After rocket ride of growth, Robinhood heads to the market

NEW YORK (AP) — After a rocket rise where it introduced millions of people to investing and reshaped the brokerage industry, all while racking up a long list of controversies in less than eight years, Robinhood is about to take the leap itself into the stock market.

Robinhood Markets and three of its executives are selling up to 60.5 million shares of its stock in an initial public offering, with trading expected to begin on the Nasdaq Thursday.

It’s a huge moment for the fast-growing company, which is sticking to its mantra of trying to “democratize finance” by reserving many of the shares for its own customers, rather than just big professional investors. Can Robinhood convince them to embrace its stock, just as it helped a generation of investors take on trading stocks, options and cryptocurrencies?

Here are a few things to keep in mind ahead of what’s one of the most anticipated IPOs on Wall Street this year:

HOW DOES A FREE SERVICE MAKE MONEY?

Robinhood’s revenue soared 245% last year to $959 million. It then hit $522 million in the first three months of 2021 alone, more than quadrupling from the year-ago level.

Robinhood doesn’t charge trading commissions or require customers to carry big balances — one reason why it's so popular. It makes the bulk of its money — 81% of revenue in the first quarter— by funneling investors’ orders to big trading firms, such as Citadel Securities, which take the other side of the trade. They also give a payment to Robinhood.

The practice, called “payment for order flow,” has drawn criticism from lawmakers and regulators. The head of the Securities and Exchange Commission has questioned whether it prevents investors from getting the best price possible for their trades and whether it impels brokerages to encourage customers to...