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Robinhood has announced that it is launching fractional share trading this week aiming to continue its quest to democratize the world of stock trading with zero fees.
The most lucrative stocks in the market today seem to lock out the less-wealthy investors. For instance, one share of Amazon stock costs over $1,700 and that of Google is over $1,300. However, a solution came up in the form of fractional stock-trading.
To continue its quest to democratize the world of stock trading, Robinhood has announced that it is launching fractional share trading this week. If anyone has $1 to spare, they have no excuse for not investing.
The new strategy enables users to buy 0.000001 shares which will be rounded to the nearest penny with zero fees. Thus, investors do not have to be constrained by whole share prices. Customers can buy the fractional shares in their favorite companies with the feature scheduled to start with a limited rollout to U.S. customers in the coming week.
The New Features On Robinhood
The fractional share trading method guarantees that no one is turned away from investing in the stock markets. Additionally, Robinhood can keep expanding its user base of 10 million with its $910 million in the funding war chest. The startup aims to stay ahead in inclusive financial tools as incumbent brokerages like E*Trade and Charles Schwab rush to replicate Robinhood’s free stock trading.
In the fractional stock trading front, the startup is struggling to keep up because Square, Schwab, SoFi, and Stash all introduced fractional shares in 2019. Interestingly, Betterment has offered these services since 2010.
Robinhood also has several other new features that will let it diversify its offering for the not-yet-rich investors. On December 12, the Cash Management feature it announced in October rolled out to its first users on the 800,000-person waitlist. It will offer them 1.8% APY interest on cash in their Robinhood balance.
It will also offer a Mastercard debit card for spending money or just pulling it out of a wide network of ATMs. This feature is a scaled-back re-launch of the botched debut of 3% APY Robinhood Checking a year ago. In that instance, the process was abandoned since the startup failed to secure the proper insurance that it currently has for Cash Management.
Furthermore, Robinhood announced that it is launching two more greatly requested features in early 2020. Dividend Reinvestment Plan (DRIP) will automatically reinvest into stocks or ETF cash dividends Robinhood customers get. Recurring Investments will enable customers to schedule daily, weekly, bi-weekly or monthly investments into stocks.
Thus, Robinhood is evolving into a fully-fledged financial services suite that will prove much harder for competitors to replicate. The introduction of all these features and Crypto trading is what makes the startup unique.
How These Fractional Shares Operate
Customers can place instant fractional share orders in dollar amounts as low as $1. Robinhood also allows users to place these orders in share amounts as low as 0.000001 shares rounded to the penny particularly during the market hours.
The eligible stocks must be worth more than $1 per share and have a market capitalization surpassing $25 million. They must also have 4,000 different stocks and ETFs offering commission-free, real-time fractional trading. According to Robinhood product manager Abhishek Fatehpuria, participation is power and since the start, Robinhood has focused on breaking barriers like account minimums and trade commissions. Breaking these barriers will enable people to participate in the financial system.
“We have a unique user base — half our customers tell us they’re first-time investors, and the median age of a Robinhood customer is 30. This means we have a unique opportunity to expand access to the markets for this new generation.”
Robinhood is striving to dominate the freemium investment tool market before any other startups and finance giants can catch up. Its first international market comes in the form of a waitlist for its U.K. launch next year. However, Alpaca raised $6 million for an API in November 2019. This API enables anyone to create a stock brokerage app.
On the other hand, Atom Finance raised $12.5 million for its free investment research tool. Atom’s tool may compete with Robinhood’s in-app feature. In the meantime, Robinhood encountered a bug that let users borrow more money than allowed. Any wrong move may trigger new dangers when introduced to finance and affect the mentality of the investors.
In this case, Robinhood must avoid rushing as it spreads itself across more products while seeking a more level investment playing field.