By avoiding transaction fees, the average small or young investor could afford to put $100 a month into their favorite brand or company -- which would fit perfectly for parents looking to get their young adults into the investing game. Users will place orders into the Robinhood application to buy and sell stocks, then the company will execute orders at the best available price across all stock exchanges. Over 5,000 tradable securities will initially be offered, which I am sure will cover most stocks this group of investors are looking to buy.
According to the company's website, the application will only be available on the web and on iOS platforms. Robinhood seems to be focusing on mobility, something which should be second nature to the audience they seem to be targeting. Margin trading will not initially be offered, although it doesn't really seem necessary for most small investors.
We always hear how financially illiterate the younger generation is, well here is a tool to help curb the problem. There's a waiting list for joining, but I haven't actually been able to test the functionality of the brokerage as they told me that there is currently 11,342 people ahead of me. I am in no way affiliated with the company, I just wanted to share this interesting and undercovered concept with my readers -- and which can help many get started in the markets. And I will most certainly be sharing Robinhood with all those who have asked me how to get started in the markets.
Putting some of their savings into a share of Nike (NKE) or Berkshire Hathaway each month is now a realistic option for many of my peers.Oh, and are you worrying about the catch? Well, it seems the company will take user orders and provide liquidity to other firms, therefore Robinhood will receive separate compensation for the transaction. I'm guessing Robinhood probably takes in a cent or two, per transaction for their efforts. By removing the overhead costs of a traditional brokerage, the company can afford to operate at low margins. Hopefully everything works out for these guys, I know their technology could help many young investors out there.
As for the larger brokerages, I would expect them to be watching Robinhood closely. If customers do seem to respond well to the model, I feel they would have to remain competitive and offer some sort of similar product to their young and small customers. What happened when online trading was launched, the cost of trading dropped significantly and every brokerage firm was forced to follow suit. It is possible the same phenomenon could happen yet again, who knows. At the time of publication the author had no position in any of the stocks mentioned.
Follow @CircaAlpha This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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