Robinhood markets had not yet managed to raise its customer base in recent quarters, so it’s applying a new strategy this time around, giving customers even more time to trade. On Thursday, the investing app announced its decision to allow customers to buy and sell shares from 7 a.m until 8 p.m Eastern time.
Currently, Robinhood customers can only trade from 9a.m to 6 p.m. The extra hours give customers the opportunity to log on after work, after fulfilling other responsibilities, or even check their phones first thing in the morning.
“Our customers often tell us they’re working or preoccupied during regular market hours, limiting their ability to invest on their own schedule or evaluate and react to important market news,” the company said.
With more hours given to customers to trade, the stock market could start resembling the cryptocurrency market, where traders often feel the need to monitor Asian markets after they go to bed and keep an eye on their investments even during the weekends. Robinhood also negotiated for instant trade settlement, a feature that it anticipates will reduce the risk for customers. It could also have the long term effect of reducing its capital requirements. “The future of investing is 24/7,” the company says.
Robinhood (ticker: HOOD) stock climbed 22% on Tuesday, although it is still down 15% this year.
In previous times, after-hours trading was considered too risky for average investors to undertake, but with electronic trading and looser rules, it has now been opened up to a much wider group of potential participants.
Nevertheless, the Securities and Exchange Commission has issued warnings about the additional risks inherent in trading during these periods. For starters, there lower number of participants in the market at those times means less liquidity and bid-ask spreads can be wider, therefore increasing the likelihood that a trader will get an unfavourable price. Less trading can also result in more volatility. For instance, stock can move 10% or more after earnings reports and then reverse in mere minutes.
Robinhood says it is working on retirement products and introducing new investors to exchange-traded funds, so they can learn how to get into the markets. Those strategies could solve one of Robinhood’s largest problems- the small balances users carry on the platform that they seem to use more for high-risk bets than lifelong wealth creation.
However, by opening thinly-traded after-hours markets to retail investors, the company might be going in the opposite direction. This encourages more active trading and not a buy-and-hold mentality.
Robinhood has become synonymous with speed, but that might not quite add up to a competitive advantage.