There’s a new app for stock trading called Robinhood, and its tagline is: “Investing. Now for the rest of us.” While brilliant from a marketing standpoint, it’s terrible for the public on two main fronts:
First, day-trading from your phone while at work is not investing. It’s a hobby and a distraction that should only be taken as seriously as your fantasy football league. If you want to “play” with a nominal amount for fun, knock yourself out. But you don’t play with retirement money—you invest it. And that means creating a well-diversified portfolio that you hold for the long-term.
Second, the name “Robinhood,” along with its tagline, implies new access to something previously reserved for the wealthy. While you may be able to download a cute little app, professional traders pay $20k per year for Bloomberg Terminals, which provide real-time data feeds from exchanges and other professionals across the globe. So it’s not exactly leveling the playing field.
What’s worse is that Robinhood advertises their service as “free,” but there’s always a cost. So how do they make money? They charge users to trade on margin, which means borrowing funds to make trades. In other words, they encourage users to trade with money they don’t actually have.
They also receive rebates from executing brokers, which sounds super boring and innocuous. But at the end of the day, it means users probably won’t get the best price for their trades. While technically the basic service is “free,” users end up paying more for the securities bought and receiving less for securities sold, which is tantamount to paying a commission anyway.
I hate to disappoint, but this app will not help you steal from the rich and give to the poor. If you want to play with an investment app for amusement, have fun but be prepared to lose.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.