I work in the industry and these kind of articles are always full of bad information about order routing.
* Robinhood order flow is informed and toxic like all other brokerages. Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly.
* The "bad prices" the "novices" are trading at, are in fact, the same market price that all participants trade at (at or inside the bid/offer). If the prices were obviously bad, there is free money available to the author here by simply quoting inside the spread.
* Recall that the majority of trades on lit exchanges are from professional or institutional investors. For this reason, spreads are wide because providing liquidity means you will likely get run over. Robinhood orders do not exhibit as much short term momentum, and so trading against them is safer for broker-dealers because there is less risk. This risk profile is valuable, and you might wonder what's a fair way to allocate that value. One option is to not capture it, and send all Robinhood orders directly to the market. The author implies this makes sense (a gravy-free approach), but it does not, the retail customer actually ends up worse off. Another option, the one that occurs in practice now is for the value to get split between the counterparty taking on risk (Citadel, in the form of less toxicity on orders), the customer (the Robinhood client, in the form of price improvement over the national bid/offer), and Robinhood themselves for sourcing the flow (a commission or payment).
> Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly
Why? This is literally the definition of order flow purchasing and market making. Flow amidst spreads creates profits.
The non-cynical explanation for Robinhood’s flow being attractive is in the law of large numbers. Robinhood’s trades are tiny. That means buying their flow gives one lots of small, idiosyncratic exposures. Institutional flow, on the other hand, is lumpy, which can leave one with a few giant positions.
> Another option, the one that occurs in practice now is for the value to get split between the counterparty taking on risk (Citadel, in the form of less toxicity on orders), the customer (the Robinhood client, in the form of price improvement over the national bid/offer), and Robinhood themselves for sourcing the flow (a commission or payment).
According to the WSJ, compared to other brokerages, Robinhood disproportionately takes that value to themselves [1]. Part of the reason why it's so lucrative for them is that they're steering their clients to options trading, where the incentive payments from the market makers are much higher. I think this quote from the WSJ tells the whole story:
One executive with a high-speed trading firm that executes orders for Robinhood said its price improvement is much worse than that of competing brokers.
Question, does RH (or other brokers) do internal clearing/matching of orders?
That is, they clear the purchases/sales internally if they can, going to "the stock market" only if they can't fill it? Or that is a big no-no for brokers?
I’d take the opposite side of the trade on several things. Hertz being one of them.
Also, I think you mistook the meaning of “overtrading at bad prices.” Buying Hertz at any price in June was overtrading it, and at a bad price to boot.
The main point of this article is that Robinhood has brought Silicon Valley-style maximization of user engagement to retail stock-market trading without regard for the psychological, social, and financial consequences to the people who use the service.
The author claims that for Robinhood, "maximizing user engagement" translates into blindly optimizing for getting more and more individuals to trade more and more. Those individuals are not paying for the product; they are the product. More precisely, they are the raw material for generating as much order flow as possible for sale to Wall Street firms.
Robinhood, in other words, is in the business of MANUFACTURING as much order flow as possible from its raw material, retail investors.
This is probably Not a Good Thing™ for retail investors.
At this point, I'm inclined to think that the only benefit VC-funded companies provide to the consumer is by subsidizing the price of the service. Uber, WeWork, DoorDash etc are all piling up losses by undercutting competitors to gain market share. That cannot last. At some point, the other shoe will drop.
Be ready to jump ship if the benefits no longer exceed the costs (lock-in, bad business practices, sale of personal information), etc.
It is trading platform that combines 1.) user engagement/gamification with 2.) targeting a core userbase of young adults that are both financially unstable and inexperienced. It's disgusting and immoral.
This is the epitome of late-stage capitalism. Extract as much money as possible from gullible users. Except we're not maximizing screentime anymore to leverage ad revenue and micro transactions. We're maximizing screen time to drive trade volume while letting people make financial decisions that can literally ruin the rest of their lives.
