Welcome to the age of retail investing apps

The COVID-19 pandemic has put the breaks on the global economy, but you wouldn’t be able to tell from looking at the stock markets. After the meltdown in March, many growth stocks have surged to all-time highs and the S&P 500 increased by 43% between March 23 and July 17. There are many different factors at play that could explain the seeming disconnect between the state of the economy and the stock market, but many analysts believe the swell of retail investors plays a role.

Why are retail investors piling into the stock market?

There are several reasons why more retail investors are getting into trading. For one, buying and selling stocks has never been easier with the sheer amount of easy-to-use brokerage apps just a few taps away. The competition between these retail investing apps has heated up which has led to a price war flatlining commission rates.

Responding to the economy slowing down, central banks have lowered interest rates meaning there is less money to be made with bonds, making stocks more attractive. Plus, it’s very likely many people who were still on the fence about trading saw the downturn earlier this year as the perfect timing to get stocks cheap.

Altogether, this has caused an influx of new retail traders. Popular retail investing services like Charles Schwab, TD Ameritrade and Interactive Brokers reported adding more than 1 million new accounts in the first quarter of 2020. Robinhood did even better reporting 3 million new customer accounts this year.

Fractional trading has made investing in stocks even more accessible for many people. You don’t need to buy an entire share of Tesla or Amazon anymore, just a piece of what you can afford right now. Considering the rise of smartphones around the world and the growing wealth in emerging economies, the retail investor market will continue to expand rapidly.

Snapshot of popular retail investing apps

Robinhood provides free stock, options, ETF and cryptocurrency trades, and its account minimum is $0. Mutual funds and bonds aren’t offered, and only taxable investment accounts are available. Until recently, Robinhood was the only broker offering free trades, but with many big names eliminating trading commissions and fees in late 2019, that is no longer a differentiator.

EToro made its name through social trading, an innovative approach that allows users to copy the trades of other investors. The broker offers multi-assets including stocks, commodities, forex trading and cryptocurrencies. For now, traders in the US are restricted to trading cryptocurrencies only, but that is set to change at some point in 2020. Minimum trades start at $25.

For crypto specifically, AAX is home to institutional traders as well as retail investors. It specializes in cryptocurrencies, both the popular coins such as BTC and ETH as well as many altcoins such as XRP, LTC and XLM. Additionally, it supports the evolution of the crypto space by listing tokenized commodities such as gold for example, native exchange tokens like AAB which provide users with premium services, and advanced trading tools such as trading futures with leverage. The platform is powered by the LSEG matching engine (the same tech that powers London Stock Exchange), making it one of the most powerful crypto exchanges today.

It’s also significant to know that in spite of AAX’s premium service, the platform offers the lowest futures trading fees in the market.

E*TRADE offers something for both beginners as well as advanced traders. They have an extensive library of educational resources, professional-level trading platforms, and tools to help assemble a balanced portfolio according to your risk appetite. Active day traders will appreciate the firm’s $0 commission for all stock, ETF and options trades.

Charles Schwab is for investors of all stripes. Beginners will appreciate the company’s $0 account minimum, while active traders would be interested in the zero commission for stock, options and exchange-traded funds. Schwab is particularly praised for its research offerings, a large selection of no-transaction-fee mutual funds and sophisticated tools and trading platforms.

Acorns has taken a slightly different approach. Inspired by the trusted practice of saving loose change, they have merged the robo-advisor model with an automated savings tool. Acorns works by rounding up your purchases on linked credit or debit cards, then putting that loose change into an automated investment portfolio. It’s not great for advanced trading, but for passive hands-off retail investors it’s an interesting model.

SoFi Active Investing is made for young investors getting started with trading. They offer commission-free trades of stocks, ETFs and fractional shares. The brokerage app is part of the company’s growing line of financial products such as the robo-advisor SoFi Automated Investing and cash management account SoFi Money. They recently acquired Hong Kong based 8Securities, however fractional shares are not yet available for Hong Kong traders.

Choosing the right investing app

Deciding what the right investing app is for you depends mostly on your goals and the trading style you want to take. Acorn might be great for passive investing, but if you want to be more active there are better names on this list. And while some the apps listed here do support crypto, going to an exchange purpose-built for trading crypto makes a lot more sense. Not only in terms of the number of coins listed, but also when it comes to fees and the overall spread.

While almost all retail investing apps now boast zero commissions, that doesn’t mean it’s free. They usually make money by profiting from the spread between the bid and the offer. Trades flow from retail apps to corporate clients and institutional traders. Market makers fill the orders at the best price, offsetting the trades against each other and pocketing the difference. The model is called ‘payment for order flow’, and reportedly Robinhood has received nearly $100 million in the first quarter of 2020 selling customer orders to professional trading companies.

The fee structure has been met with some controversy. Flat commissions are easy to understand but figuring out what the fees embedded in the bid-offer spread are while comparing that to other exchanges is a complicated and time-consuming task.

That’s another benefit of crypto exchanges: you are not paying for brokered access to a market, you are the market.

Trade Crypto With AAX

AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, and futures, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance. 

Open an account with AAX, or download the app, and experience the next generation crypto exchange.


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