Robinhood raises $2.4bn in second cash injection in four days

Robinhood, the online broker at the centre of the boom in day trading, has raised $2.4bn in its second capital infusion in a week to shore up finances strained by turbulent trading.

The brokerage was hit by a surge in trading last week as retail investors bet against short sellers, driving up the price of previously little loved companies such as Gamestop and AMC, the struggling cinema chain.

The company’s latest round of convertible debt financing — which allows investors to swap their debt for equity — comes as Robinhood faced sharp increases in demands for deposits at clearing houses where the group’s stocks and options are processed.

Robinhood chief executive Vlad Tenev said late on Sunday that its equities clearing house had asked for $3bn of margin deposits overnight on Thursday — during a week marked by chaotic trading in stocks popular with its users — before negotiating a lowered sum of $700m, after the company limited trading in certain stocks.

The fresh injection from existing investors takes Robinhood’s total fundraising to $3.4bn, after it secured $1bn last Thursday.

People briefed on Monday’s deal said it would help Robinhood maintain trading in shares popular among retail investors. 

The announcement came as the frenzy of retail trading on platforms like Robinhood and other US brokers continued to upend global financial markets.

Silver prices rallied to their highest level in eight years on Monday, with the precious metal jumping as much as 12 per cent to more than $30 an ounce, in the biggest intraday rise since 2008. It later trimmed those gains to around 8 per cent. 

Traders and analysts said the sharp rise was initially triggered by a surge in interest among retail traders. “It’s a fool’s errand, it’s financial anarchy; somebody is going to get hurt,” said Ross Norman, a veteran precious metals trader.

The iShares Silver Trust, the biggest ETF tracking the metal, garnered $6.1bn in turnover by lunchtime in New York on Monday, leaving it on track for one of its biggest days of trading since it launched in 2006, Bloomberg data show. The fund was among the top six biggest destinations for retail investors inflows on Friday as conversations about attempting to squeeze silver’s price higher began percolating on social media forums like Reddit, according to data from VandaTrack.

Robinhood also last week faced a backlash from users of the popular r/WallStreetBets forum on Reddit, who revolted against the start-up after it limited trading in popular stocks. The curbs prompted several class action lawsuits. Robinhood eased some of the restrictions as trading reopened on Monday.

Analysts at JMP Securities said they expected rival brokerages to take advantage of the situation at Robinhood to attempt to poach some of the group’s clients.

“We believe this could drive some level of account movement, but the faster that firms like Robinhood get back to normal operations, the less attrition we would expect,” JMP analysts wrote over the weekend.

Ribbit Capital, an early investor in Robinhood, led the $3.4bn financing, which included other existing investors such as Iconiq Capital, Andreessen Horowitz, Sequoia Capital, Index Ventures and New Enterprise Associates.

The funding came in two separate tranches with different terms, according to people briefed on the deal. The most senior tranche allows investors to convert the debt to equity at an implied valuation of up to $30bn, while the junior portion would convert at a maximum valuation of $33bn, the people said.

Interest in retail investing on Robinhood’s trading platform shows no sign of abating. The start-up had 20m revenue-generating trades across equities, options and cryptocurrencies on Friday, more than four times the average it hit in last summer’s share trading boom, said one person briefed on the numbers.

More than 600,000 people downloaded the app on Friday alone, compared to about 140,000 on peak days during a spike in March last year, according to JMP.