Robinhood discussion

[woodisgood]

For all the odd negativity Robinhood gets, its CEO's (i.e. Vlad Tenev) parents both worked for the World Bank. I just don't get it; seems like a good product with great UX and a legal team that's top class in the industry.

Vladimir Tenev - Wikipedia

Robinhood is a disruptor, pure and simple. We should understand that as we know what it means to do that in a sector with powerful, entrenched interests.

It absolutely has downsides and isn’t right for every investor. But it’s an interesting thought exercise to consider for a moment how FUD might be used to slow its disruption. Again, we are very familiar with how this works.

 

[StealthP3D]

Robinhood is a disruptor, pure and simple. We should understand that as we know what it means to do that in a sector with powerful, entrenched interests.

It absolutely has downsides and isn’t right for every investor. But it’s an interesting thought exercise to consider for a moment how FUD might be used to slow its disruption. Again, we are very familiar with how this works.

The most important thing for an on-line broker if you are actually going to buy and sell securities with real money is the execution of your trades. Robinhood might be "free" but the user pays for those free trades, it's just hidden in the execution of their trades.

I have a real problem with the lack of transparency this entails. It's not consumer friendly. I have no vested interest in ANY broker, I just want Tesla investors to understand how they might be getting ripped off every trade without even knowing it. It can add up to serious money over time.

 

[Tes La Ferrari]

The most important thing for an on-line broker if you are actually going to buy and sell securities with real money is the execution of your trades. Robinhood might be "free" but the user pays for those free trades, it's just hidden in the execution of their trades.

I have a real problem with the lack of transparency this entails. It's not consumer friendly. I have no vested interest in ANY broker, I just want Tesla investors to understand how they might be getting ripped off every trade without even knowing it. It can add up to serious money over time.

Please do tell.

How are the fees hidden in their platform ?

 

[Tyler34]

Please do tell.

Where are the hidden fees in their platform ?

They auction off the execution to different clearing houses, not getting the investor the best price on the bid/ask spread. There is finra and sec investigations and fines related to this.

I however do not agree with stealthp3d that it is any more significant than paying trading fees or that a young investor shouldn't get started investing by using them.

 

[woodisgood]

The most important thing for an on-line broker if you are actually going to buy and sell securities with real money is the execution of your trades. Robinhood might be "free" but the user pays for those free trades, it's just hidden in the execution of their trades.

I have a real problem with the lack of transparency this entails. It's not consumer friendly. I have no vested interest in ANY broker, I just want Tesla investors to understand how they might be getting ripped off every trade without even knowing it. It can add up to serious money over time.

That may be true, and may bother some more than others. It depends how you frame it and I’ll leave it at that because it could otherwise become a lengthy philosophical discussion that doesn’t belong here.

I’ve been pleased with the time I spent on RH thus far - it served its purpose very well for me over 250 trades (maybe they skimmed off of those trade executions?). Now that I’m mostly playing dead, it’s easy to migrate brokers and I’ll be leaving RH due to the two important issues I mentioned previously, unless they are resolved before I get it all in motion.

 

[ZeApelido]

Please do tell.

How are the fees hidden in their platform ?

Let's make it plain and simple: They allow big institutions to cheat.

They receive your buy and sell orders. Instead of directly going to market makers, the information is first routed to paying customers so they can find out what trades you are about to make. Then if they desire, they will try to front-run your trade.

Meaning, if they see a big buy order coming that could likely raise the share price, they will buy first.

This is akin to S&P announcing TSLA inclusion at a ultrafast timescale. People knew funds were going to have to buy 12/21, so they bought at lower prices first.

Now if you are a buy and holder, this probably doesn't matter much. But big picture applied to all people using the platform, it's a lot of money being transferred from retail investors to institutions.

Whether it is worse than previous transactions fees, I don't know. But it smells rotten.

 

[woodisgood]

Whether it is worse than previous transactions fees, I don't know. But it smells rotten.

Again, I’ll draw the parallel with Tesla. Many business practices can be framed as rotten, especially by outsiders, but to truly judge them you must know the intentions behind them (and I don’t, with respect to RH).

