Small investors will be able to lend out stocks that they own on Robinhood through a new service at the upstart brokerage.
The stock lending service will enable retail investors to earn extra income on shares that they own in a cash account. The lenders get paid when Robinhood finds a borrower of the stock. The lender can sell the stock at any time. Fractional shares and shares held in a margin account can't be lent out.
The move comes as Robinhood looks for ways to boost revenue as its business has been struggling and revenue from crypto trading has been dropping.
Borrowing and lending stocks is not unusual — short-selling is one way of doing this. Short-sellers will borrow shares from various sources with the aim of later buying the shares back at a lower price. Last January, short-sellers were the target of GameStop and other meme stocks during a famous episode when Robinhood stopped the trading of certain shares amid massive demand.
Stock lending is riskier than traditional stock investing, as Robinhood notes in a disclaimer in its blog post: "There is a risk that Robinhood Securities could default on its obligations to you under the Stock Lending Program and fail to return the securities it has borrowed. If Robinhood Securities defaults and is unable to return loaned securities, you will not be able to trade such securities as usual. "
The move is also being done as crypto lending has grown as an industry both in traditional fintech and DeFi. Robinhood competitor Coinbase and others enable staking of cryptocurrencies, which earns income for the owner of the tokens, as well as borrowing against cryptocurrencies and other related services.