Well, at least Robinhood's platform hasn't directly led to young adults committing suicide. Oh, it has? Nevermind...
Based on my limited experience, you enter during the bull market, make some easy wins, and start wanting to bet more and more because winning feels so easy. I could totally feel this process when I bought a few option calls that over a few months made 10x. That felt fantastic at first but shortly after I noticed that I started to blame myself for not taking more risk because on the hindsight, it felt so obvious that the price would go up. The market knowledge aside, psychological state is another thing that needs to be kept under control not to let yourself slip into the gambling state.
I wouldn't be surprised if the online echo chambers that are set around particular stocks make people unreasonably confident and make them want to take more risk.
From the people I've talked to it seems to be mostly a lack of understanding. They often self-describe as people who don't know anything about personal finance beyond earning a paycheck and paying bills. They see trading stocks as a step forward.
The concept of diversified risk is not something they are familiar with at all, so they don't see the issue. Many feel comfortable trading consumer company stocks because pop culture and consumer technology are things they have opinions on. And for many it seems like the key to success in trading is finding some insight to bet on, like "everyone loves Netflix, Comcast is doomed," or finding nascent categories like bitcoin or weed. The lack awareness of the complexity of market success makes it harder to grasp why indexes are a more reliable investment strategy.
Here's the appeal: I made 4x return in last 3 years "gambling" on stocks. That's far in excess of 8% return from "just passively investing for the long term".
BTW: I gambled on IBKR, not RobinHood (I have RH account but don't use it).
I just don't get why RobinHood is so vilified for the crime of making a fast, usable app.
I use IBKR but their website is just bad. A security theater that makes logging in slow. Sometimes it fails to log me in. Sometimes it fails to show my portfolio. Because, you know, it's only job no 1 of an investing site.
Same with gambling, I imagine. The utility of 107% guaranteed of this dollar is less than a less than one in a billion chance at a billion dollars.
The net expected value of the dollar doesn't have to be positive. Losing $2000 over 80 years of your life is certainly worth is a non-factor for many.
Add in the fact that RH has reduced barriers to entry to investing. It's way easier to get RH and buy VOOG than to get Vanguard set up. I have enough in both to know.
Same motivation as gambling. You can enjoy the hope of the possibility of wealth. Steady investment will never give you that. Of course, this involves a heavy dose of self-delusion, also popular these days.
I moved from RH to IBKR a few months ago. Going from 5% to ~2% margin fees was a wake up call for me. Their tools are incredible too. For anyone trapped on RH and looking for alternatives, the ACATS transfer process is about as painless as it gets.
The quality of life increase fore mere 8% return is not as much. You'd need much higher returns for many people to make them not use the money now. Losing 1K every month for 5 years for a person who make 200k a year is not much Given the chance to make 100million - billion even if is very little.
Think of it as being a indie VC. Most investment will lose, the ones that gain might make you a lot.
> In the first three months of 2020 ... [Robinhood users] also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size
> And let’s remember that options are far more illiquid and opaque than standard equities.
Okay, first of all the growth of the options market is AMAZING, and their utility increases the more liquid the market is.
So massive new groups of traders with a low barrier of entry make options much more liquid, and this is amazing.
There used to only be one series of options that expired once per quarter and had 5 cent ($5) bid and ask spreads, and strikes only every $5 or $10 dollars.
Now there are 20 series trading at once and pretty much all indice constituent companies, let alone the index itself, alongside strikes every $1 - $2.5 dollars, even $.50 cents sometimes.
There are so many strategies that were unviable because the spreads were too wide, the strikes were too few and far between, and the commissions structure was prohibitive.
That's all changed now, and that's the other perspective.
Robinhood is also still handicapping users, as the regulations allow for much greater amounts of leverage and margin capabilities, which Robinhood doesn't offer yet, which TD Ameritrade and others have offered all along. So all the surprise and angst directed at Robinhood is as ignorant as the speculators that you are worried about.
This is an education problem, not an access problem. They are mutually exclusive.
To the people not using options for what they were made for:
> new groups of traders with a low barrier of entry make options much more liquid
Are you claiming Robinhood users are responsible for a significant fraction of option market liquidity over the past year? Because that’s categorically wrong.
If only we had learned something from 2008... But apparently not
(For those who aren't aware) The problem with options is that your liability with them can get bigger than your equity. You buy 10 shares of Newthing.js for $1000 ($100/share), the maximum you're losing is $1000
You shortsell NTJS because they use JS instead of Ruby, but guess what NTJS rose to $200 per share and at the time of selling you need to cover the difference.
(Edit: had conflated put options with shortselling, https://www.investopedia.com/articles/trading/092613/differe... ), as the article says "Because of its many risks, short selling should only be used by sophisticated traders familiar with the risks of shorting and the regulations involved. "
I think that title of this article is click bait. The author himself acknowledges that Robinhood is not the only firm that sells order flow data. Infact all the well known so called discount brokerages sell order flow data and have done so for many years before Robinhood came along. In addition to that, all these firms were selling the order flow data and still charging their customers $7 per trade. That practise would have continued unabated had Robinhood or some other startup not come along and provided free trading platform.
Also from a real world perspective, I have tried Robinhood and Schwab market orders and they are very close to each other (most of the times - same price down to the penny). So I am not sure why Robinhood is geting paid more for their order flow, compared to the other discount brokerages.
Also Robinhood is great for buy and hold investment.
> all the well known so called discount brokerages sell order flow
The order flow selling is sensationalised. Everyone does it.
But Robinhood’s order flow being so much more valuable than competitors’ is interesting. And the difference cannot be explained solely by small order size. The market is betting Robinhood trades are profitable to trade against. Given how the UX encourages over-trading and complex trading, I’m inclined to agree.
Robinhood was an absolute game changer for me. Outside of my 401k (and a Viacom stock my mom bought me 20+ years ago to teach me about the stock market), my investment portfolio was nil.
I now maintain a growing but conservative portfolio of stocks thanks partly to the frictionless UX of Robinhood - but, primarily, to the addition of fractional shares.
To pay $1500 for a share of TSLA? When I could put that precious money into my savings account? Pass. But if I can buy 0.1 shares at $150? Now we’re talking. Hey, TSLA went up a bit today. I’ll buy another 0.1 shares. Etc. That, without hyperbole, is truly the beginnings of the democratization of the stock market.
Mutual funds and ETFs are basically that but you get a sliver of like several hundred high quality companies instead of just one. I’d argue those products did more for democratization because they allowed investors with small sums of money to achieve diversification.
That's the problem of RH - in your cases stock is managed because of "frictionless UI" whilst it should be managed due to financial considerations but not because they have made it easy as getting a cup of coffee.
You need to understand the model how low cost services like RH operate - they sell all your data to big hedge funds. Guess what happen at certain moment when smart money will decide it's time to cut pigs - massive wealth redistribution with robihooders being cut. It has happened before in history and will happen again since history doesn't really teach majority of us anything at all.
You can do those things on any brokerage. You can buy options pretty much anywhere. Not seeing where the democratization is coming from that is different from the status quo
I don't really see the advantage there over a service like Wealthfront or Betterfront, which offer automatic tax minimization, integrated handling of IRAs, and customizable stock-bond balances, or even just investing in Vanguard target date ETFs directly for similar returns with slightly lower fees.
I don't think Robinhood is doing anything wrong. They are making things easy, which it should be. They still need to use the NBBO price, so it's not like they are making things more expensive for traders.
But I've seen this exact same pattern during the dot com boom. Lots of people making a ton of money day trading. This usually culminates in a heavy crash and many people are completely wiped out.
/r/wallstreetbets is hand-in-hand with Robinhood and wsb more than RH is really making a huge game out of this, and it's crazy. I know people that have gotten sucked in by wsb and started buying crazy amounts of options just to lose all their money. If there is a big crash, I hope RH ends up IPO'ing before this, otherwise all their investors and employees will be holding onto worthless stock as trading volumes goes to zero, like it did after the dotcom-bust.