I certainly don’t understand (or care to) RH’s leaders and core mission like I believe I understand Elon and Tesla. But I do know that disruptive, lofty missions must fight for survival and it is very difficult to do so without making money. As Tesla owners many of us give Tesla a pass on certain things because we believe their intention isn’t to defraud customers like the stealership next door or enrich the CEO, and we also believe those things will improve over time. Antagonists and the uninformed seize on some of those hiccups as unacceptable or evidence of malfeasance, while those that understand why Tesla is here in the first place shrug them off as a small price to pay for vital progress that nobody else had the balls to take responsibility for producing.

If I seem like I’m defending RH I’m not. I’m simply commenting on the fascinating psychology of disruption in a capitalist environment. Time will tell whether RH is a case study just like Tesla or represents the other side of the coin.

EDIT: I’m getting a time-out aren’t I. I deserve it.

 

[StealthP3D]

Please do tell.

How are the fees hidden in their platform ?

How else do you think they make their money servicing millions of accounts, most with very small account balances, for "free"? Check out the lawsuits.

A larger broker who specializes in servicing accounts of millionaires can make money off the sheer volume of money held in the brokerage. They also charge a small fee for each trade. This is inconsequential vs. what you get since you shouldn't have more than a few trades per year anyway. And you will get a more favorable price, on average, whether buying or selling.

 

[StealthP3D]

They auction off the execution to different clearing houses, not getting the investor the best price on the bid/ask spread. There is finra and sec investigations and fines related to this.

I however do not agree with stealthp3d that it is any more significant than paying trading fees or that a young investor shouldn't get started investing by using them.

I just don't like how opaque they have been on this point. It's not very honest.

 

[MXWing]

Let's make it plain and simple: They allow big institutions to cheat.

They receive your buy and sell orders. Instead of directly going to market makers, the information is first routed to paying customers so they can find out what trades you are about to make. Then if they desire, they will try to front-run your trade.

Meaning, if they see a big buy order coming that could likely raise the share price, they will buy first.

This is akin to S&P announcing TSLA inclusion at a ultrafast timescale. People knew funds were going to have to buy 12/21, so they bought at lower prices first.

Now if you are a buy and holder, this probably doesn't matter much. But big picture applied to all people using the platform, it's a lot of money being transferred from retail investors to institutions.

Whether it is worse than previous transactions fees, I don't know. But it smells rotten.

Here's a more simple way of describing the business models of Facebook, Google, Robinhood, etc:

IF YOU ARE NOT PAYING FOR THE PRODUCT, YOU ARE THE PRODUCT.

Your habits? Info? Your friends? Your trades? SELL SELL SELL

 

[Boomer19]

The most important thing for an on-line broker if you are actually going to buy and sell securities with real money is the execution of your trades. Robinhood might be "free" but the user pays for those free trades, it's just hidden in the execution of their trades.

I have a real problem with the lack of transparency this entails. It's not consumer friendly. I have no vested interest in ANY broker, I just want Tesla investors to understand how they might be getting ripped off every trade without even knowing it. It can add up to serious money over time.

yep.

to add, just about everyone offers commission free trading right now. all this means is poor execution and order routing. you won’t give a damn if you’re only buying a few shares but once you grow up into a real investor with real money you’ll wonder why your profit margins aren’t higher with your commission free trading

you can pay cheap commissions and get good executions (NBBO) at a regular broker (fidelity IB chuck, whoever). or do commission free and get hosed on fill prices

at IB they split it into LITE and Pro. lite trades are commission free but you get filled by a “liquidity provider” which might be a penny or more off of a better fill price for stocks, or Pro where you’ll get the best fill but pay $1 or so for stocks and a few bucks for options orders. ill pay the commission $ every time, thanks. particularly important with options where spreads are wider.

elsewhere i’m not certain. some of the orders are routed to liquidity providers and some probably smart routed to get the NBBO. anyhow, beware of fee trading

yes robinhood makes trading look like a video game. then look at their profit model and ask yourself why that is. i would start my kid elsewhere, but that’s my opinion. no judgement here.

 

[Bunky]

No. I would not use Robinhood or recommend it. They have less favorable trade execution due to the way they route the trades to partners who give them a cut of the action. Stick with a traditional on-line brokerage. I like Schwab but I haven't spent the time to compare with the other popular offerings, I just know that Schwab works well for me with good trade execution, low fees and good service. They also offer good products (but I don't use them).

It's called payment for order flow. RH did not invent it and are far from the only brokerage that routes order flow for payment.

