Robinhood was recently included by Forbes in the top 10 largest fintech companies in the US.
Forbes’ ranking, with Robinhood in fourth place, is ordered by the total value of the company, and the value of Robinhood is estimated to be around $7.6 billion.
For reference, in third place, there is Coinbase, with 8.1 billion, while the estimated average value of these 10 companies is 9 billion.
Forbes highlights the fact that Robinhood’s mobile app offers commission-free trading of stocks, ETFs, options and cryptocurrencies, and that at the end of last year it launched the new cash management feature that pays 1.8% interest on uninvested money deposited into the account.
However, it also notes that the industry in which it operates is becoming increasingly competitive, with brokerage giants such as Schwab and Fidelity choosing to adjust and reduce trading fees to zero.
In fact, in 2019, Robinhood’s active users who accessed the app at least once a month grew by only 13%, while in 2018 they actually doubled. Given that the company was founded in 2013, and that in 2018 it experienced a real boom due mainly to the zero trading fees, the 2019 figure looks lower than expected.
Despite this, in 2019 it became the largest online stock exchange broker based in the United States, with over 6 million clients, surpassing E-TRADE.
The app allows users to trade with four asset classes:
In addition, the company is a broker-dealer approved by FINRA, registered with the SEC and a member of the Securities Investor Protection Corporation.
The main reason for its success, which is now copied by other competitors, is the fact that the company offers commission-free trading, considering that the company uses other sources of income.
Another advantage is that it does not require a minimum deposit to start trading, which means anyone can attempt to trade with any amount of money.
It is also particularly easy to use and suitable for entry-level users.
On the other hand, however, it does not offer tax-sheltered accounts, and it does not offer automated trading features, seeing that it is designed for non-professional users.
But it does offer margin trading, through the Robinhood Gold premium account.
Deposits are guaranteed up to $500,000 for stocks, and up to $250,000 for cash, thanks to the Securities Investor Protection Corporation (SIPC), and the fact that the platform is regulated by FINRA makes it sufficiently secure.
Opening a trading account on Robinhood is different from opening a traditional stock brokerage account because the company is required by law to collect certain information about its clients, such as tax data, to the extent that it is necessary to provide a social security number (SSN) in order to open an account.
The app is designed to be very easy to use, even for non-expert users, and actually works in the same way as any other online stock and options broker.
Once all the required information has been sent and the account opened, funds are deposited which can then be used to buy stocks, options, ETFs and cryptocurrencies.
How to buy stocks on Robinhood
For instance, in order to purchase stocks, after depositing the funds, it is sufficient to search for the stock, click on “Trade”, and proceed with the purchase order by clicking on “Buy” after selecting the type of order and the number of stocks to purchase.
Once the order is confirmed the purchase is executed.
For selling, the procedure is the same, except that it is necessary to click on “Sell”.
Purchases and sales of ETFs and cryptocurrencies are similar, while for options there are a few extra steps.
However, the fact that it is a trading app for non-professional investors, and preferred especially by millennials with little trading experience, means that probably a rather significant percentage of accounts, although not known, may actually be at a loss.
Trading, if done by inexperienced people, is a rather high-risk financial activity, which is actually unsuitable for beginners. However, by capping investments to a very low level, and avoiding leverage, losses are reduced to a minimum in the event of failure.