[soldergenie]

From what I can see, the only way they differentiate themselves from their well established competitors is by not charging commissions. Yet I don't see how their costs of running a brokerage would be lower than their competitors, and they don't seem to have any revenue streams their competitors don't also have. So how will they eventually be profitable? Discount brokerage isn't an especially profitable industry to begin with

Competing on price alone doesn't seem like a good strategy to creating a valuable company.

[atomicmat]

Recently talked to one of their shareholders. Sounds like they're not focused on monetization right now. They're #1 aim is to acquire consumers (millenials preferably), gain scale, and then figure it out. Note that by acquiring millenials they're not gaining share from traditional brokers, they're more likely to expand the pie and get new people to trade. Hopefully these people are quite sticky, and will trade bigger and bigger amounts, by which point they'll be able to offer premium monetization options.

It's a long term play. They're going to be loss-making for a while. Their VC backers can handle it. It's like Transferwise (similar backers) who launched three years ago and who are still loss-making even though they've already processed >$1 billion in transactions...

[kordless]

> #1 aim is to acquire consumers (millenials preferably), gain scale, and then figure it out

The definition of a bubble, if there ever was one.

[bduerst]

It's a super risky strategy but a bubble? It's VCs throwing their money into a gambling pit, which is par for that industry.

[ShinyCyril]

That's interesting that Transferwise are making a loss given that they are charging a commission. What is their monetisation strategy?

[atomicmat]

It's very simple. 50bps of every transaction that you make. They will need MANY transactions to justify a $1B valuation :)

They're investing heavily now (at a loss) in marketing and in international expansion (note the recent US launch). Have you seen their recent marketing campaign in the UK? If you refer 3 paying users, you get £100 ($155) cash. Their cost of acquisition is therefore £33/user if not more. Assuming a 0.5% margin, they are therefore implying that each paying user will make at least £7,000 ($10,000) in transfers with them. And that's just to break even...

[PublicEnemy111]

I was coming here to say exactly that.

from: http://techcrunch.com/2015/05/07/free-stock-trades/ > Tenev says Robinhood is charging a 3.5% fee to trade on margin in a private beta of the feature

It looks like they're planning to monetize via margin. That would work great if the economy was perpetually in an upswing... but I don't think they would have survived in the great recession.

Not to mention the irony of Robinhood making margin calls.

[this_user]

They are likely also making money by selling the customer's order flow to large institutions/HFT firms who will happily pay significant sums for this. This is something most other retail brokers are also doing and have been doing for a while. The result is that you as the customer are paying indirectly by getting screwed on your fills.

http://en.wikipedia.org/wiki/Payment_for_order_flow http://blogs.wsj.com/moneybeat/2014/06/13/payments-to-big-br...

[nlh]

I wonder what the actual implications of "getting screwed on fills" really are.

If I'm buying AAPL as a casual retail consumer, and the market price at the absolute moment is $121.05, and I get "screwed" with a fill of $121.06, is that really a big deal? Especially considering that a few seconds later the true market price could jump in either direction?

As a professional trader who's head is in the moment, sure, that seems bad. But does it REALLY matter for a casual long-term investor? My hunch is no. (I know I couldn't care less if I pay a few pennies more or less - I'm not using Robinhood for day trading, and that's not the point or their pitch.)

[kasey_junk]

> The result is that you as the customer are paying indirectly by getting screwed on your fills.

Citation needed. Its entirely possible that order flow traders are actually providing better/equivalent fills than can be obtained without them.

I've seen no long term studies one way or the other, though I admit on first blush order flow payment seems dodgy.

[bt3]

Not only this, but I get the feeling that Robinhood is bypassing some corporate social responsibility (and possibly fiduciary duties) if they begin suggesting/ allowing first time investors to start using margin accounts.

This is just fuel on the fire of uneducated first-time investors being lured by "$0 commissions".

[poopsintub]

They take a pretty good fee to withdraw money. I'm not sure that would be a decent part of their revenue, though.

[vtlynch]

Do you have a source for this?

For US listed stocks there is no fee throughout the entire transaction (deposit, buy, sell, withdraw): https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...

Robinhood has stated for a while that they have a margin feature they plan to charge for: https://robinhoodapp.zendesk.com/hc/en-us/articles/202853769...

[what_ever]

Withdraw to your bank account?

[poopsintub]

Sorry about that. I must have looked at ACAT - Outgoing for some reason, believing it was ACH.

[curiousphil]

This assumes that the other competitors aren't vastly overcharging for their services. The current commission structure for most brokerages is still based on a time when computers couldn't execute a trade nearly instantly and a lot of paper and people were involved with the execution. There's really no good reason for a trade costing between $5-10 dollars to execute today. So far my experience with the Robinhood app has been pretty great. When you aren't trading thousands of dollars per trade, not having a commission is pretty dang nice and removes a good sized barrier for light hobbyist investors like myself.

[themartorana]

Completely agree. I'm playing with investing ideas with under $2000. I could run through 10% of my money in 20 trades.

This has nothing to do with the validity or intelligence behind being an armchair day trader. This is entirely about my ability to participate in the market in a small way, without trade fees having a significant enough impact to wipe out short-term gains completely.

[jonheller]

Reminds me of Zecco and another company I'm forgetting the name off. Offered free trades for a year or two and then charged the same fees as the rest of them.

[INTPnerd]

Just so you know, Zecco and TradeKing have merged, so now people just use the TradeKing website. They are still one of the cheapest online trading services. Their website and customer service are great.

[riffraff]

If they charge less than the competitors, they earn less but that doesn't mean they are not viable.

I.e. transferwise.com charges a ton less than my bank to send money with a conversion. My bank could charge less and not lose customers, but it will probably take them some decades to do that.

[__john]

If I understand it correctly robinhood makes their money on the spreads[0] they offer (see point number 3). So much so that in many cases it's better to use a broker like interactive brokers or etrade.

[0] https://news.ycombinator.com/item?id=6907334

[kasey_junk]

Depending on what you mean by "spreads" that is probably not correct.

One thing they are certainly doing is selling their order flow. Large HFT firms like Knight & Citadel pay brokerages like Robinhood for the privilege of routing retail orders. You can find the documents in their "Disclosure Library".

https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...

http://public.s3.com/rule606/apex/APEX_1Q2015_Rule606.pdf

It's important to note that it is likely that all retail brokers are doing this, so this is not how Robinhood is able to offer no fees.

Either they have significant cost advantages (new infrastructure/cheaper labor etc) or they have better deals with the people executing their orders.

[edit] Also http://external.s3.com/rule606/apex/APEX_2015Q1Disclosure.pd...

[towelguy]

On a business where the objective is increasing your wealth?

> With Robinhood, you will be able to buy and sell US listed companies, ETFs, and many of the largest companies in your home country.

This also looks like a nice addition.