Robinhood raises $50M(blog.robinhood.com)
blog.robinhood.com
Robinhood raises $50M
http://blog.robinhood.com/news/2015/5/4/onward
66 comments
My experience with Robinhood has been completely negative. I recently worked on a loan and needed to show the Robinhood transfer to my bank. Since there's no web interface you can't get the current month printout. There's no phone number to call, and it took them 3 days to reply to the zendesk ticket only to say they can't do anything and I have to wait til end of the month. The actual statement is only available a week after beginning of the month. Never again. I closed out my account and deleted the app.
I agree that a mobile-only interface is just not enough when you're dealing with something as intricate as investing. They've tried to abstract away the many layers of paperwork from investing/trading, but it leads to things like the problems you've had.
I tried Robinhood for a few days and started to feel that it was turning investing, something that should require significant forethought and research, into a bit of a toy. The fact that it specifically targets a younger millennial audience who most likely have no experience investing makes me a little uneasy.
That's not to say the app isn't well designed and good-looking, but that a mobile-only app just might not be the best medium for investors.
I tried Robinhood for a few days and started to feel that it was turning investing, something that should require significant forethought and research, into a bit of a toy. The fact that it specifically targets a younger millennial audience who most likely have no experience investing makes me a little uneasy.
That's not to say the app isn't well designed and good-looking, but that a mobile-only app just might not be the best medium for investors.
I'm not seeing your point about targeting a younger audience. A great investor can come from a combination of being self taught and from experience. The earlier you start the better better chance you have to make mistakes, learn from them, and get good at it. When you are young, you probably don't have much money to loose anyway. Not investing until you are older, and have a substantial savings is when lots of money really gets lost or else they are completely depended on financial advisers, but still not knowing which of them to really trust.
I'm not at all suggesting that young people shouldn't be investing, just that the interface and experience of Robinhood makes investing seem more like a toy or game than a discipline that requires a lot more than a few swipes and a tap.
Developing a relationship with investing when you're young is a great thing to do, but Robinhood might not be the best gateway. I am interested in seeing where the app goes, as the design by itself is very well done.
Developing a relationship with investing when you're young is a great thing to do, but Robinhood might not be the best gateway. I am interested in seeing where the app goes, as the design by itself is very well done.
I think Robinhood is a good example of how you can develop a seemingly great user experience based on a bad business case.
When you consider that the average young, inexperienced investor is going to come out on the short of the stick by "trading" frequently, Robinhood's zero commission value proposition is quite weak. In my opinion, a young investor would be much better off signing up for an account at say, Fidelity, where they get access to a good deal of research and can buy and sell 70 iShares ETFs commission-free.
Furthermore, Robinhood's stated target market ("millennials") is an odd one for a company seeking to monetize via margin. I'd venture a guess that most of the investors in this market don't even know what margin is, and the vast majority who do have no business using margin if they can even meet the minimum equity requirement to set up a margin account. If Robinhood is banking on establishing a relationship with young investors, this is naive. Whales will always take their money elsewhere and I doubt that Robinhood will ever be able to compete with folks like Interactive Brokers, OptionsHouse, etc. for the big-balance margin accounts.
The fact that Robinhood is already expanding to Australia, which has a population of less than 25 million and where annual trading volume is significantly lower than the US, is telling.
When you consider that the average young, inexperienced investor is going to come out on the short of the stick by "trading" frequently, Robinhood's zero commission value proposition is quite weak. In my opinion, a young investor would be much better off signing up for an account at say, Fidelity, where they get access to a good deal of research and can buy and sell 70 iShares ETFs commission-free.
Furthermore, Robinhood's stated target market ("millennials") is an odd one for a company seeking to monetize via margin. I'd venture a guess that most of the investors in this market don't even know what margin is, and the vast majority who do have no business using margin if they can even meet the minimum equity requirement to set up a margin account. If Robinhood is banking on establishing a relationship with young investors, this is naive. Whales will always take their money elsewhere and I doubt that Robinhood will ever be able to compete with folks like Interactive Brokers, OptionsHouse, etc. for the big-balance margin accounts.
