For anyone who knows the ins and outs of the broking world or is now trying to get their heads around trading and investing, Robinhood is an app you don’t want to miss out.
What is Robinhood
The homonymous U.S.-based financial services company who developed the mobile app, became famous for allowing its members to invest and trade stocks without paying a commission, back in 2013. The income is instead generated as part of customers' cash balances and margin lending.
Another monetization stream is selling order flow to exchanges that have a higher liquidity demand for their own traders. The idea came by Vladimir Tenev and Baiju Bhatt, and it hit a million customers within 3 years since its launch.
For the record, earlier this year, Robinhood reached 3 million user accounts, which is roughly the same as E*TRADE’s customer base, a financial services company that was founded 36 years ago, in 1982. Of course, part of that rapid growth came from adding cryptocurrencies exchanging in the app, a market that can prove to be highly profitable at times and was not around up until a dozen of years ago.
Despite its major success, Robinhood is still considered a startup. According to Crunchbase it has raised a total of $176 million in venture capital funding while the Wall Street Journal’s 2018 report reports that the company was valued at $5.6 billion.
As you may have guessed, all that money doesn’t come for a solution that excludes fees and commissions. Co-founder Baiju Bhatt has confirmed, during the TechCrunch Disrupt conference, that the Silicon Valley startup is on the track for an IPO while it’s searching for a CFO (chief financial officer). That will help them bolster their approach of coming out as a cheaper alternative to E*TRADE.
Why join Robinhood
In a few words, Robinhood has managed to use well researched software and algorithms to provide stock trading services, without having the costs of a traditional bank, like branches, offices, employees’ wages, commercials, etc. This allows the founders to provide their services ultimately for free to the end user.
As CEO Vlad Tenev puts it: “Customers are smart. They’re beginning to realize it doesn’t make sense to pay margins on services that are electronic. This is inevitable — more and more established financial companies are going to have to lower their fees. We have an ambitious long-term vision to become a full-service financial services company over the next couple of years”.
If a CFO comes on board before they go for the IPO, it could soon become a company that Wall Street investors are comfortable resting their assets into. In terms of competition, there are only a handful of rival companies that can go head to head in the same features. That’s Revolut (a European banking app for commission-free stock trading) and JP Morgan who’s trying to minimize losses from Tenev and Bhatt’s company, by offering 100 free trades.
Still, no rival – especially not a startup – can offer commission-free trades in cryptocurrencies nor has it been backed up by renowned investors such as Kleiner Perkins, Sequoia and Andreessen Horowitz.
If you are a smart customer as Tenen believes, then stock and cryptocurrency trading will become much easier and cheaper for you and hence more profitable. Same goes whether you’re an expert or a newcomer. And if you want to start with some free stocks at your portfolio click here. Happy trading.