Robinhood is the newest attempt in mobile trading, and the app is making a ripple through the investing community. Just like the legendary archer Robin of Loxley, the trading app is sticking it to the dominating force that rules the land by breaking the rules. The Robinhood app steps out of the traditional method of discount retailer brokering by not charging a single commission for placing trades, opposed to other online brokerages that charge $7 and up per trade. There is just one catch: there is waiting line of almost 340,000 people.
The app is still in a beta test phase, but the overwhelming demand has skyrocketed as smaller retail traders look to cut trading costs. One of Robinhood’s key backers is Google Ventures, and there is an early-2014 target for a launch date. The company is overwhelming surprised out the app’s demand and look to allow support for more users.
One of the key features is easy usability on the go. “Our one design principle was building an interface so it’s useful in 15 to 30 second bursts like when you’re standing in line waiting to order coffee,” said Baiju Bhatt, a Robinhood co-founder.
One may wonder how the company would make money when it does not charge any commissions. Robinhood’s business model aims to make money through margin trading, interest on cash deposits and payment for order flow. Bhatt’s former job on Wall Street was to build high frequency trading (HFT) systems for financial institutions. “At the time, HFTs were commonly paying a tenth of a penny per trade, which enabled the business model to operate with razor thin margins,” said Bhatt. He continued “we had a head scratcher moment where we asked ourselves, ‘Why do we pay $10 when we trade our personal accounts?”
On March 28, the team made its first trade with an announcement on their Twitter feed, @robinhoodapp. Currently, the app is only able to trade US equities.