How to Expand Your Investment Services by Building an App

To minimize the spread of COVID-19, face-to-face services have had no choice but to shift to remote operations. This has turned out to be a challenge for traditional investment brokers, as many are accustomed to communicating with clients in person. But was the pandemic really the first call to action for traditional brokerage businesses to digitize and take a mobile-first approach?

Why you should digitize your investment business 

The necessity for traditional brokerage agencies, investment companies, financial consulting firms, and other finance-related businesses to go online has long been evident. One of the first signs from above was the launch in 2013 of Robinhood, the app that pioneered free trading. Robinhood was founded by Vladimir Tenev and Baiju Bhatt, who had previously created high-frequency trading platforms for participants of the US financial system. 

Since then, lots of stock trading companies including Interactive Brokers, Merrill, and Fidelity Investments have successfully adopted this strategy to attract more users to their mobile trading apps and web platforms. 

One more trend that has captured the online stock trading industry is allowing traders to buy fractional shares. This has enabled anyone to join the trading game using apps like Robinhood, M1 Finance, and Stash.

In 2020, we’ve seen record demand for digital trading solutions. While the US is experiencing enormous unemployment, the stock market is on the rise, as many people see trading as a chance to make money. Robinhood saw its highest trading volume ever in June 2020. Robinhood also added three million new accounts at the beginning of 2020. But it’s not just Robinhood that has experienced a jump in use. TD Ameritrade, a similar trading service, has also reported record trades in the second quarter of 2020. 

If you’re ready to digitize your finance-related business by building an investment app, keep reading for some valuable tips on how to do it successfully. 

As we’ve mentioned, Robinhood was the first app to let users trade for free. Robinhood works on the do-it-yourself principle.

Do-it-yourself (DIY) investing

DIY investing requires investors to create and manage their own portfolios. DIY investors should be well-versed in trading, as DIY trading apps don’t provide any support or consultation from professional advisors. 

Robinhood is the most prominent DIY investing platform

For those who choose to engage in trading themselves and pay as little as possible, apps such as Robinhood are the best choice. For example, Robinhood charges no commission and has no account minimum.

However, Robinhood does have some downsides. For one, the app doesn’t provide retirement accounts or managed portfolios. This means each investment made via Robinhood is taxable and self-managed. Still, there are many advantages to using the service. 

Create a portfolio. Robinhood lets users create investment portfolios containing stocks, bonds, and other financial assets.

Access real-time market data. You can simply tap on any asset and see current data of financial markets. This data includes the last sale, best bid, and best ask price for an asset across all US exchanges. All quotes contain the price, number of shares, and exchange.

Receive push notifications. Robinhood sends traders regular notifications about their stock positions and upcoming events like dividend payments.

Instantly access funds. Traders can access their bank deposits immediately if they want to invest without wasting time. Additionally, if a trader sells a stock in Robinhood, they can promptly use the proceeds to buy other stock without needing to wait the usual two trading days.

Trade a wide selection of assets. Robinhood allows traders to invest in more than 5,000 trade stocks and exchange-traded funds (ETFs) listed on American (and even international) exchanges.

Benefit from high-level security. Robinhood ensures that all sensitive user data is encrypted. The company is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). Also, Robinhood hashes users’ account passwords using the industry-standard BCrypt hashing algorithm.

Ease of use. Apps like Robinhood are attractive to a wide range of people since they let those who don’t have previous investment experience easily make investment transactions and ensure cash management. We’ll touch upon the user-friendly design of Robinhood later in this article.

Read also: How to Create an App Design That Works

the robinhood app

How Robinhood makes money

One of the key selling points of Robinhood is that it offers commission-free trades. But that raises immediate questions: How does Robinhood make money? Is it safe to invest with the help of an app that might not have a sustainable business model? 

Today, Robinhood earns a significant amount from payments for order flow, which is revenue earned for directing orders to multiple parties for trade execution. Such payments are insignificant for small retail trades, but by forwarding billions of dollars in trades to market makers, Robinhood can make a lot of money on order flow.  

