Ed. Note: This article first appeared in Forbes
Stock trading app Robinhood recently scored big in its latest round of funding.
Yuri Milner-led DST Global valued the company at $1.3 billion, sources told TechCrunch.
The company sought funding late last year and when no big announcement was made, there were speculation that their funding drive fell flat.
The TechCrunch report reveals otherwise.
This is a significant development in mobile trading.
The free stock trading app is aimed at encouraging Millennials to start investing.
Unlike traditional brokerages, which take fees on a per-trade basis, it doesn’t charge customers for such transactions.
Users are allowed to buy and sell stocks at no cost.
The company, however, monetizes through the paid Gold subscription, which has premium features like after-hours trading and larger initial deposits.
It also earns from interest on cash and securities in users’ accounts.
The company found recent success in Snap’s recent public offering.
It recorded that 43% of its traders bought Snap shares through the service on the day of Snap’s IPO.
Robinhood’s user base has an average age of 30 while those that bought Snap shares has a median age of 26 – the same age as Snap CEO Evan Spiegel – proving that the service has been successful in connecting with its target users.
It is expected to go global as well with expansions to Australia on its way.
Co-founder and co-CEO of Robinhood Vladimir Tenev speaks onstage during TechCrunch Disrupt NY 201 (Photo by Noam Galai/Getty Images for TechCrunch)
This, however, hasn’t always been the case for mobile trading.
Those serious in trading stocks would point out that such apps have limitations which lead these users to gravitate towards other trading platforms such as E*Trade and Scottrade for their mobile trading activities.
Even with the Gold account, Robinhood does not have features such as organizing stocks and short selling, which are essential to more advanced traders.
Day traders are also hesitant about mobile as device of choice due to limited functionalities compared to trading on a desktop.
Nicc Lewis, the CMO of Leverate, a SaaS platform for brokerages, weighs in on the challenges of mobile trading.
“Trading is a multi-screen activity requiring a desktop to be able to see multiple charts, news and analysis which cannot be replicated on mobile.
To date, there is no ability to easily adopt algo-trading or expert advisors on mobile.”
Leverate Nicc Lewis, CMO of Leverate
Leverate ventured into forex social trading through its Sirix platform, which is available for web and mobile. These investment apps are built to be uncomplicated.
They simply focus on very specific user stories and are clearly designed for the Millennial market.
A Harris poll revealed that nearly 80% of Millennials are not investing in stocks with many thinking that it takes a large amount to get started.
The thrust of simplicity and affordability seeks to overcome the challenges of encouraging Millennials to invest.
Other Fintech companies are also getting into investments, albeit with varying propositions.
Acorns puts a twist on micro-investing by rounding up users’ purchases, taking the spare change, and putting them into exchange-traded funds.
Also emerging are robo-advisors like Betterment and Wealthfront.
These services enable users to set the financial targets they want to achieve and give insight on how users should invest their money.
Both services offer similar low-cost investment advice though with different fee structures. Adoption of these apps is also growing.
Betterment, recently valued at $700 million, has over $5 billion in assets under management.
As for mobile trading in itself, Robinhood has proved that mobile can be used for these purposes.
It would depend on the user’s intentions on whether or not such a simplified service would work for them.
Mobile as a technology does offer advantages such as being able to trade on the go and get timely information through push notifications.
As it stands now, there are limitations for the advanced needs of day traders. Still, for new traders looking to get their feet wet in investing, such apps may suffice.
Ultimately, Lewis points out, “It’s not about mobile – we need to move away from this kind of thinking. Where mobile has succeeded, it has not been because of ‘technological superiority in mobile’ – it has been because a vendor has a service. It is available on any device. In terms of a broker, it would not be: ‘I have a brokerage on an amazing mobile application,’ but more in line with: ‘I have an amazing brokerage, which is available on any device you choose.’”
Posted by: The Trust Advisor