gotrade Secures $7M Funding to Democratize US Stock Investing

Democratizing Access to U.S. Stock Ownership

Shares of prominent U.S. corporations, such as Amazon, Alphabet, and Tesla, frequently trade at prices of hundreds or even thousands of dollars per share. Fractional trading – the ability to purchase portions of a single share through a brokerage – has increased accessibility, particularly for investors residing in the United States.

However, investors in numerous other countries often encounter substantial fees when utilizing interactive brokers. GoTrade is addressing this issue by providing fractional trading of U.S. stocks to individuals in 150 countries, with a minimum charge of only one dollar.

Recent Funding and Key Investors

The startup recently announced the successful completion of a $7 million seed funding round. This round was spearheaded by LocalGlobe, and saw participation from Social Leverage, Y Combinator, Picus Capital, and Raptor Group.

Furthermore, the investment included contributions from angel investors including Matt Robinson, co-founder of GoCardless; Carlos Gonzalez-Cadenas, formerly the chief product officer of Skyscanner; Frank Strauss, previously the head of Deutsche Bank’s global digital business; and Joel Yarbrough, Asia-Pacific head at Rapyd.

Company Origins and Growth

GoTrade was established in 2019 by David Grant, Norman Wanto, and Rohit Mulani. The application was launched three months ago, initially on an invite-only basis.

The company reports a week-on-week sign-up growth rate of 20%, and currently boasts a user base exceeding 100,000 individuals globally. Approximately 65% of GoTrade’s users have prior experience with stock trading, while the remaining portion represents first-time investors.

Addressing Barriers to Entry

Rohit Mulani, the company’s CEO, explained to TechCrunch that the concept for GoTrade originated from his personal experience encountering obstacles when attempting to invest in U.S. stocks.

“When I was 18, I attempted to gain access in Singapore, but banks imposed a $30 fee per trade. This effectively prevented me from entering the market,” he stated. “Ten years later, upon revisiting the possibility, banks were still charging around $25 per trade.”

He continued, “In addition to these costs, their user interfaces were undesirable. This led us to develop a brokerage platform accessible to everyone.”

The Importance of Fractional Trading

Mulani added, “The implementation of fractional trading came somewhat later, but it proved to be the core value proposition for us. It truly democratizes investing globally, as it only requires an initial investment of one dollar.”

Competitive Landscape

While platforms like Robinhood, SoFi, and Stash also offer fractional trading, Mulani noted that their primary user base is located within the United States. GoTrade, conversely, is not available to U.S. residents due to existing financial regulations.

Consequently, its primary competitors include interactive brokers, Saxo Bank, and eToro.

GoTrade’s Revenue Model

GoTrade operates without charging commission, custody, inactivity, or dividend fees. Instead, the company generates revenue through a small fee levied on currency exchange during deposits, and through interest earned on uninvested cash held in brokerage accounts.

The app is currently free to use, but plans are in place to introduce a premium subscription service and a virtual debit card that users can link to their accounts.

User Demographics and Investment Patterns

A significant portion of GoTrade’s users are individuals who have previously invested in their local stock markets but lacked the ability to trade U.S. stocks. The user base exhibits a wide range of ages, with the 25- to 34-year-old demographic representing the largest segment.

The average account size is approximately $500.

Underlying Technology and Security

GoTrade functions as an introducing broker to Alpaca Securities LLC, a U.S. stock brokerage regulated by the Financial Industry Regulatory Authority (FINRA). Alpaca Securities divides stock inventory into fractional shares, allowing GoTrade users to determine the quantity of fractions they wish to purchase.

The app also enables users to establish a budget, and automatically calculates the number of fractional shares they can acquire based on notional value trading.

User accounts are protected up to $500,000 by the Securities Investor Protection Corporation (SIPC). Funds are processed through regulated counterparties in Singapore, such as Rapyd, and in the United States, including Alpaca and First Republic Bank.

To safeguard users, GoTrade exclusively utilizes fully-funded cash accounts, avoiding any margin facilities. Mulani clarified that a margin account involves borrowing funds for investment, while a fully-funded account restricts investment to deposited funds.

FINRA and Securities Exchange Commission regulations also limit day trading – the practice of buying and selling a security on the same day – to a maximum of three times every five trading days for accounts holding less than $25,000.

Educational Resources and Future Development

Similar to many investment applications targeting novice traders, GoTrade incorporates educational content, such as pop-up definitions of investment terms and news articles concerning publicly-traded companies.

The newly acquired funding will be allocated to hiring and product development, with a particular emphasis on expanding the in-app educational resources.

Investor Perspective

In a statement, LocalGlobe partner Remus Brett commented, “Over the past century, U.S. stocks have yielded average annual returns of 10%. With the power of compounding, a $1,000 investment made a hundred years ago would now be worth $13 million.

These returns have driven wealth creation in the U.S. and other developed economies, but the majority of the world has been excluded. We believe GoTrade has the potential to empower the world’s 99% to access the same advantages enjoyed by the 1%. We are thrilled to join Rohit, David, and Norman on this endeavor.”