Reducing Inefficiencies in the Financial Markets

Sarang Ananda Rao MBA Candidate,

University of Cincinnati

WHAT DO THESE COMPANIES HAVE IN COMMON?

Valuation: $62.5 B Market Cap: $42.8 B

Why own a car when you hire an Uber?

Why buy cable when you can stream Ultra HD videos?

REDUCE INEFFICIENCY IN THE MARKET.“ ”Does the valuation make sense?

ENTER ROBINHOOD

$7.95 Per Trade

$9.99 Per Trade

$4.95 Per Trade

$6.95 Per Trade

ZERO COMMISSION

Future?

ROBINHOOD MARKETS INC.

• Based out of Palo Alto, California

• Launched April 18, 2013

• MOBILE ONLY: iPhone, Apple Watch & Android devices

• Users: 80% Millennials, Average customer age is 26

• 50% of the users who have made a trade use the app daily and 90% come back!

• $0 Initial funding requirement, $0 commission on stocks/ETFs, Options not supported, Real time quotes & trades

• It takes 3 days to settle your funds once you execute SELL

KEY DETAILS

ZERO COMMISSION - SO WHAT?

• Low barrier to entry, minimum age to download the app is 4+

• More retail investors, higher volatility

• Free trades, margins - What will happen to long-term investment principles?

SPECULATIONS

• More Volatility - Expect more Day Traders, changes in stock price every day

IMAGINE A FUTURE WITH ZERO COMMISSION ON ALL TRADES

• Some studies show greater frequency of trading -> lesser returns

• More margin trades -> Greater chance of bankruptcy?

Angry Birds has a great future,

BUY!

HOW DOES ROBINHOOD MAKE MONEY?MINED FROM QUORA

Interests on Cash Balances

Interests from margin lending

Interestingly, Robinhood is NOT the first company to offer zero commission

In 2006, Zecco offered zero commission trades

After economic crisis, they were forced to changing pricing structure

— An Old Adage

WHEN YOU DO NOT PAY FOR A PRODUCT, YOU ARE THE PRODUCT.”“

ROBINHOOD MARKETS INC.

• Platform opened up for Quantopian(Algorithm Testing), Openfolio(portfolio comparison)

• Robinhood INSTANT - Margin account, get immediate access to funds after selling, make only 3 days every five trading days

WHAT’S NEW?

ANY QUESTIONS?