However, the primary source of revenue for Robinhood is and always has been their premium offering called Robinhood Gold – an upgrade for users who are more experienced or want to take greater risks. Robinhood Gold costs $5 a month and allows traders to benefit from margin trades, in-depth stock research reports, and Level II market data – information about the full depth of orders on the market, including quantities for individual bids and asks. 

For executing one trade, Robinhood often gets less than a penny. But as Robinhood has 13 million users, it’s no wonder it has started to earn significant revenue.

level II market data in robinhood gold

Aside from DIY investing platforms, there’s one more trending type of investment app: robo-advisors.  

Robo-advisors are taking the world by storm

Based on data collected by BuyShares, the global robo-advisor market is predicted to reach a value of $987.4 billion in 2020, with the market value rising at a CAGR of 26 percent and reaching $2.4 trillion by 2024.

What is a robo-advisor?

A robo-advisor is an app that provides users with financial tips produced by algorithms, artificial intelligence, or mathematical formulas. Robo-advisors take into account user preferences and make investments accordingly.

First, a robo-advisor asks a user to pass a digital survey and uses the collected information to provide automated financial planning services that require little human involvement. Usually, robo-advisory firms also ensure easy account setup and portfolio management. In addition, they only require users to have insignificant opening balances, often starting from $10. 

How do robo-advisors earn money?

Most robo-advisors earn money from account fees. They usually charge low annual management fees not exceeding 0.75 percent of the assets under management. 

Such simplicity and affordability make robo-advisors attractive for inexperienced traders. Providing robo-advisory services is also very profitable for providers. According to Statista, Vanguard’s robo-advisor, one of the oldest and most affordable investment services, was managing $148 billion in March 2020. 

How to implement robo-advisory functionality

You can choose to use ready-made robo-advisory software like that offered by RobotFX Fluid to provide an automated trading system. Such robo-advisory platforms can help with building portfolios, reinvesting dividends, and optimizing for taxes. 

Ready-made software also might be able to integrate with your CRM and other financial services software including banking and financial research solutions. You also can create a robo-advisor front end and use APIs to tie into an available broker-dealer or technology provider. 

But for full customization and control over a robo-advisor’s features, it’s best to develop a robo-advisor from scratch like the Bank of Montreal, Charles Schwab, and Vanguard have done. 

Hybrid apps with robo-advisory components 

Some investment apps provide both self-service and robo-advisory investing. For instance, M1 Finance is a perfect fit for investors who rely on technology but still want control over their investments. M1 Finance combines elements of traditional online brokers with robo-investor trading tools.

M1 Finance lets users decide how to allocate their funds. At the same time, users don’t have to spend much time thinking about how to move their investments or how to balance their portfolios thanks to robo-advisory functionality. 

There’s also one more type of hybrid investing app that allows users to get support from human advisors. 

the m1 finance app

Investment apps offering human help

Apps such as Round and Personal Capital provide users with human-assisted investment advice. Similar to robo-advisors, such apps ask users to fill out initial questionnaires to collect data on a user’s investment goals, history, and risk tolerance. As soon as the questionnaire is processed, the user can get professional help from a live person. 

When it comes to Round, fund managers invest on a user’s behalf and monitor investments on a daily basis. Although Round charges a 0.5 percent annual management fee (paid monthly), investors don’t pay in months when their portfolio value goes down.

Personal Capital offers a wealth management and personalized advisory service. When signing up for this service, investors are assigned dedicated financial advisors who discuss with investors their investment goals. Based on information received during these discussions, advisors make suggestions and set up accounts for transferring assets. A financial advisor is also responsible for reviewing and personalizing a client’s portfolio, setting the portfolio allocation, and adjusting that allocation over time to meet the client’s financial aims. Personal Capital’s wealth management fees are all-inclusive and range from 0.49 percent to 0.89 percent depending on the volume of assets under management. 

If you decide to provide human assistance in your investment app, read our post on concierge app development where we describe how to effectively implement a human assistance component.

investment management by personal capital

Read also: How Much Does It Cost to Make an iOS app or an Android App?

Tips on creating a successful investment app

Below, you’ll find the most common challenges once faced by Robinhood that you might also face while stock market app development (along with solutions to overcome them).