This is just nuts, people know zilch about risk management. It is just a wealth transfer from people with zero knowledge to professional traders and brokers.
Paying of credit cards, maximising your tax return, investing in things you 100% understand, way easier ways to make money.
People still might get lucky and make epic money, but it is in the same zip code as driving drunk and not getting into a crash.
> People still might get lucky and make epic money, but it is in the same zip code as driving drunk and not getting into a crash.
The rest of your post notwithstanding, this is a moderately common misconception. Most drunk driving does not result in crashes, and that's part of the danger -- after dozens of successful trips you might delude yourself into thinking you're somehow able to overcome the reduced reflexes and whatnot, but as soon as anything atypical hits the road (like a family crossing) you probably won't be able to respond adequately.
Well, most of us (myself included) "invest" in a 401(k) that we don't really understand that well, but common wisdom is that this is still the best way to save for retirement.
What's the reason of this article showing RH as an evil corp? People also gamble in Las Vegas, no one is stopping them.
It is a good tool, thought me a lot about stocks and options. I am not investing heavily, but overhead of my investments would be far more higher with other competitors.
The other trading companies literally asked my lifestory, bunch of scans and very long process of acceptance. Let alone their extremely cumbersome software would possibly (I am certain) lose more money because of the mistakes I would make.
"People also gamble in Las Vegas, no one is stopping them."
If Robin Hood was positioned and sold as 'gambling' and regulated a such, nobody would have a problem with it.
But if anyone doesn't see the maximal hypocrisy in their branding (literally: Robin Hood) and the materiality of their offer, then that's the issue right there.
By 'gravy' the author means 'fish' in gambling terms.
There's just no way kids on their app, are, on the aggregate going to be able to be beating pros esp. on sophisticated things like options trading, but that's the whole point.
People keep saying this and all I can say is, have you used Robinhood AND a "real" brokrage platform?
Crashes during periods of high volatility at a much higher rate than competitors, puts detailed views of stock market behind a paywall, actively advertises options with asinine strike/expiries for people who don't get options, no full support for spreads are on their mobile app, their general poor handling of multi leg options strategies resulted in the suicide of person wrongly shown to owe millions in their account, terrible for tracking P/L, terrible fills on orders, the asinine fake chat bot system and lacking support in general
Robinhood as a trading platform is deeply flawed, you say your commissions would outweigh your investments, but a) now zero fee trades is not a differentiator, and b) you're paying commissions on every RH trade with subpar fills, both on time taken to fill and prices, those add up over time, and are why RH could even afford commission free trades in the first place
That's a result of federal regulation and lawsuits. Investors have a tendency to sue brokerages when they lose money, arguing that "nobody told me stocks could go down!" Hence brokerages try to head this off by refusing to sell to you if you don't certify you are a "sophisticated" investor.
Lol...They can sell my order flow all they want as long as I’m still earning
Edit: Downvote all you want. That all brokers (well, not all, depending on your account) sell your flow to Citadel et el is well discussed, and RH has an even better client base to ‘sell out’...
The point I’m making is that for some users they don’t really care it it currently ‘works well enough’ for whatever they’re doing.
Nothing prevents one from taking a more passive “buy and hold” approach on Robinhood - these articles critical of Robinhood seem to conflate Robinhood as a brokerage platform and poor investing discipline... it has nothing to do with the brokerage and everything to do with the investor.
People that complain Robinhood is too easy and "the people can't handle it" are akin to the Catholic church in the dark ages forbidding the translation of the bible from Latin.
That debate at the end over how the NYT portrayed how much money is made off of the order flows is interesting.
Is it reasonable for the NYT journalist to use total payment order flow revenue / average dollar amount per account instead of diving by total number of accounts? The latter seems like it would be a cleaner way to say "this is, on average, how much they're making off of each person"
Whatever it is - Robinhood is cleaning up. Wish I was invested in the company instead of just using it.
I love Robinhood as a product (simple, easy to use) but agree it’s advantages also can lead to recklessness.
For me, I simply delete the mobile app for my phone and use another app to set price alerts. This prevents me from overtrading and obsessing over the markets everyday.
Do you have a recommendation for price alerts? Both E-Trade and Robinhood don't notify me immediately when a price target or percentage change is hit. A 90 day limit order does execute quickly enough but it isn't exactly what I'm looking for because there might be new information that would have made me not want to buy.
I’ve started to learn about options, but for now I’m staying with long term stock investment.
Maybe I’m not understanding the language, but I thought RH and eToro and the like made money through enabling high frequency trading against their customers. My guess/intuition is that this would increase volatility but reduce the expected returns of their users when compared to trading stocks through a broker. Am I terribly lost here?
I was looking at trading platforms lately, and noticed "robo-trading", but don't see it as part of the discussion here. Is it a reasonable alternative to trading on your own?
[+] [-] hftrader998|5 years ago|reply
* Robinhood order flow is informed and toxic like all other brokerages. Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly.
* The "bad prices" the "novices" are trading at, are in fact, the same market price that all participants trade at (at or inside the bid/offer). If the prices were obviously bad, there is free money available to the author here by simply quoting inside the spread.
* Recall that the majority of trades on lit exchanges are from professional or institutional investors. For this reason, spreads are wide because providing liquidity means you will likely get run over. Robinhood orders do not exhibit as much short term momentum, and so trading against them is safer for broker-dealers because there is less risk. This risk profile is valuable, and you might wonder what's a fair way to allocate that value. One option is to not capture it, and send all Robinhood orders directly to the market. The author implies this makes sense (a gravy-free approach), but it does not, the retail customer actually ends up worse off. Another option, the one that occurs in practice now is for the value to get split between the counterparty taking on risk (Citadel, in the form of less toxicity on orders), the customer (the Robinhood client, in the form of price improvement over the national bid/offer), and Robinhood themselves for sourcing the flow (a commission or payment).
[+] [-] JumpCrisscross|5 years ago|reply
Why? This is literally the definition of order flow purchasing and market making. Flow amidst spreads creates profits.
The non-cynical explanation for Robinhood’s flow being attractive is in the law of large numbers. Robinhood’s trades are tiny. That means buying their flow gives one lots of small, idiosyncratic exposures. Institutional flow, on the other hand, is lumpy, which can leave one with a few giant positions.
[+] [-] d_silin|5 years ago|reply
[+] [-] KKKKkkkk1|5 years ago|reply
According to the WSJ, compared to other brokerages, Robinhood disproportionately takes that value to themselves [1]. Part of the reason why it's so lucrative for them is that they're steering their clients to options trading, where the incentive payments from the market makers are much higher. I think this quote from the WSJ tells the whole story:
One executive with a high-speed trading firm that executes orders for Robinhood said its price improvement is much worse than that of competing brokers.
[1] https://www.wsj.com/articles/why-free-trading-on-robinhood-i...
[+] [-] raverbashing|5 years ago|reply
That is, they clear the purchases/sales internally if they can, going to "the stock market" only if they can't fill it? Or that is a big no-no for brokers?
[+] [-] simonebrunozzi|5 years ago|reply
Bam. Nailed it here. Instant credibility.
A pity your HN account is "new" (green color), as I would love to hear much, much more from you.
[+] [-] MR4D|5 years ago|reply
Also, I think you mistook the meaning of “overtrading at bad prices.” Buying Hertz at any price in June was overtrading it, and at a bad price to boot.
[+] [-] cs702|5 years ago|reply
The author claims that for Robinhood, "maximizing user engagement" translates into blindly optimizing for getting more and more individuals to trade more and more. Those individuals are not paying for the product; they are the product. More precisely, they are the raw material for generating as much order flow as possible for sale to Wall Street firms.