The fact that Robinhood is already expanding to Australia, which has a population of less than 25 million and where annual trading volume is significantly lower than the US, is telling.
I think you hatin on the company is unwarranted. Millions of people already trade stock. Given that they do, they are better off paying less for it than more. Investors who trade infrequently and trade something like SPY also benefit because they get lower fees and, hopefully, they don't need brick and mortar support. "Whales will always take their money elsewhere" - why ? Why do "whales" want to pay more for their trades. I am not saying Robinhood is the second coming of Jesus, but I don't see any good reason for hatin' on the company, the way you do
First, I am not "hatin" on Robinhood. I don't believe the company's value proposition is very compelling, particularly for its target market, and I explained in detail why.
Second, you are making some flawed assumptions about what's best for investors. In terms of transaction costs, to save a meaningful amount, you need to be making a meaningful number of trades. As I noted, other brokerages, like Fidelity, offer access to commission-free products that are appropriate for average investors, so in some cases Robinhood offers no savings.
Beyond transaction costs, the average investor does not benefit from engaging in frequent trading and stock picking. Saying you saved $200/year on transaction costs doesn't mean much when your portfolio performance lags the market. The average investor will do better with reasonable diversification and a sensible buy-and-hold strategy than he or she will trading in and out of individual issues because there's no commission.
Regarding whales, at Interactive Brokers, for instance, you can pay as little as 0.5% over the benchmark rate on margin balances and a fixed rate commission of $0.005 per share per trade. Do the math. Robinhood will never realistically be able to compete on cost for that segment of the market.
As I wrote, I think Robinhood's entry into a market that is substantially smaller than the US at this early juncture is a telling indication of its prospects in the US.
Second, you are making some flawed assumptions about what's best for investors. In terms of transaction costs, to save a meaningful amount, you need to be making a meaningful number of trades. As I noted, other brokerages, like Fidelity, offer access to commission-free products that are appropriate for average investors, so in some cases Robinhood offers no savings.
Beyond transaction costs, the average investor does not benefit from engaging in frequent trading and stock picking. Saying you saved $200/year on transaction costs doesn't mean much when your portfolio performance lags the market. The average investor will do better with reasonable diversification and a sensible buy-and-hold strategy than he or she will trading in and out of individual issues because there's no commission.
Regarding whales, at Interactive Brokers, for instance, you can pay as little as 0.5% over the benchmark rate on margin balances and a fixed rate commission of $0.005 per share per trade. Do the math. Robinhood will never realistically be able to compete on cost for that segment of the market.
As I wrote, I think Robinhood's entry into a market that is substantially smaller than the US at this early juncture is a telling indication of its prospects in the US.
I don't think the entry into Australia is a negative, the way you describe it. Australian fees are much higher than in the US, so it's a great value proposition there. So why not offer the service there as well ?
I agree that people shouldn't trade a lot. This is besides the point. People shouldn't eat a lot of burgers, either. Given that people do trade a lot, though, it adds a lot of value to reduce the cost of that trading. Some people trade a lot for fun, knowing that they shouldn't, if they wanted to maximize return.
As far as Fidelity or Vanguard or others offering commission-free products, how is it bad to have MORE of such products out there ? It's just competition. The devil of the value add is in the exact terms and details.
I don't see your negativity as warranted
I agree that people shouldn't trade a lot. This is besides the point. People shouldn't eat a lot of burgers, either. Given that people do trade a lot, though, it adds a lot of value to reduce the cost of that trading. Some people trade a lot for fun, knowing that they shouldn't, if they wanted to maximize return.
As far as Fidelity or Vanguard or others offering commission-free products, how is it bad to have MORE of such products out there ? It's just competition. The devil of the value add is in the exact terms and details.
