The race is on to become Europe's Robin Hood in terms of commission-free share trading
Article by financemagnates:
Firms are rushing to create a new segment for forex traders, while others use it as a marketing strategy.
I am more than certain that even though you might not be living in the Europe or Canada, you have heard about Robinhood and their zero-commission share trading. The company is causing a small revolution among discount forex brokers across the Atlantic thanks to zero-commission stock trading.
After years of development, which started around 2012, the app really took off in recent years. The companyâs founders say they got inspired by the Occupy Wall Street movement, which exposed to them the true state of the stock market. At the time they were working for a high-frequency trading outfit.
Whether this is a very picturesque story of how a new brokerage brand is born or not, the fact is that Robinhood grew to become a company valued at more than $5.6 billion and has a user base of nearly seven million people.
At first sight, the companyâs success across the Atlantic is unprecedented and similar offerings in Europe should be soon widely available. That, however, is far from the case. The fragmentation of European stock exchanges and the lack of investing culture on this old continent make it a much more difficult market.
Breaking the Status Quo
Over the past twelve months, several companies started preparations to deliver a similar product to the European market. Some firms like JFD Brokers announced that they are planning a new application for zero-commission stock trading.
Other mobile-centric companies such as Revolut are said to be working on a zero-fee stock trading product too. At least one major developer of a mobile trading app is working on implementing zero-commission share trading. Crowdfunded UK startup Freetrade.io is also getting ready to launch its own beta this spring.
This being said, the current status quo in Europe is that retail investors willing to purchase stocks typically need to either open an account with a broker charging rather steep commissions or contact their bank. The latter isnât cheap either and the remaining CFDs and spread betting products are still not the same as owning shares.
Meanwhile, traditional forex and CFDs brokers are launching their own products that resemble zero-commission stock trading. In order for those to be anything more than a marketing gimmick, however, they have to also deliver very low spreads. Weâve already seen some companies pushing their zero-commission stock trading to the market, but the spreads they deliver to their clients are far from market rates.
Offering zero-commission trading while charging half a cent spread on any stock pretty much puts the product on par with paying the commission. Suddenly a product that is marketed as revolutionary is nothing more than an opportunity for the broker to engage in business with new customers.
Forex and CFDs brokers would love to have more new clients especially at a time when the industry is struggling to onboard new clients in the new EU regulatory environment. What many of the players in this space, who claim to be zero-commission, would do is up-sell their newly minted customers to forex, CFDs, and spread betting.
Gaining the trust of forex traders
Both strategies can be successful and both strategies are looking for different clients. Just like with the market making and STP business models, we will have zero-commission and true zero-commission offerings. The difference will be paid by the clients, their level of sophistication, as well as their effort committed to market research.
The most difficult problem to solve on part of EU-based companies aiming to attract retail clients to invest in stocks is culture. Despite very low interest rates, European investors have remained conservative when looking at ways to diversify their savings.
The Bitcoin bubble last year was actually bad news, with the mood of relatively young millennial investors souring throughout 2018. European citizens are trained to avoid risky investments, especially in rich northern European nations.
Cultural shifts take time and the 10-year old stock market rally is in its late stages according to many analysts. Brokers and mobile app developers will have to go an extra mile in order to convince EU citizens that zero-commission stock trading is a valid alternative to⦠well zero-rates.
FAQs
One of the most popular strategies stock traders use on Robinhood is “value investing,” which involves buying stocks that are undervalued by the market and selling them when they reach fair value.
What is the equivalent of Robinhood for Europe? ›
Best stock trading apps in Europe for 2024
- eToro. Stock app score: 4.9/5. ...
- Webull. Stock app score: 4.7/5.
- Robinhood. Stock app score: 4.6/5.
- Interactive Brokers. Stock app score: 4.6/5.
- moomoo. Stock app score: 4.6/5.
- SoFi Invest. Stock app score: 4.5/5.
- Fidelity. Stock app score: 4.5/5.
- Merrill Edge. Stock app score: 4.5/5.
