These days, trading apps are all the rage. Whether you heard about them from a friend or a Youtube advertisement, people are asking all about trading apps. This hip “financially fashionable” style fintech startup has begun to shake up the financial landscape. Before, people used to need significant information and investment capital to begin to trade stocks. Nowadays, if a layperson wants to begin investing and trading stocks, they can begin initiating commission-free trades, all without putting pants on.
Apps such as Revolute and other Robinhood alternatives allow the user to make “fee-free” stock trades. This is a big departure from the old style of trading in which a human broker would provide their trading services, for a percentage of the investment or a flat fee.
Even though the cost of making the trade is waived to the user, that does not ameliorate the cost of the trade. Many of these app-based services face significant losses in their initial launch and gamble, hoping numerous customers will sign up in order to get their businesses above water. With all these factors at play, is this a trading revolution or a financial fad?
Lowering Barriers to Trading
It’s no secret that trading apps have a huge youth appeal. While seeking out a personal investment broker can be inconvenient and require a lot of up-front capital, downloading an app feels a lot more natural to a millennial. The overall lower amount of initial capital puts a lot of pressure on traditional investment institutions to lower investment fees. Who wants to spend up £11.95 per trade with Hargreaves when they can do the same for free with Robinhood?
These youth-savvy financial companies offer a fashionable alternative. To appeal to young investors, these apps offer commission-free stock, share, and investment trading. They also offer access to a plethora of other overseas investments. Most of these apps use the “freemium” model, familiar to most Millennial users. Popularized by apps such as Spotify, the freemium model offers basic services for free, and premium services for a fee. Some apps charge a monthly fee, others let users pay a minimal amount to make a trade instantly. In many ways, trading apps make creating a diversified portfolio as easy as creating and paying for a Netflix account.
For many, the removal of these fees and relative ease of access open doors to people who would otherwise never consider investing. A lot of people have a hard time picturing themselves trading stock and would have no idea how to even initiate the process of finding a broker. In many ways, the financial world has traditionally felt like a place only people of privilege could access. The much lower barrier to entry allows people who were otherwise intimidated by the world of finance to begin building a portfolio. For those who have spent their lives with little financial knowledge and limited access to financial services, trading apps like Revolut and other Robinhood alternatives can be game-changing.
So What’s The Catch?
We all know that if something sounds too good to be true, it must be, and trading apps do have their drawbacks. While the associated fees on trading apps may be lower, they also have fewer resources to offer the user than a traditional broker could offer. Trading apps also feature a much smaller and more limited range of investments and tax-efficient wrappers. Traditional investing platforms can typically offer access to tens of thousands of investments, while even the most robust trading apps can only offer access to hundreds. Traditional services may have hefty prices associated with them, but they also provide a greater range of services.
In addition to not being able to offer the full range of services, a traditional investing platform can offer, using an app can greatly alter user trading behavior. According to a study conducted by America’s National Bureau, persons conducting trades from smartphones rather than desktop computers engaged in riskier trading behaviors. It is hypothesized that the casualness of the smartphone lulled users into a false sense of security. Also, without the proper guidance from a financially literate professional, a finally illiterate user can make some painful mistakes.
What Are The Top Trading Apps?
Obviously, Robinhood is one of the most popular trading apps on the market, but don’t forget the Robinhood alternatives! There are many great apps out there, here are three of the most popular trading apps available.
Robinhood
Robinhood is one of the most popular apps. Featuring a streamlined no required account minimum, it is one of the easiest platforms for a newbie trader to get started. Unfortunately, for those looking to get started on a retirement account, Robinhood offers no such service at the time. In addition, users report less than optimal customer service support.
Revolut
Revolut is especially popular with travelers because it functions as a digital bank. It allows users to keep accounts in several different currencies, saving money on currency exchanges. It is constantly expanding its services and currently allows for stock trading. However, Revolut’s user accounts can be frozen if there is a suspected security threat, which can be frustrating to resolve, users do not report satisfaction with customer service.
Acorns
Acorns attempts to make the process of building a nest egg easier by educating the user and automatically investing spare change. Acorns has a flat fee of $1-5 a month, which is good for investors with a high account balance. For investors with a low account balance, the flat fee could wipe out a large percentage of the account.
Bottom Line
With their ease of use and low to no cost of entry, trading apps can be a great way to get started investing and trading stocks. However, they also cannot offer as much as traditional reading platforms can, and the lack of guidance can lead users to making unwise financial decisions. When it comes to your finances, do your research and decide what’s best for you.