Robinhood, in other words, is in the business of MANUFACTURING as much order flow as possible from its raw material, retail investors.
This is probably Not a Good Thing™ for retail investors.
[+] [-] rchaud|5 years ago|reply
Be ready to jump ship if the benefits no longer exceed the costs (lock-in, bad business practices, sale of personal information), etc.
[+] [-] aka1234|5 years ago|reply
It is trading platform that combines 1.) user engagement/gamification with 2.) targeting a core userbase of young adults that are both financially unstable and inexperienced. It's disgusting and immoral.
This is the epitome of late-stage capitalism. Extract as much money as possible from gullible users. Except we're not maximizing screentime anymore to leverage ad revenue and micro transactions. We're maximizing screen time to drive trade volume while letting people make financial decisions that can literally ruin the rest of their lives.
Well, at least Robinhood's platform hasn't directly led to young adults committing suicide. Oh, it has? Nevermind...
[+] [-] dmoy|5 years ago|reply
Maybe with some of your money, but not to the extent a lot of people are doing.
People want to get rich quick I guess? Even if you do want to do that, why not pick a brokerage which doesn't take as much from you, like IBKR?
It's just a surreal situation to me.
[+] [-] biql|5 years ago|reply
[+] [-] aggie|5 years ago|reply
The concept of diversified risk is not something they are familiar with at all, so they don't see the issue. Many feel comfortable trading consumer company stocks because pop culture and consumer technology are things they have opinions on. And for many it seems like the key to success in trading is finding some insight to bet on, like "everyone loves Netflix, Comcast is doomed," or finding nascent categories like bitcoin or weed. The lack awareness of the complexity of market success makes it harder to grasp why indexes are a more reliable investment strategy.
[+] [-] kjksf|5 years ago|reply
BTW: I gambled on IBKR, not RobinHood (I have RH account but don't use it).
I just don't get why RobinHood is so vilified for the crime of making a fast, usable app.
I use IBKR but their website is just bad. A security theater that makes logging in slow. Sometimes it fails to log me in. Sometimes it fails to show my portfolio. Because, you know, it's only job no 1 of an investing site.
[+] [-] renewiltord|5 years ago|reply
The net expected value of the dollar doesn't have to be positive. Losing $2000 over 80 years of your life is certainly worth is a non-factor for many.
Add in the fact that RH has reduced barriers to entry to investing. It's way easier to get RH and buy VOOG than to get Vanguard set up. I have enough in both to know.
[+] [-] pjc50|5 years ago|reply
Same motivation as gambling. You can enjoy the hope of the possibility of wealth. Steady investment will never give you that. Of course, this involves a heavy dose of self-delusion, also popular these days.
[+] [-] dlgeek|5 years ago|reply
[+] [-] bob1029|5 years ago|reply
[+] [-] rydre|5 years ago|reply
Think of it as being a indie VC. Most investment will lose, the ones that gain might make you a lot.
[+] [-] softawre|5 years ago|reply
This is that for people who consider themselves "gifted".
[+] [-] vmception|5 years ago|reply
> And let’s remember that options are far more illiquid and opaque than standard equities.
Okay, first of all the growth of the options market is AMAZING, and their utility increases the more liquid the market is.
So massive new groups of traders with a low barrier of entry make options much more liquid, and this is amazing.
There used to only be one series of options that expired once per quarter and had 5 cent ($5) bid and ask spreads, and strikes only every $5 or $10 dollars.
Now there are 20 series trading at once and pretty much all indice constituent companies, let alone the index itself, alongside strikes every $1 - $2.5 dollars, even $.50 cents sometimes.
There are so many strategies that were unviable because the spreads were too wide, the strikes were too few and far between, and the commissions structure was prohibitive.
That's all changed now, and that's the other perspective.