I don't see your negativity as warranted
I'm glad I read these comments but I'm an Australian who is starting to look into both Australian and US trading (TSLA, woo!).
The options for me seem to be really limited, and forget about having a single overview of Australian and US shares - you'll need two accounts with separate brokers for that.
It also looks like companies such as OptionsHouse have stopped allowing signups from Australia
CommSec tried to push a margin loan on to me, all I want to do is aggregate my share portfolio and sell off some poor-performers - it can't be this hard, can it?
The options for me seem to be really limited, and forget about having a single overview of Australian and US shares - you'll need two accounts with separate brokers for that.
It also looks like companies such as OptionsHouse have stopped allowing signups from Australia
CommSec tried to push a margin loan on to me, all I want to do is aggregate my share portfolio and sell off some poor-performers - it can't be this hard, can it?
Exactly. If your investment decisions can be made so spontaneously that you want to be able to do them on a train away from all the data you need to make a decision (historical prices, balance sheets) you're going to get burned.
There's no universe where a mobile-only trading platform could provide me any value.
There's no universe where a mobile-only trading platform could provide me any value.
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It used to be available on their site, but they do have a number: http://online-brokers.credio.com/l/128/Robinhood
Not cool that they took it off.
Not cool that they took it off.
I've had issues trying to get statements as well, but they've since improved that and you can access all your statements in the app.
That said, this is one of the most solid apps I've ever used. I don't think it has ever crashed or shown any strange UI bugs.
That said, this is one of the most solid apps I've ever used. I don't think it has ever crashed or shown any strange UI bugs.
From what I can see, the only way they differentiate themselves from their well established competitors is by not charging commissions. Yet I don't see how their costs of running a brokerage would be lower than their competitors, and they don't seem to have any revenue streams their competitors don't also have. So how will they eventually be profitable? Discount brokerage isn't an especially profitable industry to begin with
Competing on price alone doesn't seem like a good strategy to creating a valuable company.
Competing on price alone doesn't seem like a good strategy to creating a valuable company.
Recently talked to one of their shareholders. Sounds like they're not focused on monetization right now. They're #1 aim is to acquire consumers (millenials preferably), gain scale, and then figure it out. Note that by acquiring millenials they're not gaining share from traditional brokers, they're more likely to expand the pie and get new people to trade. Hopefully these people are quite sticky, and will trade bigger and bigger amounts, by which point they'll be able to offer premium monetization options.
It's a long term play. They're going to be loss-making for a while. Their VC backers can handle it. It's like Transferwise (similar backers) who launched three years ago and who are still loss-making even though they've already processed >$1 billion in transactions...
It's a long term play. They're going to be loss-making for a while. Their VC backers can handle it. It's like Transferwise (similar backers) who launched three years ago and who are still loss-making even though they've already processed >$1 billion in transactions...
That's interesting that Transferwise are making a loss given that they are charging a commission. What is their monetisation strategy?
It's very simple. 50bps of every transaction that you make. They will need MANY transactions to justify a $1B valuation :)
They're investing heavily now (at a loss) in marketing and in international expansion (note the recent US launch). Have you seen their recent marketing campaign in the UK? If you refer 3 paying users, you get £100 ($155) cash. Their cost of acquisition is therefore £33/user if not more. Assuming a 0.5% margin, they are therefore implying that each paying user will make at least £7,000 ($10,000) in transfers with them. And that's just to break even...
They're investing heavily now (at a loss) in marketing and in international expansion (note the recent US launch). Have you seen their recent marketing campaign in the UK? If you refer 3 paying users, you get £100 ($155) cash. Their cost of acquisition is therefore £33/user if not more. Assuming a 0.5% margin, they are therefore implying that each paying user will make at least £7,000 ($10,000) in transfers with them. And that's just to break even...
I was coming here to say exactly that.
from: http://techcrunch.com/2015/05/07/free-stock-trades/ > Tenev says Robinhood is charging a 3.5% fee to trade on margin in a private beta of the feature
It looks like they're planning to monetize via margin. That would work great if the economy was perpetually in an upswing... but I don't think they would have survived in the great recession.
