Robinhood App Review - Free Trades Without a Catch?
The primary question remains how will Robinhood make money if trades are zero? In their FAQ they state they will make money through margin lending interest, and interest on any uninvested customer cash deposits.
According to some sources, the margin interest rate will be 3.5% once it is offered. This margin rate is much lower than other leading brokerage firms. Also according to their FAQ they will not make money via PFOF (Payment For Order Flow). Though they could make this a source of revenue in the future.
Will they be able to pull this off? As a reviewer of various brokerages, I'm not so sure. Keep in mind, this hasn't been the first time a stock broker has tried this idea. Zecco was a recent brokerage firm who tried the freemium model. During their existence, Zecco changed their pricing structure several times. And eventually, Zecco determined their business model wasn't successful and merged with TradeKing.
Currently there are two other firms which are following the freemium model: LOYAL3, and WiseBanyan. Robinhood and LOYAL3 are just straight up stock brokers, whereas WiseBanyan offers robo-advisor services.
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