Robinhood Changing the Game for Young Traders

Stock trading was never really a young person’s game; in fact, stock trading was never free, at least not until now. The rise of the smart-phone and the digitization of our lives has changed everything from the way we shop to the way we trade stocks. Ten years ago, it was rare to see 20 year olds trading, now you can ask almost any group of friends and at least one of them will say they know someone trading stocks. Stock trading has opened up to people of all socioeconomic backgrounds and ages for one sole reason: free mobile stock trading.

Robinhood is the go-to app for most millennials and gen-Zers, such as myself, who would like to get their feet wet in stock trading. Founded in 2013, Robinhood was one of the first companies to make stock trading free. Meanwhile, other notable trading companies like Charles Schwabb and Fidelity charge fees for trading on their platforms. Free stock trading has allowed people with no prior experience in stock trading, mainly young people under 30, to dip their toes in trading, even if they have less than 100 dollars in the app. From the swiping gestures to finalize a purchase to the incentives for inviting friends, everything about Robinhood makes it catered to young, college-aged students. No wonder the average age of a Robinhood user is 27 years old.

Since Robinhood’s inception, many people have questioned the zero-commision model’s sustainability. This begs the question of how does Robinhood make money? Robinhood functions almost as a place to store your money. In any Robinhood account there needs to be money deposited in the app before a user can start trading. Robinhood puts all of that uninvested cash into interest bearing bank-accounts and earns the interest. Robinhood practices uses payment for order flow to make money; they send customer orders to high-frequency traders in exchange for cash. Also, Robinhood offers Robinhood Gold for serious investors for at least $5 a month. These investors have access to be able to immediately execute orders and other tools, none of which are included in the default version of Robinhood. At the end of the today, Robinhood is an intermediary in the execution of orders they do not do any of the execution.

Now, most people do not have to understand the behinds of scenes of trading in order to trade stocks. Lack of understanding, especially among new traders, can lead to stories of sorrow and losses of hundreds, even thousands of dollars on the platform. Many people on such an open platform fail to understand that stock trading is more than gambling or guessing. Democratizing stock trading the way Robinhood has will tell stories of traders of all spectrums, big wins and big losses.

The democratization of stock trading due to Robinhood’s business model has allowed young 20-year olds like myself to throw money into the stock market, a truly revolutionary idea. In fact, it is the younger generation who is driving Robinhood’s astronomical growth. In the second quarter of this year, Robinhood doubled its second-quarter trading revenue to 180 million dollars. They have gained 3 million new users during the 2020 COVID-19 pandemic, many of these users being young and having more free time to trade stocks due to the stay-at-home orders and mandated quarantines. Young adults have caught on to the Robinhood trading model, clung themselves to it, and proliferate this trend of mobile stock trading.  Apps such as Acorn and Webull are also notable players in the zero-commission mobile-friendly stock trading business. Even competitors like TD Ameritrade and Charles Schwabb are trying to figure out the best ways to institute zero-commission trading. However, Robinhood has captivated young traders unlike any other platform. Drive in any major city in the U.S., there will be Robinhood advertisements everywhere. Watch the NBA Playoffs, Robinhood ads will appear very often. Evidently, Robinhood has hit the bullseye when it comes to market acquisition.

Is Robinhood the model of the future? The simple answer is yes. This generation of young people seems to love Robinhood, but it is hard to tell what new innovations in financial tech the future generations will provide us. It is clear that stock trading has changed forever; it has opened its doors to young people and those doors are very much likely to open wider. The game is in favor of young traders and now may be time to join the game.

By Gabriel Hinojosa

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