By Mark DeCambre, MarketWatch
StockTwits — a social-media platform founded in 2008 as a venue for day traders to exchange ideas and musings — is launching a free online brokerage unit, aimed at appealing to its current roster of approximately two million members, as well as luring millennials.
The brokerage operation plans to offer users unlimited, commission-free trading on par with popular services offered by investing app Robinhood Markets Inc., recently valued as a $6 billion business.
StockTwits’s mobile trading app is scheduled to kick off an initial rollout phase sometime this summer on Apple Inc.’s IOS operating system and expand to other platforms later.
StockTwits has been described by some as a Twitter-like site where its legion of avid individual investors banter about trading ideas and strategies on popular stocks like Tesla Inc. /zigman2/quotes/203558040/composite TSLA +0.24% , and Facebook Inc. /zigman2/quotes/205064656/composite FB -1.15% , as well as microcap companies like online luxury retailer Reebonz Holding Ltd /zigman2/quotes/206481210/composite RBZ -5.79% , with executives of the startup viewing the launch of a brokerage arm as a natural evolution of the business.
“With 150,000 messages sent every day on the platform, StockTwits prides itself on understanding the individual investor and trader,” said Ian Rosen, CEO of StockTwits.
The company said its decision to employ a go-it-alone strategy rather than teaming up with an established broker was based on the perception that no existing firm captured the zest for trading of its current social-focused platform.
“So, we built a brokerage that matches the excitement and pulse of the community we’ve built,” Rosen said. Popular social-site Reddit , for example, offers a number of trading and investing forums but doesn’t provide free trading on its venue.
To be sure, creating a brokerage outfit within an 11-year-old, social-media platform is likely to be a major challenge for StockTwits.
For one, there are a number of competitors that have emerged onto the scene, attempting to democratize financial markets and grab market share from the likes of E-Trade Financial /zigman2/quotes/205731930/composite ETFC +8.84% , Charles Schwab Corp /zigman2/quotes/201281754/composite SCHW +5.09% and TDAmeritrade Holding Corp. /zigman2/quotes/207561492/composite AMTD +5.66% — longtime and deep-pocketed players in the business of providing trading services to average Joes and Janes.
Secondly, ensuring that its members aren’t improperly championing assets destined to tumble in so-called pump-and-dump schemes, where traders promote an asset to build its price up before leaving investors with shrunken shares. Such schemes are often associated with stock-chat forums .
“Maintaining the integrity of our community is paramount, as StockTwits is laser-focused on keeping its community open, healthy, and unfettered by the nuisance of negative actors such as spammers, pumpers, and abusive individuals,” Rosen told MarketWatch.
The prospects for growth, however, are compelling, the Wall Street Journal reported last year that since launching its app in 2015, Stash has seen more than 1.7 million people open brokerage accounts through its app.
Perhaps, in contrast to StockTwits, Stash and Acorns view themselves, at least partly, as platforms for promoting financial literacy.
Making money may be another challenge, particularly if companies opt to take upfront losses in offering free trading. Robinhood, for one, charges a monthly fee for clients who want to graduate to using debt, or margin, to make stock bets. Robinhood also charges a fee for transferring accounts to other brokerages.
For its part, Trade App, will operate as a registered broker-dealer, StockTwit subsidiary, overseen by the Financial Industry Regulatory Authority. In addition to whole shares, the company will let clients buy and sell fractional stocks.