Robinhood To Benefit From Retail Trading Tailwinds As SEC Removes $25,000 Day Trading Restrictions, Says Goldman — HOOD Stock Extends Rally

• Yaro noted that lower margin requirements for day traders could fuel an increase in equities trading volumes, benefiting brokers like Robinhood and boosting the company’s revenue from these activities.
• Robinhood charges $0.000195 per share for equity sales and $0.00329 per contract for option sales.
• Yaro added that Robinhood, in particular, stands to benefit from these changes, since it has smaller average account sizes, suggesting that small traders use Robinhood more.

Robinhood Markets Inc. (HOOD) stands to benefit from the tailwinds resulting from the U.S. Securities and Exchange Commission (SEC) approving a plan to remove day-trading limits for investors, an analyst at Goldman Sachs stated in a note on Wednesday.

According to TheFly, Goldman Sachs analyst James Yaro said the SEC decision could likely reduce margin requirements for traders, allowing those with smaller accounts to trade more actively.

Robinhood Markets shares soared more than 9% in Wednesday’s midday session, continuing to build on the 10% rally from Tuesday.

What Did The Analyst Say?

Yaro noted that lower margin requirements for day traders could fuel an increase in equities trading volumes. This would benefit brokers like Robinhood, thereby boosting the company’s revenue from these activities.

Robinhood charges $0.000195 per share for equity sales and $0.00329 per contract for option sales. This fee is rounded to the nearest penny and capped at $9.79.

The broker charges a margin interest rate of 5% for settled margin balances up to $50,000. On the top end, traders with margin balances of $50 million or more will be charged an interest rate of 3.95%.

Yaro added that Robinhood, in particular, stands to benefit from these changes, since it has smaller average account sizes, suggesting that small traders use Robinhood more.

The analyst also stated that other brokers like Interactive Brokers Group Inc. (IBKR) and eToro Group (ETOR) also stand to benefit from these changes approved by the SEC, but added that Interactive Brokers has larger average accounts while eToro is largely non-U.S. exposed.

What Is The New Day-Trading Rule?

The SEC on Tuesday approved a proposal by the Financial Industry Regulatory Authority (FINRA), eliminating the $25,000 minimum equity requirement for pattern day traders.

This decision also removes the “pattern day trader” designation dating back to 2001 that flagged any trader who executed four or more trades within five business days, giving a fillip to small traders.

Under the new rules, customers will be required to maintain sufficient equity in their accounts to cover their existing risk exposure. These rules will apply to all traders, not just small ones.

How Did Retail Traders React?

Retail sentiment on Stocktwits around Robinhood Markets trended in the ‘extremely bullish’ territory, with message volumes at ‘extremely high’ levels at the time of writing.

One bullish user stated that the current market environment is printing money for Robinhood and if the momentum persists, the broker’s second quarter (Q2) will be “stellar.”

HOOD stock is down 24% year-to-date, while BULL stock is down 19%. The S&P 500 ETF (SPY) is up 30% over the past 12 months, while the Vanguard Growth Index Fund ETF (VUG) is up 33%.

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