European Union: In December 2023, Robinhood introduced its Robinhood Crypto app in the EU, enabling users to trade, purchase, and store over 25 different cryptocurrencies. However, the platform does not yet have the necessary licenses to offer stock and ETF trading across most EU countries.
What is the Robinhood theory of change? ›
The Robin Hood effect is an economic occurrence where income is redistributed so that economic inequality is reduced. That is a redistribution of economic resources due to which the economically disadvantaged gain at the expense of the economically advantaged.
What is the downside of Robinhood? ›
Robinhood's range of offerings is extremely limited in that it only offers stocks, ETFs, options, and cryptocurrency trading. Robinhood doesn't support mutual funds or fixed-income products, and you can't trade commodities, forex, or futures.
What is the best stock to make money on Robinhood? ›
So, what are the best Robinhood stocks to buy now or put on a watchlist? At the moment, Microsoft (MSFT), Google parent Alphabet (AMD) and Robinhood Markets (HOOD) are standout performers, at least relatively. They are also part of the Robinhood Top 100 Stocks list, the platform's most popular stocks among traders.
Can I buy European stocks on Robinhood? ›
Sign up for a Robinhood brokerage account to buy or sell EEA stock and options commission-free. Other fees may apply.
Can I use Robinhood if I'm not a US citizen? ›
To open a brokerage account with Robinhood, you don't need to put any money down. However, you must be age 18 or older, have a valid Social Security number and legal US residential address, and either be a US citizen, US permanent resident, or have a valid US visa.
Will Robinhood go international? ›
Online investments app Robinhood said Thursday that it's set to launch its platform in the U.K. in early 2024, marking the company's third attempt at cracking international expansion. Features include the ability to choose from 6,000 U.S. stocks and 24-hour trading five days a week.
What country is Robinhood based in? ›
Robinhood is headquartered in Menlo Park, California, the US.
You can access your Robinhood account from almost anywhere. However, certain laws and regulations (specifically those administered by the U.S. Office of Foreign Assets Control (OFAC)) prohibit account access for some countries. Robinhood has also made a risk-based decision to restrict access for some other countries.
Can I use Robinhood card in Europe? ›
You can use your Robinhood Cash Card virtually anywhere that Mastercard® is accepted around the world.
What was the Robinhood scandal? ›
Robinhood Financial has been ordered to pay nearly $70 million to resolve “systemic supervisory failures” that resulted in “significant harm” to millions of customers after the brokerage misled them, exposed them to risky trading tools and failed to supervise its technology, a failing that led to trading outages, an ...
What problem did Robinhood solve? ›
Robinhood has had some positive, and profound, implications for the market. The company has removed barriers to trading by making investing commission-free and mobile-first. It has simplified investing, and made it more accessible and personal. Robinhood says its tools are reaching a more diverse group of investors.
Why is Robinhood so famous? ›
He became a popular folk figure in the Late Middle Ages, and his partisanship of the common people and opposition to the Sheriff are some of the earliest-recorded features of the legend, whereas his political interests and setting during the Angevin era developed in later centuries.
What is the Robinhood method? ›
The default method for your Robinhood account is first-in, first-out (FIFO), which is selling the shares you bought first. The shares themselves aren't specifically tracked, but the cost associated with those shares is expensed first.
Is trading on Robinhood a good idea? ›
Robinhood is considered safe for investors. It's a member for the Securities Investor Protection Corp. (SIPC), is regulated by the SEC, and has additional financial protection per customer up to certain amounts for cash and securities.
What is the Robinhood business model? ›
Robinhood makes money in many ways, notably through a system known as payment for order flow. That is, Robinhood routes its users' orders through a market maker who actually makes the trades and compensates Robinhood for the business at a rate of a fraction of a cent per share.
What strategic options does Robinhood have? ›
Plan, build, and execute strategies
Choose and customize your strategy, then place an order. Depending on your trading level, you can build vertical spreads, calendar spreads, strangles, straddles, and more. Certain complex options strategies carry additional risk.
