I feel like regardless of the reasons they did it, whether or not it was necessary, they lost a lot of good faith with the users when they locked the GME and crypto trading during that whole thing. I have no idea how necessary their actions were but regardless of its necessity it still cost a lot of user good will.
It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi...
But retail traders (not the professional traders like George Soros) don't understand that the "Robinhood smartphone app" is a leaky abstraction over final trade settlement at traditional clearing houses. The real-world aspect that "leaked out" was that Robinhood didn't have enough billions in cash. So the ramifications to the UI/UX (the stuff the smartphone user sees) is that you can't transact GME. All that "trade settlement accounting" is too much complexity for non-professionals to understand so the easier narrative to believe is that Robinhood was part of a conspiracy theory to screw the little guy. Yes, being underfunded made them look bad.
I would be shocked if the GME / Reddit crowd made up more than a few percent of that decline. Robinhood has a lot of users across a lot of demographics. Reddit, however large, is more of a small microcosm of internet culture.
I think it's more likely that Robinhood's rapid rise was fueled by COVID boredom and a wonky stock market where it felt like everyone was getting rich from stocks and options.
Now that the market is cooling off and a lot of their new users got burned when they learned that the market doesn't always go up, I suspect a lot of them are losing enthusiasm for frequent trading.
this is a good example of the importance of comms and user education. robinhood didn't lock trading - or at the very least, they were far from the only brokerage to do so and had
very little choice in the matter. however, they were the front end that uninformed users experienced it through and thus took a huge PR hit
That action reinforced the exact opposite of the narrative they were trying to create with the Robinhood name. Instead of stealing from the rich and giving to the poor they were running a casino where if you win too much they stop the game.
It was 100% necessary, they didn’t have the necessary cash to post margin with the clearinghouse.
They would’ve been a failed brokerage if they kept allowing GME trades without being able to post the required margin, the SEC would’ve taken it over and people would’ve had to wait weeks/months to ACATS their shares and cash to another brokerage.
Does that sound like a better outcome for Robinhood users? I didn’t think so.
Whether it was right for them to do or not, I left their platform because of it paying their ridiculous $79 transfer fee or whatever it was. Now with Fidelity and have recommended them 3 times since I've switched.
They did it so they wouldn’t collapse financially. And probably lose all licenses and privileges to make trades for the foreseeable future, ending them as a company.
I understand why they did, and why they had to do it. And I still don't care. I liquidated my RH positions and left the platform forever. Unfair is unfair.
The one thing I have to give Robinhood credit for is the good marketing that appealed to Zoomers and the WSB crowd. But, much like Crytpo Andys, a lot of these people just don't understand how anything works.
Take the GME short squeeze, which a lot of people still fundamentally misunderstand. RH allowed (allows?) you to sign up, promise to deposit funds and trade on credit, essentially, until those funds arrive (typically in no less than 3 days). That settlement process dind't go away. RH just abosrbed the risk.
That's fine when the market is normal. Some people might buy GE and others might sell GE so it all evens out. By this I mean the default risk to RH is mitigated (but still real).
The problem with GME is everyone was buying in a short space of time to the point RH had to borrow billions to cover the collateral requirements to the point it was risking making the company insolvent. That's how extreme it was. So what happens if people sign up, buy GME on credit and then GME crashes? RH is left holding the bag. That was the problem. It's also why GME blocked further purchases bu tallowed sales because sales decreased their overall risk no matter where they came from.
But no, how things actually work is ignored in favor of the system protecting hedge funds.
Personally I don't use any free brokerage because of the order flow issue, which is to say that all your orders are sold to hedge funds and that's where RH makes it's money. Just like with free online services that sell advertising: you are the product. It's so wild to me that people bitch about the evils of advertising but accept without question the selling of order flow, which is directtly taking money from your pockets. Crazy.
It's even crazier when you consider that the aforementioned evil hedge funds supposedly protecting GME short sellers are directly funding and benefitting from RH order flow but they get no flak for that.
You can only get away from not knowing how the underlying thing works. It'll eventually come back to bite you in the ass.
Until recently every US broker accepted payment for order flow (even Vanguard did for options). Only Robinhood gave you back the money in the form of free trades. Thats to be commended.
Payment for order flow is a complex topic, mostly because the incentives are tricky, but at the end of the day, unless you are doing gigantic block trades (which you’d hire a specialist to do) you are almost certainly paying less in slippage with PFOF than you are in fees.
You guys forget they also did the same thing blocking Nokia stock buys. Don’t tell me they didn’t have enough to cover that. It had a fraction of the GME madness.
I am not wealthy, but I have more stock than the average person. I moved all of it out of RH. Will never trust them again.
I am sure there was thousands of little guys like myself that bailed.
The idea that they blocked sales just long enough for the r/wsb crowd to panic sell and then restore buying was pretty suspect. I know they claimed liquidity problems, but it sure seemed to benefit groups that bet on the other side of the GME bubble.
Note I am not bitter about losing money on GME. I didn’t.
Fidelity iOS app even has a beta toggle that sprinkles that UI/UX competitive advantage that Robinhood pioneered in the space. Anyhow, I wonder how much revenue decline is expected post-IPO, one would assume that they hyper-optimize KPIs 1-2 years before IPO to have good metrics and then those strategies do not continue in the longer term.
Looking at the scwhab 2020 pdf i could find quickly they added ~4.6mm new brokerage accounts between 19 and 20. Wonder what the recent stats are.
Article says robinhood lost 1.8mm if i'm reading correct.
Fits my use. I did a small amount on robinhood when i first came out. Now have that small pot for active trading (compared to people here i'm sure) in schwab.
I am also considering moving the larger savings i have in wealthfront to schwab. But i'm afraid of my impulsivity. About 10% of my savings are in a schwab account i actively trade on. Down like 20% over the last 360 days lol. Despite 1% fee my IRA is like doubled - though a much longer timeframe. I did put my 2021 tax IRA into new account on schwab. 80% medium risk ETFs. and just bought ttt and some bull levered etfs. lol. too impulsive.
If schwab had a setting to automate or place holds so I couldn't sell for ___ in my IRA I would move it all. Maybe i'll open a second account different login so it doesn't show up on the app/website.
A lot of recent earnings reports that make the headlines boil down to people not staying at home like they did in 2020. Less Netflix, less Pelaton, less shopping on Amazon, less punting.
What an interesting business model. Regardless of what Robinhood aspires to be, its target demographic used it for easy speculation. Access to options trading with as little friction as possible and meme coins, for example. When most speculators lose their money, who remains on the platform? Is anyone using Robinhood for long term financial investment?
Add in mistrust from your users (GME, AMC, et al) and increasing competition from the more "reputable" services that have made trading on mobile easier and it doesn't look great.
There's similarities to casinos and bookmakers, except those folks controlled the odds and could entice customers +/- as needed to bring in traffic. Robinhood doesn't have that option.
There's no reason not to use it for long term financial investment. I don't think your money is any safer or less safe between different brokerages. They rode a fad to greatly increase market share. The fad is ebbing, but I'm guessing they are still in a much better spot than they were in 2019.
I used the app briefly during the Gamestop hype, and am not a savvy investor by any means. But the press circus surrounding it in the aftermath made me feel like I had used an online slot machine not an investing application.
I’m a big believer in their future. As soon as they release their native crypto deposit/withdraw functionality beyond beta (it’s amazing), Robinhood will be the first true crypto exchange with an attached U.S. bank account. [1]
That means no transfer times between banks and an exchange. Deposit and sell crypto, instantly spend fiat on their debit card. Deposit your paycheck ACH, withdraw crypto to your own wallet. Lack of a stablecoin is its only current blind spot.
It’s a game changer and very few people are understanding this, including in the marketing department at Robinhood. They need to plaster “Now an exchange, with a bank account.” ads on crypto news sites.
[1] Square Cash almost counts but I discount them due to only supporting BTC - a fault of their founder’s BTC maximalism belief.
Even supposing all that cryptocurrency integration brought on a lot of profit, I don’t think it secures their future because other platforms can just copy it.
None of this sounds game changing to me. I can get a coinbase card, but don't actually want one of those either. I think their days are numbered given the steep revenue declines.
PFOF is not "screwing" them - it costs on average less than brokerage fees before Robinhood existed. I would venture most people would prefer a bit of a spread on their orders to paying several dollars when they execute a sale.
The vast majority of investors are not trading enough money for these minute scrapings to add up to anything at all. OTOH TD ameritrade et all were charging you $7.99 a trade or whatever hustle they had people forced into previously.
Robinhood is legally obligated to provide users with the lowest spread they can find. They make money because market makers are willing to pay robinhood to bring them customers who get the exact same price as everyone else. The market makers do this because they realize robinhood users are schmucks who are more likely to lose money than other investors.
There's a detailed and useful description of the order flow market from Bloomberg's Matt Levine at https://archive.ph/kgApm. I don't think it's accurate to say RH clients were getting screwed on order flow. They were getting less of the order flow benefit in exchange for no-fee trades.
[+] [-] thedrbrian|3 years ago|reply
[+] [-] ryanmcbride|3 years ago|reply
[+] [-] jasode|3 years ago|reply
It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi...
But retail traders (not the professional traders like George Soros) don't understand that the "Robinhood smartphone app" is a leaky abstraction over final trade settlement at traditional clearing houses. The real-world aspect that "leaked out" was that Robinhood didn't have enough billions in cash. So the ramifications to the UI/UX (the stuff the smartphone user sees) is that you can't transact GME. All that "trade settlement accounting" is too much complexity for non-professionals to understand so the easier narrative to believe is that Robinhood was part of a conspiracy theory to screw the little guy. Yes, being underfunded made them look bad.
**EDIT to add extra link explaining why Robinhood has to post their own collateral to buy stocks on behalf of their customers: https://money.stackexchange.com/questions/136272/why-would-c...
[+] [-] PragmaticPulp|3 years ago|reply
I think it's more likely that Robinhood's rapid rise was fueled by COVID boredom and a wonky stock market where it felt like everyone was getting rich from stocks and options.
Now that the market is cooling off and a lot of their new users got burned when they learned that the market doesn't always go up, I suspect a lot of them are losing enthusiasm for frequent trading.
They did their IPO at just the right time.
[+] [-] kyriefh|3 years ago|reply
[+] [-] djyaz1200|3 years ago|reply
[+] [-] quickthrowman|3 years ago|reply
They would’ve been a failed brokerage if they kept allowing GME trades without being able to post the required margin, the SEC would’ve taken it over and people would’ve had to wait weeks/months to ACATS their shares and cash to another brokerage.
Does that sound like a better outcome for Robinhood users? I didn’t think so.
[+] [-] andrewgioia|3 years ago|reply
[+] [-] thawaya3113|3 years ago|reply
[+] [-] parkingrift|3 years ago|reply
[+] [-] bushbaba|3 years ago|reply
[+] [-] rdtwo|3 years ago|reply
[+] [-] jmyeet|3 years ago|reply
Take the GME short squeeze, which a lot of people still fundamentally misunderstand. RH allowed (allows?) you to sign up, promise to deposit funds and trade on credit, essentially, until those funds arrive (typically in no less than 3 days). That settlement process dind't go away. RH just abosrbed the risk.
That's fine when the market is normal. Some people might buy GE and others might sell GE so it all evens out. By this I mean the default risk to RH is mitigated (but still real).
The problem with GME is everyone was buying in a short space of time to the point RH had to borrow billions to cover the collateral requirements to the point it was risking making the company insolvent. That's how extreme it was. So what happens if people sign up, buy GME on credit and then GME crashes? RH is left holding the bag. That was the problem. It's also why GME blocked further purchases bu tallowed sales because sales decreased their overall risk no matter where they came from.
But no, how things actually work is ignored in favor of the system protecting hedge funds.
Personally I don't use any free brokerage because of the order flow issue, which is to say that all your orders are sold to hedge funds and that's where RH makes it's money. Just like with free online services that sell advertising: you are the product. It's so wild to me that people bitch about the evils of advertising but accept without question the selling of order flow, which is directtly taking money from your pockets. Crazy.
It's even crazier when you consider that the aforementioned evil hedge funds supposedly protecting GME short sellers are directly funding and benefitting from RH order flow but they get no flak for that.
You can only get away from not knowing how the underlying thing works. It'll eventually come back to bite you in the ass.
[+] [-] kasey_junk|3 years ago|reply
Payment for order flow is a complex topic, mostly because the incentives are tricky, but at the end of the day, unless you are doing gigantic block trades (which you’d hire a specialist to do) you are almost certainly paying less in slippage with PFOF than you are in fees.
[+] [-] SilasX|3 years ago|reply
Except they cut off buys even if made with settled funds.
Edit: to avoid retreading ground, here’s where I had the exchange before. Just tell me what you would say differently: https://news.ycombinator.com/item?id=27693578
[+] [-] klipklop|3 years ago|reply
I am not wealthy, but I have more stock than the average person. I moved all of it out of RH. Will never trust them again.
I am sure there was thousands of little guys like myself that bailed.
The idea that they blocked sales just long enough for the r/wsb crowd to panic sell and then restore buying was pretty suspect. I know they claimed liquidity problems, but it sure seemed to benefit groups that bet on the other side of the GME bubble.
Note I am not bitter about losing money on GME. I didn’t.
[+] [-] vincentmarle|3 years ago|reply
[+] [-] bombcar|3 years ago|reply
And having your investment platform be basically synonymous with wallstreetbets isn’t that great.
[+] [-] lalos|3 years ago|reply
[+] [-] dillondoyle|3 years ago|reply
Looking at the scwhab 2020 pdf i could find quickly they added ~4.6mm new brokerage accounts between 19 and 20. Wonder what the recent stats are.
Article says robinhood lost 1.8mm if i'm reading correct.
Fits my use. I did a small amount on robinhood when i first came out. Now have that small pot for active trading (compared to people here i'm sure) in schwab.
I am also considering moving the larger savings i have in wealthfront to schwab. But i'm afraid of my impulsivity. About 10% of my savings are in a schwab account i actively trade on. Down like 20% over the last 360 days lol. Despite 1% fee my IRA is like doubled - though a much longer timeframe. I did put my 2021 tax IRA into new account on schwab. 80% medium risk ETFs. and just bought ttt and some bull levered etfs. lol. too impulsive.
If schwab had a setting to automate or place holds so I couldn't sell for ___ in my IRA I would move it all. Maybe i'll open a second account different login so it doesn't show up on the app/website.
[+] [-] dehrmann|3 years ago|reply
[+] [-] ctvo|3 years ago|reply
Add in mistrust from your users (GME, AMC, et al) and increasing competition from the more "reputable" services that have made trading on mobile easier and it doesn't look great.
There's similarities to casinos and bookmakers, except those folks controlled the odds and could entice customers +/- as needed to bring in traffic. Robinhood doesn't have that option.
[+] [-] woah|3 years ago|reply
[+] [-] werber|3 years ago|reply
[+] [-] turtledove|3 years ago|reply
These things are the same. Different front end UX, maybe, but if you are taking WSB advice then these two things are the same.
[+] [-] zydex|3 years ago|reply
[+] [-] buildbuildbuild|3 years ago|reply
That means no transfer times between banks and an exchange. Deposit and sell crypto, instantly spend fiat on their debit card. Deposit your paycheck ACH, withdraw crypto to your own wallet. Lack of a stablecoin is its only current blind spot.
It’s a game changer and very few people are understanding this, including in the marketing department at Robinhood. They need to plaster “Now an exchange, with a bank account.” ads on crypto news sites.
[1] Square Cash almost counts but I discount them due to only supporting BTC - a fault of their founder’s BTC maximalism belief.
[+] [-] xur17|3 years ago|reply
[+] [-] flywithit|3 years ago|reply
[+] [-] bastardoperator|3 years ago|reply
[+] [-] Justin_K|3 years ago|reply
[+] [-] kareemsabri|3 years ago|reply
[+] [-] asdff|3 years ago|reply
[+] [-] colinmhayes|3 years ago|reply
[+] [-] foundart|3 years ago|reply
[+] [-] stjohnswarts|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] strangus|3 years ago|reply
[deleted]
[+] [-] m1117|3 years ago|reply
[+] [-] maneesh|3 years ago|reply
Now, I find out from my bank, that Robinhood leaked my SSN, Drivers License#, Address, and Email to the dark web.
WTF!!!!
Is there any recourse here? My SSN is now all over the dark web.
[+] [-] Miner49er|3 years ago|reply
[+] [-] dave5104|3 years ago|reply
Freeze your credit reports at the 3 bureaus. And start checking your credit report on a regular basis at: https://www.annualcreditreport.com/