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Sample Question: Fractional Shares

Sample Question: Fractional Shares

Solve this question to test your understanding of the material.

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Problem

Let’s say that you’re a data scientist at Robinhood. How do we measure the launch of Robinhood’s fractional shares program?

Try answering this on your own before continuing. Use the hints below if you are stuck.

Now, how do fractional shares fit into how Robinhood makes money?

Solution

Let’s start by further clarifying the problem and making some assumptions.

  • Is this a product launch or test launch?
  • What are Robinhood’s goals for the fractional shares program?
  • What are Robinhood’s business goals?

We can first theorize how Robinhood makes money:

  • One is based on trading volume. Robinhood can sell the flow data of trades to other market makers. Many times, this is correlated to how much they make, given it is percentage-wise based on the size of the trading volume.

  • Another way is by the size of their customer portfolio. Financial institutions can borrow against their stocks and get charged a fee. Generally, a diverse basket of portfolio users is better.

  • Lastly, Robinhood can make money off of the interest that is sitting in their platform and not invested.

Now that we’ve defined Robinhood’s business model, let’s focus on some hypotheses for why Robinhood would ...