Challenge 1. Designing a mobile-first brokerage service

Over the past few years, brokers have been going mobile all around the world. The mobile-first approach has helped Robinhood succeed. The company made their app’s design their first priority because they realized that if the app wasn’t really simple and sleek, it would fail. This focus on design tailored to mobile devices is one of the reasons Robinhood became the first financial app to win an Apple Design Award.

Robinhood’s creators provided smartphone users with two types of graphics in the app. Along with line charts showing only close prices, Robinhood provides candlestick graphs. Each candlestick indicates four pieces of data: the open, high, low, and close prices during a particular time period. 

Robinhood users can easily switch between line and candlestick charts. The ability to use line charts helps people with little experience in stock market trading have a simplified view of trading. On the other hand, experienced traders can benefit from information reflected in detailed candlestick charts.

Unlike Robinhood, some brokerage apps like Libertex use only candlestick charts. This limits the appeal of these apps to professional traders, however, as candlestick charts take more time for users to figure out. So before getting down to trading app development, decide who your app’s target audience is to cover all their needs.

a candlestick chart in libertex

Challenge 2. Finding the perfect product–market fit

The Robinhood app became so successful after the company found their product-market fit with Millennials. There’s nothing new about stock trading, but giving access to stock trading through a mobile app democratises this financial tool in the same way that Uber democratised car sharing. 

People immediately loved the idea of a simple stock trading app that doesn’t charge commissions and is available to pretty much anyone – and that’s how Robinhood got its initial traction. The popularity of this service is proven by the fact that Robinhood’s creators ended up with more than one million people on their waitlist before the product was ready for launch. Almost two-thirds of aspiring investors on Robinhood’s waitlist wanted the app because their friends and colleagues had told them about it.

To gain initial traction, apps like Robinhood have to clearly state what they offer to potential customers. This value proposition should look something like this: We make trading accessible and will help you invest your money in a smart and fun way. Trading apps like Robinhood have the same appeal as online banking apps: they make users feel in control of their finances and let them monitor what’s happening with their investments at all times.

Read also: Writing a Request for Proposal to Your Potential Software Partner

Challenge 3. Developing an appropriate architecture for high-frequency trading software (three useful APIs for trading applications)

Developing an app like Robinhood comes with a number of technical challenges. While developing a trading app, you need to run a lot of tests. Because of limited market hours, however, running tests might not always be convenient. Another challenge when developing a trading app has to do with providing immediate responses. Apps like Robinhood have to show stock market prices by providing real-time charts. For more on this topic, read our post on how to ensure real-time processing of large volumes of data. 

Some of the above-mentioned difficulties will require complex technical solutions, but answers often come in the form of third-party APIs that can be integrated with your trading app. Here are three APIs that FinTech app developers recommend looking at if you’re interested in developing an app like Robinhood.

1. E*TRADE

The E*TRADE API is useful if you need to:

  • manage user account data
  • retrieve option chains (listings of all available options contracts, both puts and calls, for a specific security)
  • search for exchanges
  • get quotes and manage orders

 

E*TRADE offers some SDKs too, which could be useful for developing a trading app like Robinhood, but the SDK documentation is quite brief and needs to be more detailed for it to be truly useful. Developers like E*TRADE for its API documentation which is much more detailed and hands-on.

2. Marketstack

Marketstack provides data on more than 125,000 high-authority stock tickers from 72 global exchanges, including the Nasdaq and NYSE. By using this API, developers can parse data for truly global market insights. 

Marketstack offers extensive documentation with code examples and demo requests. You can read about the variety of features Marketstack provides in a post by AddictiveTips.  

3. Intrinio

The Intrinio API is useful when you need to access real-time and historical price data and retrieve lots of useful information like bank data feed. 

Intrinio provides developers with SDKs for R, Python, JavaScript, Ruby, C#, and Java. Intrinio’s API documentation is handy and contains full descriptions of requests and responses with detailed explanations of parameters.

Both mobile and web applications for trading should be developed using best practices and the newest programming languages, frameworks, and libraries to provide a fast, reliable, and scalable mobile trading experience. We suggest you rely on an experienced full-service software development partner who can help you select and implement the most efficient technologies and build custom trading software.  

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