[HN Gopher] Robinhood's big gamble
___________________________________________________________________
Robinhood's big gamble
Author : hhs
Score : 92 points
Date : 2021-05-19 15:49 UTC (7 hours ago)
(HTM) web link (www.newyorker.com)
(TXT) w3m dump (www.newyorker.com)
| snarkypixel wrote:
| What's risky? If there were one easy and legal way to make a lot
| of money in a non-risky way, then everyone would do that. Is it
| more risky to invest in Doge or to give it to some professional
| hedge funds that have been losing money every year?
|
| Maybe S&P is the closest to legal, free, easy, little-risk?
| FPGAhacker wrote:
| Look up wash sales. I personally did not know about that. I
| made some money "scalping" on doge volatility, then learned of
| this tax rule, and I'm left wondering if I'm going to get a tax
| bill that wipes out what I made.
|
| It's not a stock, so maybe not. But I hadn't even heard of such
| a rule and it was an eye opener. I could have gotten into a
| pretty deep hole and had no idea.
|
| Not Robinhood's fault, but a risk nonetheless.
| joncp wrote:
| Definitely. Here's a couple of things that hit me in the face
| when I use RH:
|
| 1) You open the app and the first view is the one-day graph with
| the bottom lopped off of the y-axis. This encourages day trading
| and reacting to tiny fluctuations in the market. If they want to
| encourage investing over gambling, they'd show you the long-term
| graph of your portfolio. Or maybe skip the graph and take me to
| the fundamentals.
|
| 2) They use the word "investments" to refer to crypto holdings.
| Crypto has never and can never be an investment, but calling it
| that subtly emboldens users to trade in it without understanding
| the risks.
| arcticfox wrote:
| > Crypto has never and can never be an investment
|
| Whether you like or dislike crypto, this seems false according
| to both the dictionary and common use definition
| grey-area wrote:
| Speculation, not investment.
|
| The use value of cryptocurrencies is near 0.
| kwertyoowiyop wrote:
| Tomato, tomahto
| dehrmann wrote:
| It's a _speculative_ investment (or asset). Whatever you call
| it, not including that word is disingenuous.
| jkingsbery wrote:
| Did anyone else on reading the headline picture Cary Elwes asking
| "An archery contest?"
| cblconfederate wrote:
| I always viewed the stock market as another form of gambling.
| Regulation existed to create enough friction to justify calling
| it "not gambling", but it was always gambling. Absent of
| regulation the two are indistingushable, robinhood is just taking
| advantage of the asymmetry
| tehsauce wrote:
| I think it'd more accurate to say all interactions with the
| stock market exist on a spectrum between gambling and creating
| real value, depending on your strategy.
| ouid wrote:
| >just another form of gambling
|
| Everything is gambling. Gambling in a casino is just a form
| where the expectation is always negative.
| mediaman wrote:
| To say that the stock market is gambling is to say that all
| forms of putting money at risk are gambling.
|
| Buy a house as a rental investment? That's gambling.
|
| Loan money to someone to start their business? Gambling.
|
| Buy inventory of a product to resell it? Gambling.
|
| One can make the argument that any money at risk is gambling,
| but this broadens the meaning of gambling so far as to make it
| useless.
|
| Unlike actual gambling - where the expected return of each
| gambler is negative - stock market investing, like owning other
| assets, on average has positive expected returns.
|
| Yes, it is possible to make bad investments. Just like it's
| possible to loan money to someone and have it go bad, or it's
| possible to buy a house and have renters stop paying. But we
| don't call those things gambling, so why call stock market
| investing gambling?
| shubik22 wrote:
| Last time I checked on Robinhood (and maybe they've changed it
| since then), when you want to buy options on their app, their UI
| gives you two options: "I think the stock is going to go up" and
| "I think the stock is going to go down."
|
| Say what you will about "democratizing" finance, but even if you
| think enabling retail investors to buy options is a laudable
| goal, surely they should at least know what a "put" and a "call"
| is? (The point being options are complicated to understand, and
| if you don't even know their names, you probably don't understand
| how they work. And if you don't understand how they work, maybe
| you shouldn't be buying them.)