Not to mention the irony of Robinhood making margin calls.
from: http://techcrunch.com/2015/05/07/free-stock-trades/ > Tenev says Robinhood is charging a 3.5% fee to trade on margin in a private beta of the feature
It looks like they're planning to monetize via margin. That would work great if the economy was perpetually in an upswing... but I don't think they would have survived in the great recession.
Not to mention the irony of Robinhood making margin calls.
They are likely also making money by selling the customer's order flow to large institutions/HFT firms who will happily pay significant sums for this. This is something most other retail brokers are also doing and have been doing for a while. The result is that you as the customer are paying indirectly by getting screwed on your fills.
http://en.wikipedia.org/wiki/Payment_for_order_flow http://blogs.wsj.com/moneybeat/2014/06/13/payments-to-big-br...
http://en.wikipedia.org/wiki/Payment_for_order_flow http://blogs.wsj.com/moneybeat/2014/06/13/payments-to-big-br...
I wonder what the actual implications of "getting screwed on fills" really are.
If I'm buying AAPL as a casual retail consumer, and the market price at the absolute moment is $121.05, and I get "screwed" with a fill of $121.06, is that really a big deal? Especially considering that a few seconds later the true market price could jump in either direction?
As a professional trader who's head is in the moment, sure, that seems bad. But does it REALLY matter for a casual long-term investor? My hunch is no. (I know I couldn't care less if I pay a few pennies more or less - I'm not using Robinhood for day trading, and that's not the point or their pitch.)
If I'm buying AAPL as a casual retail consumer, and the market price at the absolute moment is $121.05, and I get "screwed" with a fill of $121.06, is that really a big deal? Especially considering that a few seconds later the true market price could jump in either direction?
As a professional trader who's head is in the moment, sure, that seems bad. But does it REALLY matter for a casual long-term investor? My hunch is no. (I know I couldn't care less if I pay a few pennies more or less - I'm not using Robinhood for day trading, and that's not the point or their pitch.)
> The result is that you as the customer are paying indirectly by getting screwed on your fills.
Citation needed. Its entirely possible that order flow traders are actually providing better/equivalent fills than can be obtained without them.
I've seen no long term studies one way or the other, though I admit on first blush order flow payment seems dodgy.
Citation needed. Its entirely possible that order flow traders are actually providing better/equivalent fills than can be obtained without them.
I've seen no long term studies one way or the other, though I admit on first blush order flow payment seems dodgy.
Not only this, but I get the feeling that Robinhood is bypassing some corporate social responsibility (and possibly fiduciary duties) if they begin suggesting/ allowing first time investors to start using margin accounts.
This is just fuel on the fire of uneducated first-time investors being lured by "$0 commissions".
This is just fuel on the fire of uneducated first-time investors being lured by "$0 commissions".
They take a pretty good fee to withdraw money. I'm not sure that would be a decent part of their revenue, though.
Do you have a source for this?
For US listed stocks there is no fee throughout the entire transaction (deposit, buy, sell, withdraw): https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...
Robinhood has stated for a while that they have a margin feature they plan to charge for: https://robinhoodapp.zendesk.com/hc/en-us/articles/202853769...
For US listed stocks there is no fee throughout the entire transaction (deposit, buy, sell, withdraw): https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...
Robinhood has stated for a while that they have a margin feature they plan to charge for: https://robinhoodapp.zendesk.com/hc/en-us/articles/202853769...
Withdraw to your bank account?
Sorry about that. I must have looked at ACAT - Outgoing for some reason, believing it was ACH.
This assumes that the other competitors aren't vastly overcharging for their services. The current commission structure for most brokerages is still based on a time when computers couldn't execute a trade nearly instantly and a lot of paper and people were involved with the execution. There's really no good reason for a trade costing between $5-10 dollars to execute today. So far my experience with the Robinhood app has been pretty great. When you aren't trading thousands of dollars per trade, not having a commission is pretty dang nice and removes a good sized barrier for light hobbyist investors like myself.
