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Robinhood feels although it’s an extremely young start-up – most people had never heard of it until the Pandemic hit. More experienced traders were likely to use more comprehensive trading platforms with more charting and infrastructural capabilities, whilst many current Robinhood users had never heard of any trading platforms prior to signing up.

The app saw rapid growth during the pandemic. It was a time of reflection, boredom, and an unusual amount of savings during lockdowns, and nobody capitalized on this better than Robinhood. Offering incredibly competitive fees and rates, along with a social dynamic, it quickly became the go-to app for new traders.

Online stock trading has become incredibly normal; almost synonymous with a weekend bet on baseball, or using a savings account. There is a sense of worry that many are misinterpreting the risk-level of the former with the latter, but perhaps not. Volatility isn’t something that seems to be deterring the insatiable appetite for Robinhood stock trading.

Robinhood’s public offering at the end of July was lackluster. Like many big-tech IPOs (e.g. Facebook), expectations outstrip reality. However, we did see some growth in the first week of August and are currently up almost 40% of the initial price.

Many are expecting growth to continue, and the cries of Robinhood being a “meme stock” are heard but not recognized. What is important is that the company currently has a $40+ billion valuation.

Robinhood’s main strategy now is to keep hold of the new traders that it quickly gained. These are traders very early into their investing life, generally, and will be continually exploring other strategies, markets, and platforms.

Trading stocks

Trading stocks. Image by Lorenzo Cafaro from Pixabay

eToro is following suit

eToro shares a similar space in the market to Robinhood – its USP is that it facilitates social investing. Social investing, prior to eToro and others, simply meant sharing ideas on Reddit and other forums. But now there’s a trading platform that acts like Twitter itself, with the ability to view other trader’s strategies, posts, and even automatically replicate their trades.

eToro is set to go public with a SPAC merger, though the date this will happen is still unknown. The deal is expected to be around $10.4 billion, a huge amount for a company that only began facilitating equity and CFD trading in 2013 – with registered users almost doubling from 13 million in May 2020 to 20 million less than a year later.

The market appreciates these kinds of FinTech companies. There’s a sense of vast scope and ambition that they offer, and leverage the incredible force of social media and trends. Of course, how long these trends last is unknown. There are lots more retail investors today than two years ago, but now society has opened back up, we don’t know if these numbers will continue to grow.

It’s not just the size of the target audience, either, but the amount of competition. More and more trading platforms are cropping up, all with unique ideas to impress this new generation of traders, as well as increasingly competitive rates.

Similar scenes in Canada as competition hots up

We are seeing similar trends in Canada, with plenty of Canada-made online trading apps making strides in the global market. The current big hits among retail investors are currently Qtrade, Questrade, and Wealthsimple.

Between these three stock trading apps in Canada, there are millions of users, no withdrawal fees (for Canadians), and only one has a minimum account deposit. The common theme among these trading platforms is to have very low stock and ETF fees, because these are the two most popular products among retail investors. Passive index investing is low-key becoming extremely popular but just doesn’t make the headlines like meme-stock equity investing does.

Let’s take a look at the three main Canadian platforms designed for retail investors…

Qtrade

Founded in 2000, Qtrade is one of the more credible and established broker apps in the market. With low trading fees and easy account opening, they’re often popular among retail traders who are looking for accessibility and low fees.

Qtrade is aware of this, which is why they have a great education center to help new traders understand more about investing and the platform itself.

The downsides of the platform are a lack of research possibilities, limited charting customization, and few analytical tools – though, it has great data for fundamental analysis. This makes the platform unviable for advanced traders using more sophisticated strategies. It’s therefore possible that new traders will grow out of Qtrade, which is also a fear of Robinhood and eToro…

Promotional growth at Qtrade

Qtrade has shown how successful promotional offers can be to entice new traders to a platform. For example, the Qtrade 2021 promo offers up to $2,000 cash bonus, depending on how much the customer deposits. This really puts the heat on competing brokers, with the cash bonus applying to customers of varying degrees of wealth. For example, depositing $15,000 can land you with a $50 cash bonus, whilst a $250,000 deposit will yield a $400 bonus – making it a bonus for everyone.

Questrade

Founded a year before Qtrade, Questrade is also a popular and effective brokerage. With great customer service, research tools, and a wide range of markets, Questrade is a firm favorite among many loyal users and arguably the biggest one in Canada.

Whilst not having crypto is a deal-breaker for some retail investors, along with limited charting customization, Questrade’s trading app offers solid competition and a Robinhood-like experience for Canadians.

It could be argued that the next step for Questrade is to go gung ho on a Robinhood-like strategy by slashing prices even more. Whilst they don’t need to do this, it would be an aggressive technique to help keep competition at bay. They arguably have the funds to hurt themselves in order to hurt competition, but how they will react to increasing competition is yet to be seen.

Wealthsimple

Wealthsimple is by far the newest broker out of the three, being founded in 2014. Wealthsimple has taken measures to stand out from the crowd, with socially responsible investing and halal-compliant options when building a portfolio.

Account fees and minimum deposits are nil, making this another accessible platform, along with automotive rebalancing and management options. This is a slightly different platform, as they look to manage your funds (for a fairly expensive 0.4% – 0.5% fee), as opposed to being a place to make individual trades.

However, Wealthsimple touches on the growing trend of Roboadvisors, and more importantly, passive-index funds. Retail investors that are looking to retire early (FIRE is another trend blowing up in the past few years) will be likely to spend a lot of time in the market. ETFs and low-cost funds are a perfect way to do this, as they’re well-diversified and capture the average market returns.

Wealthsimple somewhat offers this to long-term investors, though they’re not as low cost as Vanguard (but do offer more active advantages, such as automatic rebalancing and free portfolio analysis). This is why Vanguard is just as much a competitor of theirs as Questrade and Qtrade – lying somewhere in-between the two industries.

This could certainly put pressure on the other brokers in the market, who fail to offer a Roboadvisor service. Whilst competitors do offer ETFs, some customers enjoy the automaticity and functionality of platforms that are purpose-built and customer-friendly.

BMO and new competitors

The rising trend of retail investors is certainly getting the attention of fintechs, who switch their focus to offer low-commission trading potential. If not outright brokers, it’s platforms such as Revolut who are offering the potential to buy equities and cryptocurrency as a secondary service on their platform, trying to capture the rising demand.

BMO has also revamped a discount brokerage by offering free ETF purchases and a $9.95 flat fee for each trade. Whilst it’s yet to really take off, it’s an indicator that amateur investors have never had more luxury in their selection – endless competition in a race-to-the-bottom regarding commission.

For the many that enjoy ETFs, there’s a tonne of platforms offering them commission-free. This doesn’t only put the pressure on more established, pricier platforms, but also places like Vanguard to ensure they stick to their low-cost approach, because someone will quickly steal their position if they try raising prices.


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