|
| I feel like a lot of the arguments I see in favor of
| "democratizing finance" could be applied to a company making some
| incredibly harmful drug. Ok, maybe we shouldn't make it illegal
| for companies to produce or sell that substance, but surely we
| can all agree that company is actively doing harm to its
| customers? And we don't need to pretend that the company is
| "democratizing" chemical consumption.
| akarma wrote:
| While gamifying trading is dangerous for society, the onus for
| that is more on society's current obsession with memes
| overlapping into reality. Uneducated retail investors will lose
| a lot on Gamestop and Dogecoin and Shiba Inu coin, and whatever
| the TikTok, Reddit, etc., community hype up next, not because
| they haven't learned options terminology.
|
| When I was young and started investing in individual stocks, I
| would've appreciated "I think the stock is going to go up/down"
| (as an intro as Robinhood uses it) instead of needing to google
| and memorize put/call. Knowing a put vs. a call added nothing
| useful as a retail investor. It didn't change my hypothesis
| about the stock or my decision to trade.
| vineyardmike wrote:
| >surely they should at least know what a "put" and a "call" is?
|
| You do learn what this is, but the "i think its going up" is
| just the starting UI and tbh its more approachable and faster
| to navigate since you don't need to memorize turns.
| zachrip wrote:
| Making things easier to understand does not mean the person
| doesn't understand it. Just because adults struggle to
| understand common core math, doesn't mean kids aren't just as
| capable of solving an equation. Options don't need to be
| confusing and I actually find RH's educational material and
| examples pretty good to get a basic understanding of how they
| work.
| Traster wrote:
| Disclaimer: I haven't used RH.
|
| However, if the person you're responding to is correct about
| their UI it's negligent. The price of an option does not vary
| only with whether "you think the price will go up".
| Essentially it's mis-representing an option as a delta trade
| which it isn't.
| zachrip wrote:
| That's fair, there could definitely be improvements in the
| way they explain that.
| clairity wrote:
| yah, the problem is in the invitation to make a serious
| mental model mistake on how options are valued, how they
| pay off, and what the hidden pitfalls are.
|
| i'm all for democratizing access to (and the returns from)
| equity markets, but this isn't about building wealth
| through long-term investing, or even about price discovery.
| it's sharks looking to part small-time gamblers from their
| money.
| qeternity wrote:
| It's like a casino, not because there's something wrong with
| it, but because of house advantage. And there's actually not
| anything wrong with that. But there's a reason Citadel pays so
| much for Robinhood orderflow. And that reason is options.
| People lifting offers with market orders creates massive
| opportunities to make markets.
|
| The average Robinhood user mostly like doesn't understand what
| a put/call is, much less what Black Scholes is, or how to trade
| around their gamma.
|
| But I don't think that's a reason to stop anything. Trading is
| naturally self correcting: bad traders stop. If anything it
| says more about reconsidering gambling laws. Let adults spend
| their money how they see fit if it's not infringing on someone
| else's rights.
| throwitaway1235 wrote:
| Robinhood did not have an "outage" as many people are saying in
| relation to the GameStop manipulation.
|
| I don't recall the specific date, but I and x number of people
| put purchase orders in during the overnight that were not
| executed when the market opened.
|
| Calling this an outage is disingenuous. Especially considering
| purchase orders for other stocks on that specific date/time were
| executed.
| MangoCoffee wrote:
| one good thing that Robinhood did is eliminated the commission
| fee and now every broker have remove it.
|
| i have a Scottrade/td ameritrade account, it was the lowest
| commission at the time ($7 per trade) when i open the account and
| now there is no commission fee anymore.
| 6gvONxR4sf7o wrote:
| > Tenev acknowledged some early mistakes. "I'm the first to
| admit, our compliance procedures, especially in those early
| years, were the compliance procedures of a growing company," he
| said.
|
| I hate so much that this is such a typical startup path. Talk
| about a euphemism.
| Someone1234 wrote:
| I have a Schwab brokerage account, until recently I could trade
| OTCs and can still trade warrants and futures. These are riskier
| securities than common stock. None of which is possible on RH as
| far as I know. When I created my Schwab account I received and
| was offered no specific training, and largely learned how to
| trade on YT, Investopedia, and articles.
