Millennial investors have been flocking to easier ways to invest for cheap. And with the accessibility of online or app-trading for younger investors, investment apps seem to be the way of the future.
In fact, investment app Robinhood doubled its growth from the previous year to 6 million users in 2019 – trumping online brokerage E*TRADE (ETFC) with their 3.7 million (as of last year). With its commission-free model, Robinhood has attracted investors who are looking for a cheap, easy way to invest on their mobile devices. But, the question begs – how does Robinhood actually make money?
What Is Robinhood?
Robinhood is an online investment and trading app launched in 2013 that boasts a commission-free model and keeps costs low for investors to trade stocks, ETFs, options and even cryptocurrency without paying commissions. The app was originally developed for Apple (AAPL) phones and tablets but has since launched an Android version as well.
In the wake of the 2008 financial crisis, Robinhood was conceived out of a desire to “democratize America’s financial system” and disrupt online investing by providing a platform for the younger generation of jaded investors to trade commission-free. Named after the fictional character Robinhood – who robbed the rich to feed the poor – the investment app was designed to give the next generation inexpensive access to trading that could help them get involved earlier in the market. Taking on a proverbial “not like the other guys” mentality, Robinhood has attracted a large millennial base to use the low-to-no-fee app – especially for high-frequency traders.
As of 2019, Robinhood offers a variety of investment vehicles including stocks, ETFs, cryptocurrency and options. The company has been valued at around $5.6 billion, following a recent Series-D investment round influx to the tune of $363 million, according to CNBC.
And, according to a recent report by JMP Securities in 2018, Robinhood is estimated to have around $1,000 to $5,000 in average assets per account – still way behind those of their competitors like Fidelity and TD Ameritrade (AMTD) . Still, according to the company as of May 2018, Robinhood has allegedly saved customers over $1 billion in commission fees.
But as a company boasting no commissions for trades, how does Robinhood actually make money to earn their near $6 billion valuation?
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How Does Robinhood Make Money?
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