1 share of Amazon stock costs more than $ane,700, locking out less-wealthy investors. So to go on its quest to democratize stock trading, Robinhood is launching fractional share trading this calendar week. This lets y'all buy 0.000001 shares, rounded to the nearest penny, or merely $1 of any stock, with zero fee.
The ability to buy by millionth of a share lets Robinhood undercut Square Cash’s recently announced partial share trading, which sets a $1 minimum for investment. Robinhood users can sign up hither for early access to partial share trading. “One of our cadre values is participation is power,” says Robinhood co-CEO Vlad Tenev. “Everything nosotros practice is rooted in this. Nosotros believe that fractional shares have the potential to open up upward investing for fifty-fifty more than people.”
Fractional share trading ensures no one demand be turned away, and Robinhood can go along growing its user base of operations of 10 million with its war breast of $910 1000000 in funding. Equally incumbent brokerages similar Charles Schwab and East*Trade move to copy Robinhood’southward free stock trading, the startup has to stay ahead in inclusive fiscal tools. In this case, though, it’south trying to proceed upward, since Schwab, Square, and SoFi all launched partial shares this year. Stash has had them since 2015, and Edification has really offered this since 2010.
Robinhood has a agglomeration of other new features aimed at diversifying its offer for the non-yet-rich. Today its Greenbacks Management feature it announced in October is rolling out to its showtime users on the 800,000-person wait list, offer them one.eight% APY interest on cash in their Robinhood remainder plus a Mastercard debit card for spending coin or pulling it out of a wide network of ATMs. The characteristic is effectively a scaled-back relaunch of the botched debut of 3% APY Robinhood Checking a year ago, which was scuttled because the startup failed to secure the proper insurance it now has for Cash Management.
Additionally, Robinhood is launching 2 more widely requested features early next year. Dividend Reinvestment Plan (DRIP) volition automatically reinvest into stocks or ETF greenbacks dividends Robinhood users receive. Recurring Investments volition permit users schedule daily, weekly, bi-weekly or monthly investments into stocks. With all this, and Crypto trading, Robinhood is evolving into a full fiscal services suite that will be much harder for competitors to copy.
How Robinhood fractional shares work
“We believe that if y'all want to invest, information technology shouldn’t matter how much money you take. With fractional shares, we’re opening up a whole universe of stocks and funds, including Amazon, Apple, Disney, Berkshire Hathaway, and thousands of others,” Robinhood product manager Abhishek Fatehpuria tells me.
Users volition be able to place real-fourth dimension partial share orders in dollar amounts as low as $1 or share amounts as low as 0.000001 shares rounded to the penny during market hours. Stocks worth over $1 per share with a market place capitalization above $25 million are eligible, with 4,000 different stocks and ETFs available for commission-free, real-time fractional trading.
“We believe that participation is power. Since day one, nosotros’ve focused on breaking down barriers like trade commissions and business relationship minimums to assistance people participate in the financial system,” says Fatehpuria. “We have a unique user base — half our customers tell us they’re first-time investors, and the median age of a Robinhood client is 30. This means nosotros have a unique opportunity to expand access to the markets for this new generation.”
Robinhood is racing to corner the freemium investment tool market before other startups and finance giants tin can take hold of upward. Information technology opened a waitlist for its U.Thou. launch next year, which volition be its first international market. But in just the past month, Alpaca raised $6 1000000 for an API that lets anyone build a stock brokerage app, and Atom Finance raised $12.v million for its free investment research tool that could compete with Robinhood’s in-app characteristic. Meanwhile, Robinhood suffered an embarrassing bug, letting users infringe more coin than immune.
The motility fast and pause things mentality triggers new dangers when introduced to finance. Robinhood must resist the urge to blitz every bit information technology spreads itself across more than products in pursuit of a more level investment playing field.
