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
In short, the Robinhood Effect is a term that describes irrational stock price movements caused by retail traders buying stocks without regard to their fundamentals.
What is Robinhood trading strategy? ›
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.
Is Robinhood coming to Europe? ›
So, yes, Robinhood is now available in Europe, but only for trading cryptocurrencies. The company launched its Robinhood Crypto app in the European Union in late 2023. This app lets users buy, sell, and hold over 25 cryptocurrencies, like Bitcoin, Ethereum, and others.
Why is Trading 212 bad? ›
Trading 212 can be bad because it offers high-risk leverage products like CFDs alongside an app that is aimed at new and inexperienced investors. That is the answer to the question you may have asked if you've stumbled onto this page because you are looking for reasons not to trade with Trading 212.
What does Robinhood charge per trade? ›
Trading activity fee
As of January 1, 2024, the TAF is $0.000166 per share (equity sells) and $0.00279 per contract (options sells). This fee is rounded up to the nearest penny, which will be no greater than $8.30 per trade.
Does Robinhood trade in real time? ›
Depending on the time of day, Robinhood partners either Nasdaq Last Sale or BOATS (8 PM-4 AM ET) to get the real-time last sale prices. With more liquidity than any other US exchange, the Nasdaq is one of the most accurate sources for real-time trade data.
Is Robinhood a good or bad thing? ›
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.
How does Robinhood decide which shares to sell? ›
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. Check out Cost basis for more details.
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 country owns Robinhood? ›
Robinhood Markets, Inc. is an American financial services company headquartered in Menlo Park, California.
If you're interested in traditional and digital assets on a single platform, Robinhood might be the better choice. However, if you're interested in a crypto-focused portfolio with a wider range of currencies and advanced features, Coinbase is likely the better choice.
How does Robinhood make money? ›
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.
Is Trading 212 fake? ›
TRADING212 (clone of FCA authorised firm)
Be aware that scammers may give out other false details or mix these with some correct details of the registered firm. They may change contact details over time to new email addresses, telephone numbers or physical addresses.
Is Trading 212 in trouble? ›
Trading 212 has been profitable every single year since its founding 20 years ago. We have no debt and maintain solid cash reserves.
Is Trading 212 better than Robinhood? ›
Trading costs are higher at Robinhood, but Trading212 maintains more expensive financing rates and currency conversion fees. The absence of MT4 and algorithmic trading at both brokers are notable. Trading212 trumps Robinhood with its trading conditions and broader asset selection.
Should I use Robinhood for investing? ›
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 disadvantage of using 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.
Why is Robinhood trading so low? ›
Key Takeaways. Robinhood shares tumbled as the online brokerage missed analysts' estimates and warned about current quarter revenue. The company reported a bigger loss and lower sales than expected as trading slowed and users declined.
What are the limits for day trading on Robinhood? ›
You can do only three-day weekly trades with Robinhood Standard and Robinhood Gold accounts. If you want to trade more than that, you must have at least $25,000 in your account. Otherwise, your account's blocked for 90 days. You can day trade if you have a cash account with $25,000.
