still run by Stanford University roommates Vlad Tenev and Baiju Bhatt. The company makes its money from charging a monthly fee for access to Robinhood Gold margin trading accounts, and by collecting interest on the cash and securities in Robinhood accounts.
Shares of rival US online and discount brokers, which have lost some market share to Robinhood over the past two years, reacted to the news by trading down about 2% each on Wednesday including E*TRADE Financial Corp (NASDAQ:ETFC), TD Ameritrade Holding Corp. (NYSE: AMTD), and Charles Schwab Corp (NYSE:SCHW).