Robinhood, the trading app that took the United States by storm during the pandemic lockdowns, is having another go at cracking the UK market.

The company, a key beneficiary of the craze in so-called “meme” stocks which took hold in 2020 and 2021, first announced plans for a UK launch in 2020.

On that occasion, having opened a waiting list for would-be clients in 2019 that reportedly attracted 300,000 potential customers, it shelved plans in order to concentrate on its home US market following an explosion of interest there.

More recently, in August last year, it sought to buy Ziglu, a UK-based cryptocurrency trading app, for $170m only for the deal to fall through.

It will now be hoping that it is third time lucky.

A compelling offer in a competitive market

The offer for would-be customers is pretty compelling but, with the likes of Freetrade, eToro, Trading 212 and Revolut all now offering commission-free share trading, it needs to be.

Robinhood is offering commission-free trading of more than 6,000 US-listed stocks and ADRs (American Depository Receipts) with no foreign exchange fees and customers will be able to trade around the clock and out of hours.

Vlad Tenev, Robinhood’s co-founder and chief executive, points out that, during the recent turmoil at OpenAI, a lot of customers and market participants had been tweeting screenshots from Robinhood of the share price of Microsoft – a major investor in the AI business and which offered its ousted (and later reinstated) chief executive, Sam Altman, a job almost immediately.

He told Sky News: “We are offering those US stocks 24 hours a day, five days a week through our 24 hour market, we became the first major broker in the US to offer round the clock trading of individual named stocks.

“That’s a capability that you won’t find elsewhere.”

He said that, over time, the ability to trade UK and European stocks on the platform would become available.

But perhaps the kicker is that the business will be offering customers an interest rate of 5% on any uninvested cash in their brokerage account.

That is something Mr Tenev clearly hopes will lure customers away not only from commission-free trading rivals – most of whom are relative upstarts in the industry – but also some sector’s established big guns such as Hargreaves Lansdown, AJ Bell and Interactive Investor, which is owned by the fund manager Abrdn.

It is also worth noting that Robinhood only offers an interest rate of that magnitude to its premium customers in the US.

The big profit question

One big question here is how Robinhood will be able to offer a proposition like this to UK customers and remain profitable.

In the US, it can offer commission-free trading by accepting payments from market-makers – the market professionals who quote two-way prices at which they will either buy or sell a security – to execute the trades made by its customers.

But this practice, known as “payment for order flow”, is not allowed in the UK.

Mr Tenev’s response is that payment for order flow now only accounts for a small portion of Robinhood’s revenues in the US – perhaps because some US regulators have been pondering about the desirability of the practice.

He said: “If you look at Robinhood’s business, actually, in the past couple of quarters, we’ve diversified it tremendously.

“More than half of our revenue comes from net interest. And that’s through a number of offerings, we collect a small spread on the cash, even though we do offer 5% interest.

“We offer stock lending, which shares interest generated by stocks, customers are holding in their account with customers, but also generates revenue for the firm. So we’ve continued to diversify. And equity is payment for order flow, which you mentioned, is right around 5% of our revenue.

“And we’ve been growing our revenues. So what we aim to do is, again, offer the best economics to our customers and make it clear to customers that they’re getting an unbelievable value proposition and experience with Robinhood.

“But of course, the business is sustainable. And we might operate at thinner margins than the incumbents. But the business still makes money. We’ve demonstrated that and we’re continuing to diversify it over time.”

Will the UK be enthusiastic about stock trading?

Another big question is whether the UK will ever be as enthusiastic about stock trading as in the US.

Even there, transaction volumes have slipped in recent months as Americans have returned to the office, sporting events – a rival attraction for those interested in punting rather than investing – have resumed and the savings built up by households during the lockdowns have been run down.

If Robinhood can get Britons buying shares actively again, it will be thanked by Jeremy Hunt, the chancellor, who recently announced plans for a possible offer of the government’s remaining shares in NatWest with the words “it’s time to get Sid investing again”, a reference to the successful “Tell Sid” advertising campaign in 1986 that persuaded more than 1.5 million people to invest in shares of British Gas when it was privatised by Margaret Thatcher’s government.

Robinhood has been criticised in the US for encouraging the “gamification” of trading. The criticism reached a peak after a 20-year old Robinhood customer killed himself in June 2020 after running up losses of $750,000 on the options market.

Mr Tenev insists Robinhood has learned from the experience. The app now includes many more educational resources aimed at helping clients invest more knowledgably and to make more informed decisions.

Regulators will be watching closely, though, to ensure that investors are not being encouraged to take reckless risks.