As Morgan Stanley buys ETrade, Robinhood prepares for social trading


Before it was valued at $ 7.6 billion, the original idea for Robinhood was a social network for stock trading. At my kitchen table in San Francisco in 2013, the founders imagined an app to share hot tips for a feed with a leaderboard whose predictions were most accurate. As soon as they received SEC approval, they turned to the real money maker: they let people buy and sell stocks in the app and pay for them to borrow cash.

Now, seven years later, Robinhood is subtly taking the first steps back to where it started. Profiles are launched today. Currently, users can view analytics on their portfolio, such as: B. How does she focus on stocks versus options versus cryptocurrency as well as in different business areas. With usernames and a photo, you can track profiles of stocks and other assets that you have created yourself or that Robinhood provides.

Profiles could give Robinhood customers the confidence to trade more and create a sense of engagement that prevents them from switching to other brokers who have reduced their pro-trade fees to zero to match the startup, like Charles Schwab, Ameritrade and ETrade was acquired today by Morgan Stanley for $ 13 billion.

The profile functions certainly sound helpful. You could show that your portfolio focuses on technology, media and telecommunications stocks, or that you ignore cryptocurrency or companies from your home country. Lists also make it easier to track specific businesses, buy stocks to buy when you have cash, or set some aside for more in-depth research. Robinhood pulls information from FactSet, Morningstar and other trusted sources to find out which stocks and ETFs are included in industry lists, or you can create and name your own. Profiles and lists will be available to all users from next week.

What is most interesting, however, is how profiles form the basis for Robinhood as a social network. It is easy to imagine users following other accounts or lists they have created. Instead of having an expensive financial advisor or enough cash to qualify for one with another broker, Robinhood could give you crowdsource advice.

“We understand the connotation of taking something from the rich and giving it to the poor. Robinhood releases information that is blocked for professionals and passes it on to the people, ”Robinlad co-founder and co-CEO Vlad Tenev told me back in 2013.

Robinhood should definitely be careful when fraudulent tips go viral. However, acceptance of the social could use one of its greatest advantages: the youthfulness of its user base. Most online brokers are somewhat undifferentiated across price differences. Unsatisfied users can bail out a competitor at any time. However, Robinhood users are used to social networking and the way they include users because they don't want to leave their community.

When I directly asked Robinhood Profiles' product manager, Shanthi Shanmugam, if this was the beginning of further social trading functions, they dodged the question suspiciously and said to me: "When considering how you can reflect who you are as an investor, we looked at how other apps represent you, and it felt natural to use a design that felt more like a profile. When you help people group their investment ideas, it was easy to think of this as a playlist that you may find in your favorite music app. "

This is anything but a rejection. Offering retail social validation could help Robinhood earn more from its customers despite its low total account balance. While Robinhood may have over 10 million accounts, compared to 5.2 million from ETrade and 3 million from Morgan Stanley, the average account size of ETrade is $ 69,230 and that of Morgan Stanley is $ 900,000, while a survey found that most of Robinhood's 1,000 owned up to $ 5,000.

All of this means that Robinhood earns less on user account interest than the old established companies. However, Robinhood earns most of its money by selling the order flow and through the Robinhood Gold subscription feature, which allows users to pay monthly to borrow cash for trading. Profiles and lists, and finally more social features, could cause Robinhood users to trade more, so more orders flow and more reason to buy subscriptions.

“Democratizing access is about lowering fees, minimum amounts, and other obstacles that people face – like trust. Profiles and lists make finances more understandable and familiar to people, ”says Shanmugam.