On Thursday, trading app Robinhood will be listed publicly on Wall Street. This much anticipated event, the seventh biggest IPO in the U.S., is being closely watched as the trading app is known for its disruptive tendencies. By becoming the first zero commission trader, the app attracted a vast number of retail traders especially during the pandemic. It has millions of everyday users who trade on its app. Its Initial Public Offering (IPO) is also disruptive as it has a unique feature.
In its maiden public offering, Robinhood has unusually allocated up to 35 percent of its opening day shares for individual traders. Generally, up to 85 percent of shares are available to institutional investors. These include hedge fund managers, banker, and other money managers. Most of the stocks are available to high-net-worth individuals and very little is available to the general public on the first day of trading.
By allocating a huge share of its stocks to individual traders on the first day of trading, the popular app has democratized its public offer by decreasing the amount of shares available to the elite few as is the norm in traditional public offerings. The company has given individual investors a chance to take advantage of the pop in shares during the first day of trading. More often than not new stocks see their prices soar above the initial IPO offer and this is called ‘pop.’ Robinhood is offering its shares at $38 per share which values the company at $32 billion.
Such large allotment to individuals has never been done before in the history of trading in any stock exchange around the world. This substantial number of shares could bring volatility to the market. But Robinhood is not new to bringing volatility in the market.
There had been some trade frenzy due to trade rallies of stocks such as AMC, GameStop and more in the app in January. The stocks and trading had built up to a crescendo early this year with shares reaching unimaginable prices which led to restrictive trading. The extreme volatility during that period of time is subject to an investigation by the Securities and Exchange Commission (SEC).
As with other companies, if Robinhood shares soar on the first day , some investors would be tempted to flip shares to make an instant profit. However, Robinhood has put mechanisms in place. Those who sell shares within 30 days of an IPO will be barred from trading in IPOs for 60 days. The Robinhood IPO promises to be an exciting ride ahead. How lucrative will it be? Only time can tell! The app will trade under the symbol HOOD.