|
| My point is this: RH has become the media's favorite whipping boy
| because retail trading has seen a spike in popularity not
| witnessed since the .COM Bubble. A lot of this critique is aimed
| at RH's interface/app because it is substantially _better_ than
| the existing brokerages still using websites from the 1990s (this
| article criticizes it for being "slick" and complains about
| confetti).
|
| The reality is that you can be a risky investor and lose it all
| on _any_ brokerage, including Schwab, Fidelity, or TDA. RH has
| made some mistakes and isn 't actually a good broker in my
| opinion, but dog piling them is just a proxy for arguments
| against retail investors being allowed to invest freely in the
| market (e.g. I've read multiple arguments for banning options
| trading for accounts under $25K for one example).
| dfxm12 wrote:
| Other companies don't have quite the amount of controversies
| (including a security breach - so we're not just talking about
| using them as a proxy again retail investing in general) as
| Robinhood in a similar amount of time:
| https://en.wikipedia.org/wiki/Robinhood_(company)#Controvers...
|
| If Robinhood _seems_ like a whipping boy, it 's because they've
| been earning negative press (like you said, they've made these
| mistakes) on a regular basis for the past 2.5 years.
| room505 wrote:
| The reason Robinhood may have become a whipping boy is because
| they are only known for trading stocks - that's it. Brokerages
| like Schwab, Fidelity and TDA are well known companies that not
| only allow you to trade, but actually administer 401k's,
| pensions and have financial managers that help you with long-
| term goals. Sure, they make mistakes, but they're the more
| mature companies that provide assistance/education in long-term
| goals. I haven't recognized Robinhood advertise in any
| TV/internet ads or blogs encouraging "buy and hold" mentality.
| I see Robinhood as a teenager still growing up.
| Schwab/Fidelity/TDA are the parents that knows what's best.
| [deleted]
| dehrmann wrote:
| I had to apply to get a margin account and options trading with
| Schwab. It was a pretty minor barrier, but it's enough to know
| that you're getting into something risky. The issue with
| Robinhood is that the slickness of the app encourages risky
| behavior.
| CarelessExpert wrote:
| > A lot of this critique is aimed at RH's interface/app because
| it is substantially better than the existing brokerages still
| using websites from the 1990s
|
| Wow... you _really_ think the criticism is just because RH is
| better? What, is it jealousy or something?
|
| Please. This isn't the case of someone being picked on by a
| schoolyard bully. RH is in the highly regulated, highly
| consequential consumer fintech space, and they are _clearly_
| gamifying trading.
|
| All the subsequent criticisms follow from that fact.
|
| If you want to make the claim RH _isn 't_ gamifying trading and
| therefore the criticisms are off base, please, I invite you to
| do so.
|
| But to claim RH is the target of SEC investigations simply
| because they're _good_? Come on.
| nullspace wrote:
| > they are clearly gamifying trading. > If you want to make
| the claim RH isn't gamifying trading and therefore the
| criticisms are off base, please, I invite you to do so.
|
| I have used RobinHood just a little bit, and it's not my main
| brokerage. However, I take issue with your phrasing. You
| start with the premise that whatever it is that RobinHood is
| doing is bad, it's impossible to argue against this where you
| are standing.
|
| I hate the app that my main brokerage provides, but it was
| even worse before RobinHood existed. When I bought my first
| set of shares on RH, I was amazed by easy it was, and how
| well designed the UI was. IIRC, it is also super easy to find
| information on the stock that you're trading, so it's not
| like they are making the UI dumb.
|
| I have read criticisms like how they make buying a stock seem
| inconsequential, but that's frankly pretty absurd to me. Do
| they need to make their UI flow less smooth, or give some big
| warning that people are dealing with real money?
|
| If there are any parts of their app which encourages
| gambling, I agree it should be removed, but the actual
| criticisms I read are things like "they use bright flashy
| lights like slot machines" which seems very unconvincing.
