So, hey everyone, in this video, we will talk about Brokerage Business Model. So in Brokerage business
model,
you have a broker which usually charge a commission or fees, either from one party or from both the
parties in exchange of service that is rendered.
So let's say if you have two different customer and they wanted to use some service,
they can take help from all of these intermediaries or broker.
And then that specific broker will facilitate the transaction between both of these two party, and
it will charge a commission or a fees, also called brokerage fees.
And this specific type of business model is there in almost every single industry that you can imagine.
So from real estate to finance to retail to travel to online marketplace, let us understand this specific
type of business model with the help of example.
So brokerage have different types of business model.
Number one, we have Buy and Sell match model.
Now, this specific type of business model is used by all these fintech platform, which is your
finance and technology.
So you have all of these stock trading platform or cryptocurrency platform.
These platform will match the buy and the sell transaction of all these different buyer and in return of
matching that specific transaction,
these brokers will charge a small commission or a brokerage fees from both the parties or either from
one party who is selling that specific stock or cryptocurrency.
So this specific buy and sell business model is used by financial broker, insurance broker or even
travel agent.
If you look at app like Robinhood, you can buy and sell different shares of a company using Robinhood
and let say the time you sell that specific share at a certain amount,
this specific platform will match the price of that share with someone who is willing to buy that specific
share, and that's how Robinhood generates money.
So imagine a scenario.
Let's say you have a share of Google, and let's say you have purchased that share in $1000, and now
you wanted to sell that specific share at a price of $1100.
So you click on the sell price and you will choose different options that you have inside Robinhood.
So you can sell that specific share at a market price.
Or you can put a limit order and the time someone is willing to buy that specific share at $1100
dollar,
Robinhood will match that specific order with the buyer who wanted to purchase that share at a price
of $1100.
And that's how Robinhood will make commission or money by charging you maybe 0.1 percent or 0.1
percent the time you sell that specific share using their platform.
Same goes with Zerodha or Coinbase or any other trading platform, you know, whether it's equity trading platform
or a stock trading platform or a cryptocurrency trading platform.
The main role of all of these people is to match the buy and sell transaction of two different people
and charge commission on someone who is selling that specific equity stock or cryptocurrency.
Then we have Buyer Aggregator business model where this specific platform will aggregate all the different
people or their property or products who wanted to sell on this specific platform.
And then it usually charge a small commission or a small fees every single time other people are purchasing
their specific asset, product or property.
Let's understand this with the help of Airbnb.
So we all know in Airbnb we can list down all of our property or space we have, and other people can
book that space for a certain period of time.
And because we are listing our property on Airbnb, and Airbnb is providing us discovery, visibility of
our property to millions of users at the same time.
We have to pay a 15-20 percent commission to this specific platform.
Well, that's also example of a buyer aggregator model. Apart from both of these two,
we also have Classified-advertiser business model.
And these platform usually charge a small fees from a advertiser who wanted to advertise their product
to different audience based on location, time, size, nature or interest of that specific audience.
One of the example is Craigslist.
So let's say if you wanted to list your down property on Craigslist, you can select the visibility
of your property based on location, based on time, based on the interest of people.
Or let's say you wanted to sell some of the product.
Let's say you wanted to sell a tangible good or a smart water bottle on that specific platform,
you can exactly do that by selecting the time, the location, the size, the budget and the interest
of audience.
That's the example of classified advertisement business model, and that is also used by companies like
Olx, Craigslist that will allow you to increase the visibility of the product by paying them some extra
bucks.
I think that is also used by Amazon.
Amazon also normally take some extra amount of money to make sure that your product have more visibility
by showing them into the sponsored search results.
And you can do that by
targeting or bidding a specific keyword.
So let's say if you are selling T-shirts online and you wanted to bid the keyword of black T-shirt,
you can always do that.
So anytime somebody will search for black T-shirt, your product will go up.
Your product will have a sponsored symbol.
And every single time people search for black T-shirt, they can see your product at the top.
That's the example of classified advertiser business model, where they provide you a higher visibility,
by taking a very small amount of money from you.
But not only that, we also have the last type of brokerage business model, which is our Auction and
Reverse auction business model.
So let's say, if you have a product and you wanted to sell that specific product into the market, but
you are not actually sure about the price, and that's why you use these platform called forward auction
and reverse auction.
Let me explain forward auction and reverse auction with the help of this specific diagram.
So you have two platform eBay and Alibaba.
So we use eBay for forward auction and Alibaba for reverse auction.
So let's say if you have a unique coin or a unique ring or a unique asset that you wanted to sell on eBay.
So let's say you have given a price and you have open the bidding window and then people can bid for
that specific product.
Now, someone who will bid at the maximum price, he will get that specific product.
That's the example of forward auction.
On the other side, you have reverse auction that is there on Alibaba.
So let's say if you wanted to purchase something, so you list down a price that I want 1000 quantity of
smart bottle at a price of, let's say, $5 per bottle.
And at that price, these different seller or manufacturer who is manufacturing these water bottle,
they will bid for the lowest price.
So let's say one manufacturer will say that I can provide you all of these water bottle 1000 quantity
at a price of $4 and 50 cent, another one will give you a much lower price.
And then you will go for a manufacturer or a seller who will be giving you all of these product at the
cheapest price or at the lowest price.
Now in forward auction and reverse auction, all of these platforms, like eBay and Alibaba, normally
take a 5-7 percent of commission from someone who is either selling the product or bidding
the lowest price. In case of forward auction,
eBay normally takes a small cut from someone who is selling the product on that specific platform.
But in case of Alibaba, Alibaba normally take a small cut from someone who is bidding for this specific
customer, and that's how forward and reverse auction business model work.
So these two platforms are taking a very small fee or commission to facilitate this specific type of
transaction.
So all of these platforms may have a different geography or location or a business model, but they exactly
follow the same kind of strategy.
So as of 25 Feb 2022, Robinhood have the market capitalization of $13 billion, and they are a discount
broker that offers the commission free trading.
But a lot of you might be thinking then how exactly these guys make money.
Well, one of the reason is interest.
So let's say I have maybe $1,00,000 inside the Robinhood app, which is not actually the case.
Let's let's take a realistic number.
Let's say I have $5000 in a Robinhood app.
So, so there might be one million customer like me who have some amount of money inside the Robinhood
app, and those people will then invest some part of that money.
So earning interest in the uninvested cash deposit is one of the way by which Robinhood makes money.
Second is your premium subscription.
So Robinhood have a premium subscription of Morningstar research, so they will provide you all of these
research report of NASDAQ or some market data.
If you take their subscription. So they have a subscription with the name Robinhood Gold.
And if you take this specific subscription, you will get all of this research data,
the market data, you can also that all of these research report that is made by all of their expert, and
you can get all of that with the small subscription amount. Then you have Stock loan.
So let's say if you have a very small amount to invest, but you feel that this specific company can
go very high from this current price.
Then you will take a small loan or a stock loan from Robinhood.
And when the stock price will go up, you will generate the overall profit and money, and then you
will return back that specific stock loan back to the Robinhood with interest.
And that's how Robinhood make money, so they make money by investing your uninvested cash deposit inside
the app.
They also make money by giving you a premium subscription of Robinhood Gold, which will provide you
all of the research data or reports like NASDAQ or market data.
And third, you have stock loan, and that's how Robinhood make money.
So in this video, I hope you got a decent understanding of different types of brokerage business model.