Robinhood is also still handicapping users, as the regulations allow for much greater amounts of leverage and margin capabilities, which Robinhood doesn't offer yet, which TD Ameritrade and others have offered all along. So all the surprise and angst directed at Robinhood is as ignorant as the speculators that you are worried about.
This is an education problem, not an access problem. They are mutually exclusive.
To the people not using options for what they were made for:
"Just avoid holding it in that way." - Steve Jobs
[+] [-] JumpCrisscross|5 years ago|reply
Are you claiming Robinhood users are responsible for a significant fraction of option market liquidity over the past year? Because that’s categorically wrong.
[+] [-] raverbashing|5 years ago|reply
(For those who aren't aware) The problem with options is that your liability with them can get bigger than your equity. You buy 10 shares of Newthing.js for $1000 ($100/share), the maximum you're losing is $1000
You shortsell NTJS because they use JS instead of Ruby, but guess what NTJS rose to $200 per share and at the time of selling you need to cover the difference.
(Edit: had conflated put options with shortselling, https://www.investopedia.com/articles/trading/092613/differe... ), as the article says "Because of its many risks, short selling should only be used by sophisticated traders familiar with the risks of shorting and the regulations involved. "
[+] [-] ab_testing|5 years ago|reply
Also from a real world perspective, I have tried Robinhood and Schwab market orders and they are very close to each other (most of the times - same price down to the penny). So I am not sure why Robinhood is geting paid more for their order flow, compared to the other discount brokerages.
Also Robinhood is great for buy and hold investment.
[+] [-] JumpCrisscross|5 years ago|reply
The order flow selling is sensationalised. Everyone does it.
But Robinhood’s order flow being so much more valuable than competitors’ is interesting. And the difference cannot be explained solely by small order size. The market is betting Robinhood trades are profitable to trade against. Given how the UX encourages over-trading and complex trading, I’m inclined to agree.
[+] [-] dlivingston|5 years ago|reply
I now maintain a growing but conservative portfolio of stocks thanks partly to the frictionless UX of Robinhood - but, primarily, to the addition of fractional shares.
To pay $1500 for a share of TSLA? When I could put that precious money into my savings account? Pass. But if I can buy 0.1 shares at $150? Now we’re talking. Hey, TSLA went up a bit today. I’ll buy another 0.1 shares. Etc. That, without hyperbole, is truly the beginnings of the democratization of the stock market.
[+] [-] nknealk|5 years ago|reply
[+] [-] jesterson|5 years ago|reply
You need to understand the model how low cost services like RH operate - they sell all your data to big hedge funds. Guess what happen at certain moment when smart money will decide it's time to cut pigs - massive wealth redistribution with robihooders being cut. It has happened before in history and will happen again since history doesn't really teach majority of us anything at all.
[+] [-] platz|5 years ago|reply
[+] [-] crooked-v|5 years ago|reply
[+] [-] ping_pong|5 years ago|reply
But I've seen this exact same pattern during the dot com boom. Lots of people making a ton of money day trading. This usually culminates in a heavy crash and many people are completely wiped out.
/r/wallstreetbets is hand-in-hand with Robinhood and wsb more than RH is really making a huge game out of this, and it's crazy. I know people that have gotten sucked in by wsb and started buying crazy amounts of options just to lose all their money. If there is a big crash, I hope RH ends up IPO'ing before this, otherwise all their investors and employees will be holding onto worthless stock as trading volumes goes to zero, like it did after the dotcom-bust.
[+] [-] timavr|5 years ago|reply
Paying of credit cards, maximising your tax return, investing in things you 100% understand, way easier ways to make money.
People still might get lucky and make epic money, but it is in the same zip code as driving drunk and not getting into a crash.
[+] [-] hansvm|5 years ago|reply
The rest of your post notwithstanding, this is a moderately common misconception. Most drunk driving does not result in crashes, and that's part of the danger -- after dozens of successful trips you might delude yourself into thinking you're somehow able to overcome the reduced reflexes and whatnot, but as soon as anything atypical hits the road (like a family crossing) you probably won't be able to respond adequately.
