How Investing Apps Encourage Amateur Investors

Free investing app Robinhood made headlines over the past few weeks after amateur traders drove up the price of GameStop shares to stick it to hedge funds who had shorted the stock. These events highlighted a growing trend in using free investing apps that make trading more accessible to everyone. 

Interest in these free trading and investment apps appears to be growing. CNBC recently showed how they are dominating app store rankings, and Recode reports that trading has gained interest during the coronavirus pandemic. Robinhood even recently raised $3.4 billion in capital to handle the increased trading volumes.

Though not everyone using an investing app is looking to make a political statement, Marco Pantoja, an accredited financial counselor and extension instructor at the University of Missouri’s Department of Personal Financial Planning told Lifewire in a phone interview that he sees how the recent events have helped push visibility of these apps to the forefront.

"I think that has also played a pretty big role of raising awareness and really spreading the message, and is bringing more people into the fold about the ideas of investing and using these apps," he said.

Democratizing Finance

Robinhood, the app with the mission to "democratize finance for all," launched in 2015. The recent Robinhood news is important now because it brings up issues about Wall Street power and regulatory oversight, but the real growth of these apps is largely due to one key factor: several of them are free to use. 

By not charging commissions on trades, Robinhood has cracked open access to the stock market to those who otherwise might not think of trading stocks in their spare time. The concept also makes buying and selling stocks fun and easy. Several other apps have followed suit in the past few years. 

"What I think made Robinhood really stand out, and has actually had quite an effect on the overall industry, is that they didn’t charge you for trading. And that used to be the real bread and butter of the stock business," Pantoja said.

He noted that many competitors have followed suit and adopted this model to compete with Robinhood. Before, you could pay between $5-$7 per trade, he said.

Now, there are many commission-free investing apps and desktop platforms to choose from, including startups like Webull and Freetrade, as well as well-known businesses like E*Trade and Fidelity. Each has its own user experience, and some offer more customer support than others. 

"I’d say some trading apps are better suited for beginners than others," Chris Davis, investing specialist at personal finance site NerdWallet, told Lifewire in an email. "When NerdWallet ranks the best online brokers for beginners, we consider factors like customer support, educational materials, and investment selection, in addition to how easy it is to use."

You Call the Shots

Just because these apps are having a moment (and free) doesn’t necessarily mean that you should use them—that decision really depends on your overall investment and savings goals.

While Robinhood made the controversial move to temporarily restrict trading of certain stocks after the GameStop drama, the stocks you choose to put money into are ultimately your own choice.

Even if you have some investing experience, Pantoja notes that a big difference with apps like Robinhood versus say, a 401(k), is that you’ll be calling the shots on which kinds of stocks to trade.

"With these apps, you get to make all these choices—and there are lots of choices to make," Pantoja said. "So doing some homework, maybe even talking to a financial planner—a financial advisor—to see what they recommend would be a really good way to go.”