Introduction to Robinhood platform and how it reduces inefficiency in the Financial Markets

1. Reducing Inefficiencies in the Financial Markets
Sarang Ananda Rao
MBA Candidate,
University of Cincinnati

2. WHAT DO THESE COMPANIES HAVE IN COMMON?
Valuation: $62.5 B Market Cap: $42.8 B

3. Why own a car when
you hire an Uber?
Why buy cable when you can
stream Ultra HD videos?
REDUCE INEFFICIENCY IN THE MARKET.“ ”
Does the valuation make sense?

4. ENTER ROBINHOOD
$7.95
Per Trade
$9.99
Per Trade
$4.95
Per Trade
$6.95
Per Trade
ZERO
COMMISSION
Future?

5. ROBINHOOD MARKETS INC.
• Based out of Palo Alto, California
• Launched April 18, 2013
• MOBILE ONLY: iPhone, Apple Watch & Android devices
• Users: 80% Millennials, Average customer age is 26
• 50% of the users who have made a trade use the app daily and 90%
come back!
• $0 Initial funding requirement, $0 commission on stocks/ETFs, Options
not supported, Real time quotes & trades
• It takes 3 days to settle your funds once you execute SELL
KEY DETAILS

6. ZERO COMMISSION - SO WHAT?
• Low barrier to entry, minimum age to download the app is 4+
• More retail investors, higher volatility
• Free trades, margins - What will happen to long-term
investment principles?

7. SPECULATIONS
• More Volatility - Expect more Day Traders, changes in stock
price every day
IMAGINE A FUTURE WITH ZERO COMMISSION ON ALL TRADES
• Some studies show greater frequency of trading -> lesser
returns
• More margin trades -> Greater chance of bankruptcy?
Angry Birds has
a great future,
BUY!

8. HOW DOES ROBINHOOD MAKE MONEY?
MINED FROM QUORA
Interests on
Cash Balances
Interests from
margin lending
Interestingly, Robinhood is NOT the first company to offer zero commission
In 2006, Zecco offered zero commission trades
After economic crisis, they were forced to changing pricing structure
— An Old Adage
WHEN YOU DO NOT PAY FOR A PRODUCT, YOU ARE THE PRODUCT.
”“

9. ROBINHOOD MARKETS INC.
• Platform opened up for Quantopian(Algorithm Testing),
Openfolio(portfolio comparison)
• Robinhood INSTANT - Margin account, get immediate access to
funds after selling, make only 3 days every five trading days
WHAT’S NEW?
ANY QUESTIONS?