Completely agree. I'm playing with investing ideas with under $2000. I could run through 10% of my money in 20 trades.
This has nothing to do with the validity or intelligence behind being an armchair day trader. This is entirely about my ability to participate in the market in a small way, without trade fees having a significant enough impact to wipe out short-term gains completely.
This has nothing to do with the validity or intelligence behind being an armchair day trader. This is entirely about my ability to participate in the market in a small way, without trade fees having a significant enough impact to wipe out short-term gains completely.
Reminds me of Zecco and another company I'm forgetting the name off. Offered free trades for a year or two and then charged the same fees as the rest of them.
Just so you know, Zecco and TradeKing have merged, so now people just use the TradeKing website. They are still one of the cheapest online trading services. Their website and customer service are great.
If they charge less than the competitors, they earn less but that doesn't mean they are not viable.
I.e. transferwise.com charges a ton less than my bank to send money with a conversion. My bank could charge less and not lose customers, but it will probably take them some decades to do that.
I.e. transferwise.com charges a ton less than my bank to send money with a conversion. My bank could charge less and not lose customers, but it will probably take them some decades to do that.
If I understand it correctly robinhood makes their money on the spreads[0] they offer (see point number 3). So much so that in many cases it's better to use a broker like interactive brokers or etrade.
[0] https://news.ycombinator.com/item?id=6907334
[0] https://news.ycombinator.com/item?id=6907334
Depending on what you mean by "spreads" that is probably not correct.
One thing they are certainly doing is selling their order flow. Large HFT firms like Knight & Citadel pay brokerages like Robinhood for the privilege of routing retail orders. You can find the documents in their "Disclosure Library".
https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...
http://public.s3.com/rule606/apex/APEX_1Q2015_Rule606.pdf
It's important to note that it is likely that all retail brokers are doing this, so this is not how Robinhood is able to offer no fees.
Either they have significant cost advantages (new infrastructure/cheaper labor etc) or they have better deals with the people executing their orders.
[edit] Also http://external.s3.com/rule606/apex/APEX_2015Q1Disclosure.pd...
One thing they are certainly doing is selling their order flow. Large HFT firms like Knight & Citadel pay brokerages like Robinhood for the privilege of routing retail orders. You can find the documents in their "Disclosure Library".
https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...
http://public.s3.com/rule606/apex/APEX_1Q2015_Rule606.pdf
It's important to note that it is likely that all retail brokers are doing this, so this is not how Robinhood is able to offer no fees.
Either they have significant cost advantages (new infrastructure/cheaper labor etc) or they have better deals with the people executing their orders.
[edit] Also http://external.s3.com/rule606/apex/APEX_2015Q1Disclosure.pd...
On a business where the objective is increasing your wealth?
> With Robinhood, you will be able to buy and sell US listed companies, ETFs, and many of the largest companies in your home country.
This also looks like a nice addition.
> With Robinhood, you will be able to buy and sell US listed companies, ETFs, and many of the largest companies in your home country.
This also looks like a nice addition.
I wish they had an Android app. Hopefully, it's in the works, because I would definitely try it out.
I have an Android, and I'm more eager to get the web app. I'm typically in front of a computer during market hours, so I'd rather not have to whip out my phone just to make a trade (especially if I'm day-trading). It's faster and more efficient. I wonder why it's taking so long to make the web app.
This is pure speculation on my part and I have no basis for saying it so take it with a gigantic grain of salt. It is important to remember when someone offers you a free service you are NOT their customer. So you need to determine who is the customer.
In this case the obvious, though maybe not correct, inference is that their customer is the order execution companies that they are selling their order flow to. If that is the case, it is in robinhoods best interest to make that order flow as "dumb" as possible such that it doesn't make order volume go down.
