Gatsby launches free options trading for millennials, Gen Z

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Gatsby, a fintech startup bringing options trading to millennials and Gen Z, is launching Monday.

Where apps like Acorns, Stash and Robinhood have made people more comfortable with the idea of trading stocks over their smartphones, Gatsby takes this trend one step further, letting people buy and sell options contracts that give them the right to buy or sell a company’s stock at a certain price within a given time period.

Gatsby is notable because it’s attracting millennial and Gen Z consumers, obtained investment from banks and venture capitalists and is offering something fresh in robo-advising. The fintech has also been in talks with Radius Bank to partner in some way.

The company, which is named after the F. Scott Fitzgerald character, is targeting young cryptocurrency traders who are looking for something new, according to co-founder Jeff Myers. The average of Gatsby’s users is 28; the average age of options traders in the wild is 55.

Options may seem like an advanced trading product for a young person to start with, but Myers, a former options trader himself, said millennials and even Gen Z quickly gravitate to them.

“They're complicated and they're nichey,” he said. “But once you get your head around them, they kind of have a cult following.”

Options trading also comes with risk. Myers said the company limits what users are able to do based on their level of sophistication.

"And, most importantly, we only offer long options: buying puts and calls," he said. "Where people really blow up their portfolios is selling options, where your downside is uncapped."

Gatsby beta users surveyed by the firm have said they used to keep most of their money with a robo adviser and trade cryptocurrency with about 5% of their portfolio. Now they’re moving that 5% over to options.

“We’re trying to make it simpler and much more digestible to do your first trade, get your head around it, and then we find that people sort of fall in love with it sometimes,” Myers said. “They sometimes don't even follow specific parts of the stock market. They don't follow different industries that closely, but they're smart enough to go and do research. They just need that sort of inkling of inspiration.”

The inspiration comes from the social media aspect of Gatsby, where traders follow one another and sometimes copy each others' trading strategies. The trades are free.

“A lot of the brokerages have now started offering zero commissions on the equity side,” Myers explained. “So I think that's the way the brokerage world is moving.” Many still charge for options contracts, he said.

The way Gatsby and other broker dealers make money is by selling order flow to market makers or exchanges directly because those firms want liquidity in order to close trades quickly. Gatsby also makes money on the interest on account balances. Additionally, it plans to offer a premium service next year.

Just as digital challenger banks have lower operating costs than brick-and-mortar banks, the app-only Gatsby has lower expenses than traditional brokerages that have offices and call centers.

The company has raised about $3 million. Investors include Barclays, whose chief innovation officer has been an adviser; Radius Bank; the broker-dealer ViewTrade Securities; Rosecliff Ventures (which also invests in Allbirds, Petal and other consumer brands and is trying to help Gatsby go viral); and SWS Venture Capital, a fund run by Steve Streit, the CEO of Green Dot.

The company has applied for a broker-dealer license from the Financial Industry Regulatory Authority that it expects to get in January. Meanwhile, it’s using ViewTrade's license.

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