• Neev Mandot

Robinhood: Trading For Everyone

Updated: Aug 5, 2020

Bows And Arrows Are Not Included

With the low-interest rates offered in the US, holding money in banks is a waste of capital. Many choose to invest their money into securities, like stocks and ETFs. With the growth of online trading platforms, becoming an active investor is easier than ever.

Robinhood was founded by Vladimir Tenev and Baiju Bhatt. Both of these highly qualified men have a background in creating high-frequency trading platforms for financial institutions in New York. These bright, young minds, set out to make a tool, unlike anything traders, have seen before. In April of 2013, Robinhood was launched.

Prior to the growth of online brokerage platforms, stock trading was elitist, but now anyone can invest and build their portfolio. Ever since inception, Robinhood has had one main goal. The company hopes to "provide everyone with access to the financial markets, not just the wealthy." They have done so successfully. With their commission-free trading and the ability to buy fractions of stocks, they have revolutionized the world of online trading.

This company was able to capture a large Millennial demographic, where 80% of all accounts were created by the Millennial generation. Robinhood is appealing to novice investors due to the extensive analytics that is offered and the ability to trade with a balance of $1.

Robinhood is able to offer the chance to buy fractions of stocks as well. Like many commonly used features, they were the first to offer this. Being able to own stake in high-valued stocks for conservative investors was just one of many reasons the company boasts over 13 million users.

Robinhood introduced instant deposits. As of February 2016, you could do instant credit transfer for up to $1000. Prior to that, funds took 3 days to appear through ACH transfer. Now with their gold subscription, they offer up to $50,000 in instant deposits.

This company also offers free stocks if you refer a friend to their platform. This attracts many customers since they hope to make some extra money and encourages users to spread the word.

The most significant feature of Robinhood is the elimination of trading fees. Robinhood was the first online platform to offer commission-free trading. Many other platforms like E-trade, TD Ameritrade, and Charles Schwab had to adopt this model to remain relevant. Unlike many others, Robinhood offers commission-free options as well.

Robinhood also offers high-interest rates in its Cash Management scheme. According to ValuePenguin "The average bank interest rate for checking accounts in the United States is 0.06%; the average bank savings rate is currently 0.09%." RobinHood started offering a 1.8% interest rate by simply possessing money in your account, which is insured from various partner banks. The APY has dropped to .3% on your uninvested cash. Robinhood moves your unspent money "into [their] network of FDIC insured program banks that hold and invest your cash."

You may be wondering what is so unique about Robinhood. Many high-frequency trading platforms offer the same perks now. This company was the first to do it and was a pioneer in many of the features it possesses. Robinhood redefined the world of online trading by making it accessible to all people regardless of financial stature. Other companies were forced to adopt their model to stay in business.

With commission-free trading, you may be wondering how the company makes its money. They practice a model called payment for order flow. The retail broker passes the order to a high-frequency market maker, who pays a fee to the retail broker who would be RobinHood in this case.

This company recorded a $60 million revenue for the month of March in 2020 alone, which was 3 times more than their reported revenue in February. In addition, the company hey announced that they closed "a $280 million Series F funding at an $8.3 billion valuation"

Robinhood has made security trading on the secondary market simplified and inclusive. The growth of high-frequency trading platforms has led to not only experienced investors trading in the financial markets, but newcomers as well. With the extensive analytics and easy to use interface, anyone can capitalize by making smart investments.

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