If someone with $30,000 in savings makes 30 stock transactions per year at $10 a trade, they’ve lost 1% of their total to fees, $300. If they’re expecting 7% annual returns that ends up reducing earnings by 14% per year. The math for the masses is pretty straightforward.

Interative brokers charges considerably less https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...

They also have super cheap margin loan rates.

They charge $10 a month if you have less than $100k though.

Someone with only $30,000 total invested should not be making 30 charged transactions a year.

Out of curiosity, if there are no fees, why not? That lets you theoretically diversifying your risk by investing $1,000 in 30 companies rather than say $5,000 in 6 companies.

An index fund would be yet more diversified, and that's one trade. Very few individual investors have any reason to believe they can pick stocks in a way that outperforms the market.

The zero fees might still be nice if you want e.g. to contribute every paycheck; but an old-fashioned Vanguard mutual fund would be just as good for that, or many brokerages have zero fees for specific classes of ETF. The only advantages that I'd see to Robinhood are (a) no minimums, and (b) pretty UX.

That's a fair point. I use Robinhood to diversify my porfolio so it's not just tracking against the market. So far, whether due to luck or skill, or both, it's been working out pretty well. So to put it another way, I don't see Robinhood as a replacement for the traditional brokerages (yet), but as a supplement.

A good reason would be dollar cost averaging. If you have a monthly transaction split across 3 index funds, you're over 30 trades per year.

As a Robinhood user, no fees is a big draw because while I don't buy/sell stocks that often, I might still be saving $50 a year. That extra $50 can be invested.

But beyond that, Robinhood has a really easy to use UI compared to platforms like TDAmeritrade. It's not only much easier to make trades but also see information like how much dividends I've earned, whether a company has hit their earnings, etc.

Robinhood also lets me invest any money I transfer from my bank immediately. There's no 3-5 business day wait. That said, I'm not sure if this is feature available to everyone or only those on Robinhood Gold.

Same here. I'm only putting in a couple hundred a month right now so 2 x 7 x 12 = $168 and that would eat up much of the returns. I buy and hold dividend paying ETFs. I am not on gold and they gave me instant deposit. I think they give it to you after a while once it becomes obvious you aren't a fraudulent player. I'd like to move to IB given the significantly lower margin % but the fees would kill me. Robinhoods margin is 6%.

Brokerage is a book business. Robinhood is collecting a book of young customers (whom traditional brokerages have not been successful attracting) who frequently trade and use margin (which makes them lucrative).

They don’t have enough capital to trade frequently on margin accounts. $10 billion assets and 3 million users puts the average account has little over $3k. E*TRADE has $300 billion for the same number of users.

Sounds like the business model is to accumulate a base of customers and then to sell the business to some kind of Bank of Wells Fargo who will then proceed to phase out the no-fee service.

Can you explain what the phrase "book business" means?

> Can you explain what the phrase "book business" means?

You accumulate a “book” of end customers, usually from a particular demographic, for the purpose of selling to someone who doesn’t have that demographic. Versus flow (e.g. exchanges) or asset accumulation (e.g. ETFs) businesses.