What it is: Robinhood will offer cryptocurrency trading for free.
The key to innovation is to eliminate inefficiency and friction. That means getting rid of the middleman. In the financial world, that middleman used to be a stock broker who would charge a large commission to help you buy and sell stocks. Then low-cost, discount brokers started to appear, charging far less to trade stocks. Soon everyone started mimicking these low prices to the point where most online and brick and mortar brokers offer commissions under $10 a trade, often as low as $4.95 a trade.
NowRobinhood has eliminated these middlemen even further by offering commission-free trades. The idea is that the company will make money off the interest in people’s accounts when the money isn’t tied up in stocks. Toss in a few million users with cash in their accounts and all that interest adds up to a substantial amount every day.
Robinhood is now offering a cryptocurrency trading feature as well so you can safely buy and sell cryptocurrencies like Bitcoin and others without the hassle of creating a wallet and using long strings of encrypted addresses to store and transfer cryptocurrencies. By making cryptocurrency trading easy, Robinhood will attract more people, and that means more people enjoying commission-free trading as well.
Stock brokers are middlemen who are obsolete. They’re essentially sales people whose goal is to convince others to buy and sell investments so the broker can earn a commission. Often times brokers won’t even care what their clients invest in so long as they generate commissions for the broker, a practice known as “churn”. By switching to Robinhood, you can avoid this risk and avoid giving money up just to buy and trade stocks.
Most likely the big brokers like TD Ameritrade, Charles Schwab, and Fidelity aren’t going away, but Robinhood offers an alternative to paying commissions and indirectly supporting retail locations and middlemen brokers who exist solely to make money off from your commissions. Eliminate the middleman as much as possible and you’ll find yourself making more money by simply avoiding commissions at all.
Robinhood is the future of stock trading just like online banking is the future of banking rather than the retail bank that charges you fees for everything. When companies like Robinhood eliminate inefficiency, everyone wins (except for the middlemen).