Why Robinhood Earns More From Prediction Markets Than From Stock Trading

what happened

People who bet on prediction markets do not win on every contract, but the broker collects revenue on nearly every trade. The Wall Street Journal reports that since the fourth quarter of last year, Robinhood Markets has earned more transaction revenue from event contracts on sports, financial and political outcomes than from stock trading. In the third quarter, event-contract revenue reached $173 million, against $121 million from equities.

The WSJ also worked through a per-trade comparison. A $1,000 Nvidia share purchase would generate about 12 cents for Robinhood on average, while the same sum spent on even-money contracts at 50 cents each could bring roughly $21, about 175 times as much. The paper notes that the markets differ sharply: stocks are highly liquid and mature, while event contracts are new and have far fewer players.

why it matters

For Robinhood, a growing share of revenue from prediction markets could become a meaningful earnings driver. The open question is whether customers will shift money from stocks to predictions, or, as the company's CFO Shiv Verma told analysts, simply use more products overall.

market impact

Robinhood shares: a rising share of revenue from prediction markets supports interest in the broker's stock.

• ▲Robinhood shares pressure up — event-contract revenue is now outpacing revenue from stock trading

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