[+] [-] commandlinefan|5 years ago|reply
Well, most of us (myself included) "invest" in a 401(k) that we don't really understand that well, but common wisdom is that this is still the best way to save for retirement.
[+] [-] system2|5 years ago|reply
It is a good tool, thought me a lot about stocks and options. I am not investing heavily, but overhead of my investments would be far more higher with other competitors.
The other trading companies literally asked my lifestory, bunch of scans and very long process of acceptance. Let alone their extremely cumbersome software would possibly (I am certain) lose more money because of the mistakes I would make.
[+] [-] jariel|5 years ago|reply
If Robin Hood was positioned and sold as 'gambling' and regulated a such, nobody would have a problem with it.
But if anyone doesn't see the maximal hypocrisy in their branding (literally: Robin Hood) and the materiality of their offer, then that's the issue right there.
By 'gravy' the author means 'fish' in gambling terms.
There's just no way kids on their app, are, on the aggregate going to be able to be beating pros esp. on sophisticated things like options trading, but that's the whole point.
[+] [-] BoorishBears|5 years ago|reply
Crashes during periods of high volatility at a much higher rate than competitors, puts detailed views of stock market behind a paywall, actively advertises options with asinine strike/expiries for people who don't get options, no full support for spreads are on their mobile app, their general poor handling of multi leg options strategies resulted in the suicide of person wrongly shown to owe millions in their account, terrible for tracking P/L, terrible fills on orders, the asinine fake chat bot system and lacking support in general
Robinhood as a trading platform is deeply flawed, you say your commissions would outweigh your investments, but a) now zero fee trades is not a differentiator, and b) you're paying commissions on every RH trade with subpar fills, both on time taken to fill and prices, those add up over time, and are why RH could even afford commission free trades in the first place
[+] [-] WalterBright|5 years ago|reply
That's a result of federal regulation and lawsuits. Investors have a tendency to sue brokerages when they lose money, arguing that "nobody told me stocks could go down!" Hence brokerages try to head this off by refusing to sell to you if you don't certify you are a "sophisticated" investor.
[+] [-] enilakla|5 years ago|reply
Edit: Downvote all you want. That all brokers (well, not all, depending on your account) sell your flow to Citadel et el is well discussed, and RH has an even better client base to ‘sell out’...
The point I’m making is that for some users they don’t really care it it currently ‘works well enough’ for whatever they’re doing.
[+] [-] jtdev|5 years ago|reply
[+] [-] tleite|5 years ago|reply
[+] [-] porkshoulder|5 years ago|reply
Is it reasonable for the NYT journalist to use total payment order flow revenue / average dollar amount per account instead of diving by total number of accounts? The latter seems like it would be a cleaner way to say "this is, on average, how much they're making off of each person"
Whatever it is - Robinhood is cleaning up. Wish I was invested in the company instead of just using it.
[+] [-] AznHisoka|5 years ago|reply
For me, I simply delete the mobile app for my phone and use another app to set price alerts. This prevents me from overtrading and obsessing over the markets everyday.
[+] [-] p7hwfizeONj|5 years ago|reply
[+] [-] mam2|5 years ago|reply
They see the ones winning and say "oh, this MUST be luck"
[+] [-] xondono|5 years ago|reply
Maybe I’m not understanding the language, but I thought RH and eToro and the like made money through enabling high frequency trading against their customers. My guess/intuition is that this would increase volatility but reduce the expected returns of their users when compared to trading stocks through a broker. Am I terribly lost here?
[+] [-] anonu|5 years ago|reply
[+] [-] jasonv|5 years ago|reply
[+] [-] simonebrunozzi|5 years ago|reply
This sounds quite true.
[+] [-] jeffrallen|5 years ago|reply
But: it has only served me well because the person I pay is trustworthy beyond reproach, and has earned that trust from my family over decades.
This is, unfortunately, not a scalable solution.