For the uninitiated, the stock market can feel like a dauntingly exclusive and overcomplicated club. But today, an app called Robinhood -- available now in Apple’s app store -- is aiming to democratize the industry’s long-held trading paradigms.
Created by Stanford roommates Vladimir Tenev and Baiju Bhatt, Robinhood enables users to buy and sell shares for free. In addition to facilitating trades, the app also enables users to stream market data in real-time.
Whereas services like E-Trade typically charge a commission of $7.99 per transaction, Robinhood is able to bypass such tolls, it says, because it operates as a technology-driven brokerage without expensive storefronts, prime-time ads or manual account managers.
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“Our mission is to empower this new generation to take greater ownership in their financial future,” the company says, “which we believe can help shrink the gap between the ‘haves’ and the ‘have nots’ and lead to a healthier, more robust global economy.”
But is a democratized financial market necessarily a good thing? Maybe not. As Marketwatch points out, free trading would ostensibly lead to higher portfolio turnover -- an urge that can be financially dangerous. “Study after study has shown that most individual investors would be better off trading less rather than more,” according to the outlet.
Nonetheless, users are already flocking to Robinhood in droves. Since being announced last December, the app has accumulated a waiting list of 500,000 users who are being onboarded gradually so as not to overwhelm its infrastructure.
Since its founding, Robinhood has also raised $16 million in funding from Andreessen Horowitz, Google Ventures, Jared Leto, Snoop Dogg and more.
A bulk of these funds have been allocated towards constructing airtight security protocols. The app is accessed by Touch ID or a custom PIN code, and “uses bank-level security measures to protect your sensitive personal information,” Robinhood says. As a member of the Securities Investor Protection Corporation (SIPC), user assets are protected up to $500,000.
But if trading is free, how, exactly, does the app make money? “Robinhood charges interest for margin trading and collects interest on cash balances,” according to the company. But the immediate aim, Robinhood says, is “building a wonderful brokerage experience rather than short-term profits.”
Interested investors can download the app right here.