Retail trading platform Robinhood's third-quarter earnings fell short of expectations on Wednesday, a miss it attributed to an accounting quirk related to incentives that the company said Wall Street analysts had overlooked, sending its shares down 11% after the bell.

Chief Financial Officer Jason Warnick said on a media call that the difference between Street expectations and Robinhood's earnings were due to analyst models not factoring in "contra revenue" on the brokerage's match promotions.

Robinhood's third-quarter net revenue was reduced by $27 million due to the 1%-3% matches it pays to customers to incentivize them to shift their assets on to the brokerage from other platforms.

"The match promotion dollars are recorded as an offset to revenue, and it looks like analysts just were not factoring that in enough for the quarter." Warnick said, adding that contra revenue rose $14 million sequentially.

It is expected to grow sequentially by a similar amount in the fourth quarter and then grow much slower in 2025, Warnick told analysts.

The contra revenue jump was mostly driven by the 1% gold deposit boost, which will be winded down in November, Warnick said.

Meanwhile, Robinhood saw a surge in trading volumes as heightened market activity and volatility sent mom-and-pop investors into the online commission-free brokerage .

Retail trading has recovered since bitcoin and U.S. stocks hit all-time highs earlier this year, buoyed by hopes of a soft landing for the U.S. economy.

Crypto markets have also got a shot in the arm this year after the U.S. securities regulator approved exchange-traded funds to track spot prices of bitcoin and ether, boosting sentiment towards the industry.

Robinhood's equity and crypto trading volumes jumped 65% and 112% in the quarter, respectively. Options contracts traded surged 47%.

In October, Robinhood added futures and index options trading features to its mobile app and launched its long-awaited desktop platform, as it looks to compete with traditional brokerages catering to seasoned investors.

Robinhood's transaction-based revenue surged 72% to $319 million in the quarter, primarily driven by strength in options and cryptocurrencies.

Its net deposits fell to $10 billion from $13.2 billion sequentially.

Running Point Capital's chief investment officer, Michael Ashley Schulman, said the sharp decline in net deposits may affect Robinhood's margins.

Robinhood's profit was 17 cents per share, missing expectations of 18 cents per share, according to estimates compiled by LSEG.

Net revenue jumped 36% to $637 million in the quarter, but missed expectations of $657.9 million.

(Reporting by Arasu Kannagi Basil and Atharva Singh in Bengaluru; Editing by Maju Samuel)