Robinhood is for the Have-nots as the name suggests. It is as much a story of helping the small/individual traders as it is a technology product & service. To trade on stocks, a fee of $7 to $10 is usually charged by Scottrade, E*Trade and other financial companies. Robinhood, a mobile investment startup, seeks to remove the divide between Haves and Have-nots with a mobile app that enables users to trade in stocks without being charged any commission. To this end, the company announced today (December 19th, 2013) that it had raised $3 Million in Seed Round.
Robinhood was Co-Founded in 2012 by Baiju Prafulkumar Bhatt, Vladimir Tenev, and Nate Rodland (COO). The company has received a funding of $3 Mn through investors Index Ventures, Andreessen Horowitz, Rothenberg Ventures, Howard Lindzon, Tim Draper and IT Ventures. Google Ventures was an early investor.
- Robinhood was initially launced as an iOS app for trading stocks and sharing predictions of their rise or fall, in April 2013.
- The app enabled users to track the record of people who made right predictions and follow them.
- Robinhood app was later pulled off the store for redesign. In October this year, they were approved by FINRA (Finance regulatory authority) to establish themselves as a broker-dealer.
- This translated into the addition of the most significant feature, buying and selling of stocks, into their application.
- The app is to be officially launched early in 2014. However, users can sign up to be one of the first waves that are granted access to the platform.
The major takeaway here is unlimited, zero commission stock brokerage. Robinhood’s sign up page was leaked to Reddit over the weekend and brought in more than 30,000 signups over the last week. It also hit #1position on HackerNews. This is evidence to the fact, that there is definitely a huge demand for free trading. A youngster wanting to trade in stocks with a say, $700 budget would find a $7 - $10 fee too high. “You’re losing the amount the stock market appreciates in a year in just commissions,” said Vlad Tenev. On the other hand, $10 would be a negligible amount for the wealthy person trading in thousands or millions of dollars. Robinhood has no account minimums.
So if the users are going to trade for free, what is Robinhood’s revenue model? The company plans on charging for API access. Also, it could enable other apps to build on top of its trading system for a fee. Another stream of revenue would be charging users to trade on credit, if their own money is unavailable some reason. The company will charge in other ways too such as margin accounts or for broker-assisted trades.
Another service called Zecco offered free trading in 2006, but they started charging a fee eventually. Some of the other companies operating in this space include E*Trade (charges between $7.99 and $9.99) & Scottrade; traditional brokers like Fidelity & Schwab that charge $8 to $9. Fidelity and Schwab have account minimums of $1000 and $500 respectively. Robinhood is currently available only in California, but it plans to begin operations in all 50 states in the U.S.
This is a video where Vlad Tenev and Baiju Bhat talk about Robinhood, and what it is all about: