As Zero-Fee Losing Luster, Robinhood Launches Fractional Shares
Robinhood investment app, mostly used by millennials to trade stocks and cryptocurrency, is now offering its customers the ability to buy and sell fractional shares with as little as $1. The “fractional stock” feature allows small-bucks investors to diversify their portfolios by spreading their relatively small capital over a broader range of stocks.
The move comes as Robinhood tries to continue to woo its younger investors, which exploded to more than 10 million. Six years after Robinhood launched with no-fee trading, major brokerages were catching up with a wave of fee-eliminating announcements over the past two months. In the span of just a few weeks, nearly all US online brokers eliminated commissions, which could be a direct hit to the start-up that kicked off the trend in 2013.
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Bigger online brokerage houses have already introduced fractional stock ownership as a way to lure younger retail investors. Charles Schwab was the first among US major brokers to let investors buy and sell fractions of stocks. As they look beyond the no-fee trading war, the move has set off a new rush among other brokers to do the same amid increased competition in the industry to attract the next generation of investors.
No legs up on Robinhood now
Before today, these brokers did have one leg up on Robinhood, as the Silicon Valley company hadn’t supported fractional share trading yet.
Robinhood, whose mobile app lets users buy and sell public stocks without trading fees, said that move would be a win for investors who are handling small amounts of money. It also helps those who want to invest a certain amount of money each month into high-priced stocks like Apple, Amazon, Alphabet and Tesla.
Considering the new bar set by Schwab, as well responses of Interactive Brokers and Robinhood, other players, including E*Trade, TradeStation, and Fidelity could follow suit on fractional trading in the next few weeks.
The move, geared toward attracting more young clients, eliminates the barriers that many investors face as the brokerage split whole shares intentionally so they can sell fractional shares to clients.
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