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
Theodore Henry King CLARKAssociate Professor