Why, even Schwab does

Alas, to the disruptor goes the FUD.

 

[StealthP3D]

It's called payment for order flow. RH did not invent it and are far from the only brokerage that routes order flow for payment.

Why, even Schwab does

Alas, to the disruptor goes the FUD.

Schwab has far better order execution that Robinhood and they don't mislead and cheat their customers and send orders to a higher priced clearinghouse in order to make more profit. Equating the disclaimer on Schwab's website with what Robinhood has been doing for years is dishonest and doesn't reflect what has been going on:

SEC.gov | SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution

As the SEC’s order finds, one of Robinhood’s selling points to customers was that trading was “commission free,” but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices.

“Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ orders, causing customers to lose tens of millions of dollars,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Today’s action sends a clear message that the Commission will not allow brokers to ignore their obligations to customers.”

Robinhood agreed to pay a $65 million dollar fine for ripping off their customers. This has nothing to do with being a disruptor and everything to do with helping themselves to their customer's money.

 

[goinfraftw]

Schwab has far better order execution that Robinhood and they don't mislead and cheat their customers and send orders to a higher priced clearinghouse in order to make more profit. Equating the disclaimer on Schwab's website with what Robinhood has been doing for years is dishonest and doesn't reflect what has been going on:

SEC.gov | SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution

As the SEC’s order finds, one of Robinhood’s selling points to customers was that trading was “commission free,” but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices.

“Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ orders, causing customers to lose tens of millions of dollars,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Today’s action sends a clear message that the Commission will not allow brokers to ignore their obligations to customers.”

Robinhood agreed to pay a $65 million dollar fine for ripping off their customers. This has nothing to do with being a disruptor and everything to do with helping themselves to their customer's money.

I like to have an informed viewpoint on things that I am a user on (I have RH mostly for the pretty charts and don't use the other brokerages). One of the things they wanted to do before *sugar* hit the fan was have a 3% interest on their Cash Mgmt account with up to $1.25M in there. If there is a better SEC...wouldn't that come back?

 

[heltok]

Is there any order types that cannot be sold? For example if I place a sell order at +1% of current market price of TSLA, will it be open on the market for all bots to see and compete about who is willing to take it for the least amount of arbitrage or will it remain hidden and sold to the highest bidder at robinhood somehow?

 

[goinfraftw]

Robinhood might be getting the attention on media, but the entire digital brokerage market is going through some sort of effect.

Google Trends

Edit: If only I could weight this chart with average $ per account on his platform...

 

[MXWing]

View attachment 629665

Robinhood might be getting the attention on media, but the entire digital brokerage market is going through some sort of effect.

Google Trends

Edit: If only I could weight this chart with average $ per account on his platform...

Before today, RH accounts funded with student loans, and $600 stimmy checks. Very low assets under platform.

After today, all those RH Accounts with buying 60 strike OTM GME options at 30 cents has now surpassed the net worth of boomers on Fidelity and Vanguard.

 

[goinfraftw]

Before today, RH accounts funded with student loans, and $600 stimmy checks. Very low assets under platform.

After today, all those RH Accounts with buying 60 strike OTM GME options at 30 cents has now surpassed the net worth of boomers on Fidelity and Vanguard.

lol

 

[goinfraftw]

Question: If a helpful Fed does raise interest rates (APY), and growth continues for Robinhood both in banks & customers, then what's their valuation potential?

Thoughts:

These Are The 15 Largest Banks In The US | Bankrate

Customers
Chase: ~80M
BofA: ~37M
Robinhood: 20M+

Valuation
Chase: $2.87 T
BofA: $2.16 T
Robinhood: $30 B

Original APY for Cash Mgmt was 3% before Trump Fed got involved in 2019-2020. Number of participating banks: 7...all sweeping $250k max individually.

I ran the back-of-the-envelope numbers awhile ago, if you deposited the FDIC-insured max into Robinhood Cash of $1.25M...you'd be generating, annually, $37,500 for cash just sitting there to an account connected to a debit card and app-based payment services, in the future, like Apple/Google Pay.

Deposit Sweep Program | Robinhood

Participating Banks:

• Goldman Sachs Bank USA
• HSBC Bank USA, N.A.
• Wells Fargo Bank, N.A.
• Citibank, N.A.
• Bank of Baroda
• U.S. Bank, N.A.
• Amerant Bank, N.A.