Robin Hood may not be stealing from the rich to give to the poor residents of Nottingham, but the less wealthy may still be better off with a new tech start up.
Most trading platforms perform buying and selling transactions at a fee to the investor, sometimes referred to as trading commissions, in which each time you decide to move your money around, some of your money is absorbed into the firm you’re trading with. You can expect these fees to be anywhere from $15 down to $5. For example, E*Trade’s fee is $10, Scott Trade $7, and TradeKing $4.95.
Now, if you’re moving around a lot of money, say, tens of thousands of dollars, this doesn’t really amount to much. Gains and losses attributed to these money movements are generally higher since the investment is bigger, so these fees don’t play a big role. Nonetheless, they add up. According to a 2014 E*Trade report [Forbes], $341 million of its revenues were contributed by trading commissions.
But if someone who has built up their investments, and is receiving considerable returns on those investments, does it really matter? Probably not for them, however for those new to the investing landscape or those who only have $100 to invest right now, a $10 trade fee is a huge barrier. Why spend 10% of your hard earned money on an investment that isn’t even guaranteeing a return?
Enter Vladimir Tenev and Baiju Prafulkumar Bhatt, two Harvard graduates who are shaking up the investing industry by appealing to a demographic generally ignored by large equity tanks: Millennials and the less wealthy. The recently released iOS app operates on the premise of $0 commission trades and no minimum deposits, complete with a clever name – Robinhood.
The app is a simple platform in which you can deposit funds from any of your accounts into the app and then use those funds to purchase stocks. Simply look up the ticker symbol of a stock and put in an order, and boom, you’re in the stock market at the cost of $0. No minimum deposit limit. Currently the app is only for iPhones, however an online platform will be rolled out here in the future.
But wait, one of the first questions any veteran investor may ask is how. How can this maintain the ability to be free?
One big plus is that Robinhood has no brick and mortar sites, which means no upkeep, rent, or other employee salaries.
Another key area of income is interest. Interest is earned on the amounts of money investors choose to leave as cash in their accounts (this is not interest charged to the customer, this is earned on investing from the firm). Additionally, Robinhood is planning on implementing the ability to trade on margin accounts, which are trades made on loaned money, meaning interest will be earned by Robinhood on those balances.
The app has not been fully rolled out yet and there is currently a waitlist to be given access to the app. However, if you’re new to the investing area, want to get your feet wet, or plain and simple you don’t want to pay $10 to get started, I’d recommend giving it a go.