Baiju Bhatt, Michael Goode, and Manoj Narang on free stock trad­ing

Bloomberg Businessweek (Asia) - - NEWS - BY MATTHEW PHILIPS


BAIJU BHATT cre­ated ROBIN­HOOD, a com­mis­sion-free trad­ing app, to give every­one ac­cess to stock mar­kets. Q: YOU’RE TRY­ING TO SIM­PLIFY WHAT CAN BE A PRETTY COM­PLI­CATED PROCESS. A: Steve Jobs once said good de­sign isn’t just how some­thing looks and feels but how it works. We’ve tried to make that men­tal­ity part of our world­view. So, if you’ve ever tried to open an ac­count or trade a stock on an on­line bro­ker­age ac­count, it’s like a Rube Gold­berg ma­chine. It’s far too com­pli­cated and of­ten de­signed for peo­ple who make those bro­ker­ages the most money. What we’re af­ter is some­thing much more ba­sic that can pro­vide ac­cess to the pub­lic mar­kets for every­one, not just for peo­ple with lots of money. Q: HOW DO YOU MAKE MONEY? A: Robin­hood col­lects in­ter­est on un­in­vested cash in cus­tomer ac­counts and will roll out mar­gin trad­ing i n the next few months. Mar­gin trad­ing will drive the lion’s share of our rev­enue, which is like a loan that lets peo­ple have more money to trade with. Q: WHAT DID YOU FO­CUS ON WHEN

CRE­AT­ING YOUR IN­TER­FACE? A: Ob­vi­ously, mo­bile came first. That had as much to do with the ease of build­ing it as it did with the ex­pe­ri­ence and au­di­ence we were af­ter. We wanted it to be sim­ple; we wanted it to be tac­tile—some­thing that gives peo­ple the sense that when they open the app, they’re hold­ing their money right in their hand. We took ad­van­tage of things like swip­ing up to push your or­der into the mar­ket. The en­gine is very com­plex, but we were able to put that un­der the hood.


Fees aren’t an is­sue, says MICHAEL GOODE. It’s “the abil­ity to trade what I want, when I want.” Q: HOW DO YOU TRADE? A: I typ­i­cally trade about $20 mil­lion in penny stocks a year. I use two main bro­kers that charge me on a per-share ba­sis, so I end up pay­ing a lot of money on com­mis­sion. On a typ­i­cal day I spend maybe $76 on trad­ing com­mis­sions. Q: WHAT STRUCK YOU ABOUT ROBIN­HOOD WHEN YOU FIRST HEARD ABOUT IT? A: It was nice to see some­one come in with a fresh idea to com­pete with the es­tab­lished play­ers. What I was struck by at first was what a nice, clean de­sign t hey had. Bro­kers typ­i­cally put no thought i nto the de­sign and user ex­pe­ri­ence. I have a bunch of ac­counts I’ve opened through the years, and even to­day most of those re­tail bro­ker­age web­sites look like they’re straight out of 1996. … The act of plac­ing a trade is still way too com­pli­cated. Q: WOULD YOU EVER USE

ROBIN­HOOD? A: I’m not sure it fits my pur­poses as a day trader. I talked about it re­cently with some other day traders, and none of them thought it was a good fit for them. I use some of my own al­go­rith­mic trad­ing pro­grams, and Robin­hood doesn’t sup­port those. Also, ex­e­cu­tion qual­ity is su­per im­por­tant for day traders. What’s more im­por­tant to me isn’t the fees I’m pay­ing but the abil­ity to trade what I want, when I want.


Zero com­mis­sions alone might not be enough to at­tract young in­vestors, says MANOJ NARANG, the founder and for­mer CEO of Trade­worx, a high-fre­quency trad­ing firm. Q: IS THERE ROOM FOR ANOTHER ON­LINE BRO­KER? A: The one thing I am sure of is that the es­tab­lished dis­count bro­kers need some fresh com­pe­ti­tion. Their trade com­mis­sions haven’t budged for 15 years. There’s been so much ad­vance­ment in trad­ing tech­nol­ogy and vol­umes. The big in­sti­tu­tional in­vestors have ben­e­fited from that and are pay­ing a lot less to trade. But the re­tail traders, the av­er­age folks, have seen no cost sav­ings. And that’s be­cause the large dis­count bro­kers got en­trenched. I see this as a space worth dis­rupt­ing. Q: WILL THIS WORK? A: That re­mains to be seen. There have been a cou­ple at­tempts at do­ing zero-com­mis­sion trades that didn’t work. I don’t know that free com­mis­sions alone will at­tract enough in­vestors. What makes me op­ti­mistic now is that these guys are fo­cused on mo­bile. It’s cheaper to build apps than web­sites. I feel l i ke the model could work if the busi­ness is lean and ef­fi­cient enough.

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