25 September, 2014

New App Wants to Make Trading Stocks as Easy as Posting Selfies

Standing in line for coffee may seem like an awkward time to trade stocks. But for the makers of the new app Robinhood, those casual moments are exactly when they want to reach a new generation of potential investors who might otherwise feel the markets are closed to them.

Vlad Tenev and Baiju Bhatt, as many startup founders do, met at Stanford, and both spent time in the financial services industry before joining up to figure out what a stock brokerage built exclusively for mobile devices would look like. The issue, they say, isn’t just convenience: it’s access. “The fact that a lot of people, especially younger folks, are not investing in the stock market is something we really think needs addressing,” Bhatt says.

The pair pitch Robinhood as a 21st-century alternative to traditional, stuffy brokerage firms that still rely on (gasp!) websites for their version of electronic trading. Trading stocks, Tenev says, should be as easy as summoning a ride on Uber or posting a picture to Instagram. Along with going mobile-first, the main way Tenev and Bhatt hope to set themselves apart is by not charging fees for trades.

At a time when executing a stock trade has become a purely automated process, Tenev says, charging a typical $7 to $10 commission makes as much sense as charging to send an email. “The days when humans passed around tickets on a trading floor are long gone,” he says.

Tenev claims that traditional brokerages depend on that extra revenue to prop up legacy infrastructure and the trappings of old Wall Street—fancy offices and logos engraved in marble. However much that old Wall Street branding still persists, he believes that its lasting impact is that it makes young people feel like the stock market is a resource that’s only available to people with a lot of money.

He and Bhatt like to describe the stock market as a “tool,” and that even someone who just wants to trade with a few hundred dollars should be able to jump in to get a feel for the market and how it works. They’re not likely to take that leap, Bhatt says, if they’re charged $10 per trade, which winds up becoming a significant percentage. “We see it as something you don’t need even thousands of dollars for,” he says.

A Calming Effect
The message seems to be reaching the intended audience. Tenev says that of 500,000 people who have signed up for the Robinhood waitlist, 80 percent are between the ages of 18 and 29. (Tenev and Bhatt hope to release Robinhood widely by early next year.)

And another kind of investor really likes those numbers. On Tuesday, Robinhood announced $13 million in Series A funding led by financial services aficionado Jan Hammer of Index Ventures. Box CEO Aaron Levie is another among a varied group of investors in the round, which also includes Snoop Dogg and Oscar-winner Jared Leto.

As to the name of the company, Tenev and Bhatt say they’re taking a system seen as closed off and only for the rich and making it available to everyone else. At their most idealistic, they even believe that at scale, a critical mass of small-time individual investors can wrestle the market back from institutional titans.

Big-time traders can afford to massively leverage themselves in pursuit of short-term gains, Bhatt says, which makes markets volatile. Value-minded individual investors can work as a resistant force to those spikes and troughs, he says, especially if it becomes easier for them to get into the market in the first place: “You may see that one of the things that emerges is that markets have less volatility because a greater number of individuals start to participate.”

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