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Robinhood raises $3.4 billion from investors amid surge in trading

The move comes amid a spike in trading on Wall Street fuelled by small investors driving up shares in GameStop and other stocks

Retail investors | fund raising | US markets

AP | PTI  |  New York 

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Popular online trading platform Robinhood has said that it has lined up USD 3.4 billion to help meet its funding requirements amid a spike in trading on Wall Street fuelled by small investors driving up shares in GameStop and other stocks.

The funds are being provided by Ribbit Capital and several other venture capital firms, including Sequoia Capital, Index Ventures and ICONIQ Capital. The USD 3.4 billion figure includes $1 billion in funding that Robinhood announced Friday.

Robinhood needed to secure funding in order to meet deposit thresholds required by organizations that handle the trading orders placed by investors on its platform. These firms, known as clearinghouses, execute the trades placed on stock brokerages like Robinhood, and require higher deposits in order to reduce their risk during the 48 hours or so that it takes them to transfer the stock to a buyer and the funds to the seller.

This round of funding will help us scale to meet the incredible growth we've seen and demand for our platform," Jason Warnick, Robinhood's chief financial officer, said in a statement.

Investors on social media and online forums such as Reddit have been cheerleading each other in recent weeks to drive up shares in GameStop, AMC Entertainment and other stocks. Big institutions including some hedge funds that had bet on those stocks going lower have lost billions as the shares skyrocketed.

The speculative frenzy has put pressure on Robinhood and other stock brokerages to keep up with traffic on their online platforms. Last week, Robinhood, Charles Schwab and other retail brokerages placed limits on trading of GameStop, AMC, Express and other stocks popular with small investors. The move led to a swift backlash from customers and criticism from some lawmakers claiming small investors were being treated unfairly.

Robinhood, which is based in Menlo Park, California, initially limited investors to only selling their positions, not open new ones. It also required users to put up more of their own money for certain trades instead of using borrowed funds.

On Monday, the company was limiting users to buying four shares and five options contracts in GameStop. Traders interested in snapping up AMC Entertainment, are limited to 75 shares or options contracts.

GameStop stock vaulted from below USD 20 earlier this month to close around USD 350 as of last week. The videogame retailer's shares closed Monday at USD 225, down 31 per cent on the day. Movie theater operator AMC was running at around USD 2 last April and surged to around USD 20 last week. It closed Monday at USD 13.30.

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First Published: Tue, February 02 2021. 15:23 IST