| rurp wrote:
| > it is also super easy to find information on the stock
| that you're trading, so it's not like they are making the
| UI dumb.
|
| I don't agree with this. It's been a while since I used RH
| so maybe the current UI is different, but when I used it
| the stock price charts literally had no numbers on them. It
| was just a vague line that went up and down.
|
| The options UI was also similarly dumbed down. It gave very
| light descriptions of different kinds of trades when
| purchasing, but very little concrete information about
| prices or risks. Plus the functionality was awful, you
| couldn't even sell options you held, outside of sending RH
| an email.
|
| Stock and option flows are clearly designed towards
| appealing to users who know very little about investing.
| CarelessExpert wrote:
| > If there are any parts of their app which encourages
| gambling, I agree it should be removed, but the actual
| criticisms I read are things like "they use bright flashy
| lights like slot machines" which seems very unconvincing.
|
| That's quite literally what gamifying is: providing the
| kind of visual rewards/stimulus, combined with an extremely
| low friction experience, that's specifically designed to
| work in concert to encourage engagement.
|
| In the case of a slot machine, that means putting coins in
| the machine and pulling the lever.
|
| In the case of Robinhood, that means executing trades.
|
| Maybe you don't believe those features of Robinhood
| actually encourage trading, but frankly, the psychology
| around RH's design is pretty well understood both in the
| technology industry and the gambling industry. Hell,
| there's an entire booked (Hooked!) written about it.
|
| > Do they need to make their UI flow less smooth, or give
| some big warning that people are dealing with real money?
|
| Yes. Absolutely. Why would that be a problem?
|
| Ostensibly RH's mission is to provide people with free
| access to the markets to "regular folks" (read:
| inexperienced traders).
|
| That's _not_ the same thing as encouraging day trading.
|
| I don't see why features that discourage excessive trading
| (which is unquestionably an anti-pattern for a typical
| retail trader, and therefore is not in the best interest of
| the folks RH is supposedly trying to empower) would be a
| bad thing...
|
| ... except, of course, RH's revenue is specifically derived
| from high trading volume, so it's not in their financial
| interest.
| stickfigure wrote:
| >> Do they need to make their UI flow less smooth, or
| give some big warning that people are dealing with real
| money?
|
| >Yes. Absolutely. Why would that be a problem?
|
| Are you proposing that this warning can't be disabled or
| permanently dismissed? As an adult consumer I do NOT want
| this.
| CarelessExpert wrote:
| Why not? Are you trading so often that a bit of
| additional friction is an issue?
|
| If so, a) you should reconsider, that's generally a good
| way to lose money, and b) you're probably classified as a
| pattern day trader, anyway, and you're already subject to
| a (very mild) speedbump:
|
| https://robinhood.com/us/en/support/articles/pattern-day-
| tra...
|
| > Pattern Day Trade Protection alerts you when you've
| placed three day trades and you're about to place your
| fourth. You'll have the option to proceed with your
| trade, or cancel it to avoid being marked as a pattern
| day trader.
|
| Also, note even if you turn that alert off, you get
| another mild warning:
|
| > Even if you turn off Pattern Day Trade Protection,
| we'll still let you know when you've placed your second
| and third day trades in the five-day window. On your
| third day trade in the five-day window, we'll remind you
| that you'll be marked as a pattern day trader if you
| place one more day trade within the five days of your
| first day trade.
| google2142 wrote:
| You're truly live up to your username lol
|
| "you should reconsider, that's generally a good way to
| lose money" Some people make money off of doing this, you
| have no right to prevent people from day trading if
| that's what they want to do.
|
| " you're probably classified as a pattern day trader,
| anyway, and you're already subject to a (very mild)
| speedbump:" This only applies if you have less than $25k
| in assets which most HN users probably have in excess of.
|
| It seems like you clearly have a bias against robinhood
| without knowing the full reasons for why it's succeeded
| and how it's changed the brokerage industry for the
| better.
| [deleted]
| kortilla wrote:
| > But to claim RH is the target of SEC investigations simply
| because they're good? Come on.
|
| You make it sound like this is outlandish, but it happens
| nearly every time a disruptive player comes into a heavily
| regulated market full of old players.
