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How quickly are our trading and investing behaviors changing?

Key Points
  • Mobile stock trading apps, such as Robinhood, hope to introduce new trading habits to a generation of first-time traders.
  • Long-established firms remain competitive by cutting commissions and adjusting their own platforms and offerings to fit the new behaviors.
  • Traders often stick with just one brokerage firm, so newer platforms may hold on to their active users for the long run.

Robo-investing and free stock-trading apps are re-inventing the way young adults think and feel about investing.

Popular online trading platforms including Robinhood, Acorns, Betterment, and Stash have launched in the past five years, and they're using innovating trading strategies in an effort to capitalize on consumer habits in the digital age.

For example, Acorns is an app that automatically rounds up your purchases and invests the spare change in a robo-advisor-managed portfolio. Stash promotes a positive mindset around investing by encouraging those without deep wallets to put money in ETFs. Robinhood is a trading platform where people can use their online bank account to directly fund a brokerage account, thereby gaining access to publicly traded stocks.

House Ways and Means Chairman Kevin Brady, R-Texas, left, and Speaker Paul Ryan, R-Wisc., joined by members of the House Republican leadership, introduce tax reform legislation Nov. 2, 2017, in Washington, D.C.
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While these new platforms are potentially disruptive, so far many in the industry dispute the magnitude of their impact. "Free trade offerings have been made in prior years, but none have scaled besides Robinhood," said Richard Repetto, Principal of Sandler O'Neill who covers the brokerage industry. Repetto argues traditional eBrokers are competing effectively by adjusting their established platforms and offerings to fit the new behaviors, as they already have existing market share.

Currently, Robinhood has more than 3 million users, compared to estimated 5.4 million.

To combat disruption by new players in their industry, firms including and Scottrade, have cut commissions.

Pedestrians pass in front of an E-Trade location in New York.
Scott Mlyn | CNBC

Long-established firms have also made great strides in the mobile arena according to Repetto. "These advancements in mobile are to better service all customers rather than just targeting millennials," he said. And despite emerging disruptors, trading activity for traditional e-brokers this year has been strong.

Mobile investing apps are specifically targeting new subscribers (ages 21 – 35), with the goal to capture users at the start of the their investing timeline. These robo-advisors believe that by snagging users early on they can build relationships with customers for the long term. Since traders normally stick with just one brokerage firm, over time these new trading apps can implement more complicated trades, such as shorting / futures, and be able to charge a fee without push-back.