Welcome back to our course on FinTech Foundations and Overview In this module, we're going to be talking about FinTech applications or business and specifically, we're going to talk about equity investments and trading as part of the FinTech world I have with us a guest speaker today again CEO of his own company in the FinTech market space, developing apps also, working with a number of companies in financial services areas related to FinTech opportunities and business challenges That's Hilton Chan Hilton is an adjunct professor at HKUST He's busy running his own company but occasionally shows up here to help us out with his course My pleasure Yes. I am going to briefly introduce the first company and then I'm going to turn time over you to talk about the second two Robinhood is the B2C space Robinhood is a trading platform that allows investors to buy and sell stocks for free No commission on their smartphones What's cool about Robinhood is it is a smartphone app and it is very much an app business It's easy to use It's really good for consumers and it's free But it's not necessarily the part of FinTech you would get excited about as an investor, is it? Yes, for a professional investor what we are concerned is about low latency and also we do build our own programs We have our logics whether we apply in machine learning decision tree, AI or whatever So, if my son wants to buy a 100 shares of Apple Robinhood might be a really good app Because you often buy it at commission free Yes, that's right It's easy to use, it's easy to buy and sell Retail stock probably, yes But if I'm trying to buy and sell Apple stocks 50 times a day A, I don't want to use a smartphone app for that and B I may be much more concerned about speed of execution than I am commission Yes exactly I mean normally when we use any trading platform as a professional investor we have to test whether what we see will be get The price on the market are we actually getting that price at a low latency level? And also, the spread of it I mean let's say if I make a market order of a particular amount would there be a lot of spillage? That slippage be it builtin could be somebody saying that I claim that I don't collect any commission But actually, the spread actually collects the amount of it So, that's the full professional traders we are concerned about So, that could be of concerned concern about Robinhood as a professional trader or you might say Yes, you're not charging me the commission, but if you're slower then some other sites you might be charging me more than what a relatively low commission fee would be with high transaction velocity Right And so now, Robinhood says we don't do that But, we don't know what the backend they're using DOS maybe Robinhood is perfectly authorized to be wonderful Maybe, yep But maybe the platform they're using is making some profit off of a spread or off of latency Now, the other thing about Robinhood is they do make money on margin They will take the money that people leave in their account that are't using Robinhood get to use that for free and they can earn interest on that But they can also loan money to people who are buying on credit and they can make money that way So, it's not like Robinhood doesn't make money But, what you said to me about bankers earlier was interesting We were talking about this, and you said you expressed an opinion about traditional bankers and their fees Yes exactly Which is what? In this traditional world especially when you turn on the TV in the morning there's a lot of analysts telling you what is the macro position at the market all these sort things, how are you going to invest? What stock has the potential? etc. At the end of the day right I find it quite interesting is why would the investor identify a number of good stocks and they say that "Oh, I can never invest on any of it. I declare that I don't invest." But, if it is a good analytical thing I mean if you've done a really good assessment of those stocks why would you not invest in it? That's why I say Why wouldn't she? Why wouldn't? Exactly, yes, why would people Warren Buffett says, I like this stock He buys it. He's not writing report about it He's just saying I often did it I like Coca-Cola, I own shares at Coca-Cola and therefore Warren Buffett is very credible Yes An investment adviser you know what I mean Yes Not that he is on that business he just runs it at a fund that people love Correct Okay, but you also said something else related to the fees We're talking about Robinhood and how it's a great service and a great feature, a great site And you said, "But any bank could do that They can just cut their fees. And Robinhood could make money on the margin so can traditional bankers." But you added something about banking fees today Yeah. My concern is for Robinhood if suddenly the bank insider also lowering the fee then what would be the competitive advantage of Robinhood? Will it just purely offer commission free? That's why you see the other potential FinTech company offering something a little bit more Like that's why I love the Algo Developers So just being cheaper might worry you? Yes, I think I am not comfortable Then again, my view of this is being free is not a position that bankers like to go to Oh, okay I mean they do, they offer me free checking they offer free bill pay But not happily and not usually as a starting gambit They're usually making all the money Robinhood is and more because they're charging me a lot and they're getting paid a lot Your comment earlier to me was getting rich they're charging whether they win? Whether they lose? Whether it's good? Whether it's bad? Or charging money time And this makes banking very profitable One of the things we're seeing with Robinhood or other FinTech startups is they're not going to be so profitable Once these startups either take a lot of market share or you have to compete with them by giving things away for free that you're getting paid for now This makes investment banking much more stressful because the profits aren't there Yeah. Because, I mean, the banking do provide some value added services like they have financial advisers They help to do your portfolio management They would advise you when is the best time to invest Right When they would consider it's a bit of high risk So, that kinda gives us a way from Robinhood and into eToro Right Because eToro provides you with financial advisers Right How does eToro do that? Now, basically, in eToro they provide social investment platform So that, let's say for example if I'm really a good trader I claim that I always could help my clients win money Then what happens is I could register with eToro And eToro is a platform that confirmed that I'm not just saying something but I'm actually walk my talk So, actually I do real trading Because some people commit fraud and they say buy this stock because it's going to go up and then they say to another group of people buy the stock because it's going to go down the people that you gave the good advice to you send the next newsletter out to and then the next newsletter And before long, whether it's stock trading or game sporting picks or something else you're just playing a scam And at the end of the day, they only pick those winning selections And then you say, now I want to charge you because see how good I am Yeah, exactly People do that in the newsletter business Put out 10 newsletters one of them is bound to be good That one you're really push in sell Exactly Or if I were to go into investment banking, 10 mutual funds nine of them are dogs one is a superstar and I get all the money jumping into the superstar And the problem with that also is last year superstar is next year's dog Yeah This is really not a great thing Right on the dot Yeah, I raise a lot of money because I know how it is funded last year That's why the market demand that there is a platform to ensure the integrity of those traders So that I really know what you're really, really doing what you say You really put your money and you really do the trade And there is a system that is a trust the party that you could really monitor my trade not I self-claim that I'm a really good trader for the past 10 years So I can have a longer term perspective and really look at this and say these people are really, really good and I want to follow them Follow them and you can subscribe to it So I can subscribe to an investor? Yes, exactly Once you subscribe and follow it and basically copy every action of it because you look at its past record and doing it in real time and there it's a platform that basically it's like kind of auditing on the trader's performance real time And they allow you to copy the other investor easily so that you could invest your portfolio the same way this guy is on their network Right. So, for example it's like those online game thing If I say that, okay, I have analyzed the market and I showed you how this is performance Now, I'm going to buy 1000 stock of Apple And then, he click it and buy it And you actually see the real actual trade of a successful trader that he's doing And if I was really following him I could be doing the same trade at the exact same moment Exactly. You could trade real time at the same moment And so that's interesting
