Robinhood stock price forecast before SEC PFOF change
Robinhood (NASDAQ: HOOD) stock price is near an all-time low ahead of a major statement from the SEC’s Gary Gensler. The stock is trading at $8.75, which is close to its all-time low of $7.87. It slumped from an all-time high of $85, bringing its total market capitalization to around $7.86 billion.
Payment for order flow
Robinhood is a disruptor that changed the trading and investing industry. It is a platform that allows users to buy and sell financial assets such as stocks and exchange-traded funds (ETFs) without paying fees.
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Robinhood makes its money through what is known as payment for order flow (PFOF). It is a complex process in which the company routes trades through market makers such as Citadel and Virtu Finance.
These giant corporations then pay him for every trade the company routes through them. It can be a lucrative deal considering that Robinhood made over $1.8 billion in revenue in 2021.
Now, the SEC’s Gary Gensler is set to announce a new rule that could push Robinhood to change its business model. According to the NYT, the SEC will seek to change the way orders are executed.
So, instead of going through market makers, stocks will go through auctions on exchanges like the NYSE and Nasdaq. The SEC believes that using this approach will serve investors by giving them the best price available.
If this is the way, companies like Robinhood will be forced to change their business model by introducing new commissions. At a time when many are struggling with inflation, such a rule change will not be welcomed by investors.
At the same time, they will hurt companies like Virtu and Citadel that make most of their money from this model. This explains why Virtu Financial’s stock price has crashed 30% in the past three months.
Ribonhood will be more affected than other brokers like Schwab and TD Ameritrade, as these companies have other sources of income.
Robinhood stock price forecast
HOOD’s stock price has been on a strong downtrend over the past several months as demand for the company and business in general has evaporated. The stock is even trading near its historic low. It remains below the 25-day and 50-day moving averages and the important support level at $10.
Therefore, the stock is likely to continue falling as the bears target the next key support level at $7.
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