|
| It is much easier to cry foul than to deal with the fact that
| the competition just got hard.
| CarelessExpert wrote:
| I guess that explains the SEC settlement where RH paid a
| large fine for deliberately misrepresenting their use of
| PFOF (though, as always, they didn't admit to wrongdoing...
| classic SEC!) I'm sure they're totally squeaky clean aside
| from that and it's all just a Big Finance conspiracy...
| [deleted]
| agumonkey wrote:
| I wonder how much is by design. Exchanges feel like having a
| grinder without second handle nor wheel guard. At best you get
| a little light saying 'warning this is about to get bloody'.
| smnrchrds wrote:
| Robin Hood did the equivalent of designing your bleach
| containers to look like juice boxes. They gamified day trading
| and made it look fun.
| callamdelaney wrote:
| Yes, but Robinhood have taken actions which purposefully harmed
| its users in order to benefit their corporate
| customers(Citadel).
|
| https://www.independent.co.uk/news/business/robinhood-gamest...
| dehrmann wrote:
| I think Schwab does this, too, and it supposedly gets traders
| better prices.
| gruez wrote:
| ...lawsuit alleges.
| eckmLJE wrote:
| It will be interesting to see if this can be proven. Until
| then it seems more accurate to simply say that Robinhood took
| actions that harmed its users and benefited its corporate
| customers.
| ep103 wrote:
| Isn't that a bit like saying the media focuses on sports car
| crashes, because you can crash in any car, but sports cars are
| objectively better than other cars?
| aj7 wrote:
| Fidelity gave me an EXAM on options concepts before allowing me
| to trade them. I made one trade, then realized it's a casino
| where the sharks take money from the fish. I reasoned that
| options trading is a full time job to be successful.
| SmellTheGlove wrote:
| Schwab doesn't have outages during sell-offs of very visible
| investments, though. Hasn't Robinhood hit the rocks pretty hard
| during GME and DOGE sell-offs recently? The reason I won't use
| them is because I don't think I'm their customer - whoever is
| paying for the order flow is, and I don't trust their platform
| to be available in the middle of turbulence.
|
| EDIT: I get it - Schwab also had visible outages. Sorry for
| that. Maybe a good time to say I'm a happy Fidelity customer
| and have been for years :D
| kasey_junk wrote:
| It's worth noting that fidelity does take payment for order
| flow for some orders: https://clearingcustody.fidelity.com/ap
| p/item/RD_13569_21696...
| thebean11 wrote:
| Schwab had multiple outages during height of the GME craze.
| Someone1234 wrote:
| > Schwab doesn't have outages during sell-offs of very
| visible investments, though.
|
| Yes they have. During one very red day they were down almost
| all morning (although StreetSmart Edge worked).
| throwitaway1235 wrote:
| It was not a site wide outage. Only a small handful of stocks
| could not be ordered.
|
| If that's not putting ones finger on the scale I don't know
| what is.
| SmellTheGlove wrote:
| Eh ok fine, I take it back, Schwab also has outages. I use
| Fidelity, though, and to my knowledge, they did not.
|
| Point is, availability is important.
| TuringNYC wrote:
| As a Schwab customer, I can confidently note there are many
| outages, especially on volatile market days.
|
| Sometimes, you have no idea if an order went through. With
| e-trade you get a sub-second push notification for trade
| confirmations, but with Schwab those push notifications come
| minutes or hours later. Meanwhile, if the website is down,
| you have no idea what exposure you have.
| theturtletalks wrote:
| Yes but are those outages linked to specific stocks/crypto
| or happen randomly? RH had a major outage on one of the
| busiest trading days and people were upset but quickly
| forgiving. What's happened recently is not the same.
| TuringNYC wrote:
| They dont happen randomly, they happen on high-volatility
| and high-volume days. Days where I want to re-balance my
| portfolio, or hedge. They happen at the worst times.
|
| Taking a guess as an Engineer, they seem like load
| issues. Because page response times degrade from 2s, to
| 10s, to 30s, to timeouts.
| [deleted]
| radicality wrote:
| I recommend you try out StreetSmartEdge for Schwab. While
| the UI is definitely Windows95-like, it's been reliable.
