Monday, September 29, 2014

Snoop Dog wants you to start investing {The Robinhood App}

Ever heard of Robinhood?

I am not necessarily referring to the famous character we all know and love. Instead, I am talking about a revolutionary new app for individual investors that is allegedly looking to launch in early 2015.

I first heard about this app about a week ago and I was quite intrigued. First of all, Snoop Dog is not necessarily what comes to mind when thinking about finance and investing. And second of all I wondered what would make this company different from other online brokers that are already in market (and there are many!). And so, I set out to do some research.

'Competitive Advantage'/differentiation:

In a general sence, the app seems to be targetted to everyone from individual investors whom have never invested before to the more experienced. Its goal is to make the investing process easy, convenient...and most importantly free.

How will this company make money?

I am sure many of us have heard the saying that "there is no such thing as a free lunch". Most online brokerage websites charge a fee for making trade. The average cost within online brokers hovers around $8.50 per trade. I currently have both Tradeking and TDAmeritrade. Tradeking is solely online (they dont have any actual branches) and each of my trades cost me $4.95. Meanwhile, TDAmeritrade charges me $9.99 per trade. Probably because they have several brick and mortar (physical) locations to maintain. And thus, said expenses transfer over to the customer.

According to Robinhood; one of the ways they plan to make money (at least initially) is by offering customers/investors the opportunity to train on Margin. According to the website, this is a feature they are currently working on. I tried to find out what percentage/fees they will charge individuals that decide to trade on margin but I couldnt find any definite answers on that. However, I will be on the lookout for my readers to keep you guys informed on this interesting development.

A word to the wise: I have mentioned a few times on the blog that I do not support trading on margin. Just to give you a brief explanation-- trading on margin entitles borrowing money from the brokerage company to make your trades or in 'pocker' language "playing with the house's money". A company like TDAmeritrade, for example, charges about 9% for money borrowed on margin. They let you borrow money, make your investment, and give you a timeframe to pay them back. Whether your stock ends up being a loser or a winner; the broker will not care and will want their money back with interest. Hence, trading on margin represents a HUGE risk. Specially for individual investors whom are just getting started and may not know exactly whay they are doing until they gain some experience. And so, I feel the upfront risk is tremendous and individual investors should be very careful with that. Investing with someone elses money is something that would never cross my mind and this is no exception.

Will your money be safe?

Yup. According to their website; you can link your checking/savings account to the app to transfer funds whenever you want. After that (and once they confirm your identity) whatever money you have on there will be protected by the SIPC (Securities Investors Protection Corporation) which is an institution similar to the FDIC (the instirution that protects the money you have in the bank). The money is insured up to $500,000 including $250,000 of cash claims.

Finally- what does Snoop Dog have to do with this?

Well, aside from companies like Google (a venture capitalist in the company), and other investors; the founders have also been able to get celebrities such as Snoop Dog, Nas, and even actor Jared Leto to invest money in the development of this innovative company. Interesting, right?


My two cents on the App:

I honestly feel the idea is genious and if this app will truly offer the opportunity to trade commission free; I will be the first one in line. As long as I am trading with my own money and the govertment is involved in protecting my funds, of course. So, I would be lying if I didnt say I am looking forward to seeing how this idea develops. This is the future of investing and is quite exciting. I would just warn beginner investors (specially those whom have never made a trade before)to get educated prior to making any trades or jumping in to the stock marget without a life vest. Start slow and learn as you go. As I always say: slow and steady wins the race. Oh! and use your own discretionary income. Do not fall in to the margin trap.

Would love to hear your thoughs on this! Comment below or email me at

Thanks for reading and as always, cheers to profits!