It might be that it is a tactical decision not to provide high fidelity trading interfaces (via the web or otherwise) because those make their product (you) less valuable to their customer (the order routers).
Again, purely speculation, but it seems a reasonable hypothesis.
In this case the obvious, though maybe not correct, inference is that their customer is the order execution companies that they are selling their order flow to. If that is the case, it is in robinhoods best interest to make that order flow as "dumb" as possible such that it doesn't make order volume go down.
It might be that it is a tactical decision not to provide high fidelity trading interfaces (via the web or otherwise) because those make their product (you) less valuable to their customer (the order routers).
Again, purely speculation, but it seems a reasonable hypothesis.
They're working on it: https://robinhood.com/android/beta/
I wish you could just trade through their website. I don't understand why they think people would prefer to trade on their phone over their computer.
Are Android developers that hard to come by? I can write for Android, if anyone needs it.
No, but it's expensive, and it's more cost efficient to iterate on iphone first.
I would have guessed it's more cost efficient to work on the web version first. Don't think most of the people who want to trade want to specifically do it on an iOS device.
Agreed but their product is mobile-first. They want to attract those people that spend 90% of their time on their smartphones. It's like asking why did Supercell / Clash of Clans not launch a web version first :)
I put $1,000, which is not stuck in there as I don't have an iOS device at my disposal anymore. I can understand that writing a mobile app for Android is an extra effort, but their app is not that complicated! It's a lame excuse and we're allowing companies not to develop on the biggest mobile platform in the world. I think iOS hackers should boycott non-Android platforms as well as a matter of principles (like accessibility, equality, free choice, etc.) and not be selfish and allow this negative trend to continue!
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I've been waiting so long for an Android app. It will happen, eventually
Maybe they can use some of that $50M to fix their broken password recovery.
I love Robinhood because it has made trading so accessible to me. I started out by putting in $100 and as I gained confidence and started doing more research, I started adding more funds. I've tried many services in the past - Schwab, ETrade, Scottrade, and they all felt a bit too "heavy-weight" for me. I don't have significant amounts of income invested, I just want something low friction that I can use as a learning tool. I have friends who are more "serious" investors and they don't use Robinhood, but I see Robinhood satisfying a different use case at the moment.
It's quite interesting they're moving to Australia after the US.
Usually, companies goes to EU first while moving overseas, but it appears it's becoming more and more bureaucratic, so why spend its limited resources?
Usually, companies goes to EU first while moving overseas, but it appears it's becoming more and more bureaucratic, so why spend its limited resources?
Australia is a financially savvy market. Most people I know there trade stock and have at least 1 investment property. Great move by Robinhood!
This company is going to put serious pressure on the pretty high commissions that the discount brokers are currently enjoying.
But first they will need to offer a few more things:
I do look forward to a better experience down the road.
-Ability to set limits and stop losses
-Ability to use margin
-Ability to buy and sell call and put options
-Ability to trade after hours
-Ability to short (likely comes with margin)
-Ability to set trailing losses
-A better UI
-Ability to analyze trades and examine bid/ask spreads
I do look forward to a better experience down the road.
Stop loss, stop limit, GTC orders were rolled out recently. See below: http://blog.robinhood.com/news/2015/4/23/introducing-robinho...
They've started that they will be releasing margin trading in 2015.
They've started that they will be releasing margin trading in 2015.
Excellent. Might put some money back in it and try it out again.
"Stop paying up to $65 for every trade."
I am assuming this is in reference to 10K+ trades not the average trade that last time I checked was around $19.
Either way Congrats on the big raise. Good move on focusing next on a financially savvy market like Australia!
Either way Congrats on the big raise. Good move on focusing next on a financially savvy market like Australia!
Saving $2.4m on $500m traded implies that typical trade < $300.. Looks like they want to make back the money they lose on margin trading, margins for them will likely not be that great as a result - a good corollary is spread bet providers in the UK tbh
When are they coming to the UK?
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This is sweet. Short term trading with no commission costs? Great.
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