Free Trading App Robinhood Takes Aim at Old Line Brokerages

Watch out for falling trade fees. Robinhood, which has a zero-fee trading app, just got a nice cash infusion from DST Global to go after the old line brokerage firms (E*Trade, Schwab, etc) and, basically, make their life miserable.  That infusion would give Robinhood a valuation of $1.3 Billion and open the door for additional raises as the firm grows. Look for more fee reductions from the “big boys/girls” as the competition for traders heats up. Congrats on the cap raise.
(Bill Taylor/CEO)

‘Zero-fee stock trading app Robinhood is completing a huge fund raise to fuel its attack on old brokerage firms that charge around $7 to $10 per trade. According to sources, the round is led by Yuri Milner investment vehicle DST Global and values the company at $1.3 billion. Robinhood declined to comment.

Robinhood got its start in 2013 by offering a way for younger, less-wealthy users to start investing. It provides an easy-to-use app for free tracking and trading of stocks. Robinhood replaces the traditional brokerages like Scottrade and E*Trade which charge per trade to cover their brick-and-mortar franchise, sales staff and marketing spend.

Because Robinhood instead employs a leaner engineering-focused team and doesn’t need physical locations, it can pass the savings on to customers and undercut competitors by charging no per-trade fee.

Robinhood has since built a platform that allows other developers to offer zero-fee trades in their own apps. Last year, it launched its primary revenue stream, a $10 per month premium Robinhood Gold option. That allows users to skip the three-day waiting period for deposits and make trades instantly, as well as borrow up to double the amount of money in their account to trade on margin with leverage.

Sources say Robinhood Gold has sold better than expected, which likely gave it the momentum for this big raise as investors seek to ‘pour gasoline on the fire’. Robinhood’s status was further bolstered by the fact that established brokerage Charles Schwab reduced its fees in February.

At the time, the startup issued a statement that “We’re happy to see Charles Schwab lower its commission fees. Ideally, they would have eliminated them altogether, along with the required $1,000 account minimum. At Robinhood, we view commission fees as arbitrary mark-ups like taxes, which discourage participation in the financial markets.”’

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