| The Schwab website + mobile app are not very good though.
| hyperdimension wrote:
| UI being Windows 95-like sounds like a compliment to me.
| agumonkey wrote:
| seconded
| agumonkey wrote:
| Very odd to see massively wealthy industries still
| struggling to provide stable operations.
| jeffbee wrote:
| Eh, Schwab regularly has outages. Schwab went down five days
| in a row during the height of the GameStop stupidity, for
| example.
| ruggeri wrote:
| I think what you say is true, but I think the public reaction
| also reflects the disingenuity of Robinhood presenting itself
| as "democratizing finance," when in reality it seems like they
| are ambivalent about whether their users are investors or
| gamblers.
|
| As other poster has noted, I think you have to apply on Schwab
| to trade options. I've never done that.
| JKCalhoun wrote:
| FTA: "He felt a surge of excitement every time he saw a green
| number indicating that one of those stocks had gone up in
| value."
|
| I think that is the issue. There is a tighter feedback loop
| that amounts to "gamifying" stock trading.
|
| It's telling to me that the new investor cited in the article
| didn't take his dad's $1K, put it into a Vanguard index fund
| and call it a day. No, very much a day-trader type of customer
| is drawn to RH.
|
| I'm not saying it's bad or good, but that seems to be the
| difference between RH and your Schwab brokerage.
| [deleted]
| jollybean wrote:
| To be fair, it's also the messaging, marketing and target
| audience.
| ProAm wrote:
| > RH has become the media's favorite whipping boy because
| retail trading has seen a spike in popularity
|
| Because they cant operate as a real brokerage as we saw with
| GameStop and manipulated the market as a result. I think that
| is the largest reason they are (rightfully) the whipping boy.
| They should not be allowed to be a trading platform because of
| that alone.
| bostik wrote:
| If "operate as a real brokerage" means that you must have
| $5B+ of cash tied up at the clearing house, that's a pretty
| stiff barrier for entry.
|
| To be fair, I don't like RH. They are irresponsible, greedy
| and reckless. They have turned day trading into outright
| gambling - and quite frankly, if a gambling company gamified
| their UX the way RH did theirs, the gambling company execs
| would be rightfully raked over hot coals. Shitting on RH
| because they had to obey the clearing house rules is
| intellectual cowardice.
|
| Disclosure: I work for a gambling company. And yes, I deal
| with compliance questions on an almost daily basis.
| ProAm wrote:
| > Shitting on RH because they had to obey the clearing
| house rules is intellectual cowardice.
|
| I think if you are going to operate as a brokerage you need
| to be able to fulfill all types of trades which in turn
| means you meet the needs of the clearing house, to limit
| investors to sells when you have funding from someone with
| a clear interest/holding/shorts (whatever) is a pretty
| stiff conflict of interest. This is just one of the reasons
| why they shouldn't be a brokerage. I understand that the
| clearing house changed the rules, but if you want to play
| in the game those are the rules. It is pure (even if it was
| truly non-intentional) market manipulation. They should
| have stopped all trading if they could not meet the needs
| of the clearing house (this can be debated as well). And if
| you cant meet the needs of the clearing house you do not
| deserve to be a brokerage IMO (I can see how this is also
| up for debate).
|
| I agree your other points about gambling and gamifying,
| etc.... But the 'you are allowed to only sell and not buy a
| stock' is so grossly wrong I don't see how anyone can look
| past that unless you are 1) on the losing side of the coin
| (the shorts) and want to stop the bleeding or are heavily
| invested in RH performing a successful IPO.
| LatteLazy wrote:
| I broadly agree, I wouldn't say RH are without blame though.
| They actively marketed themselves towards the WSB, Yolo,
| "gambling but on stock" end of the market. That's not the same
| as pushing misinformation, but it's pretty scummy...
| suifbwish wrote:
| We don't have a responsibility ethical or otherwise to protect
| adults from themselves. Any argument to the contrary is an
| appeal to emotion at best.
| Dah00n wrote:
| Sure we do. That is why almost everywhere on earth it is
| illegal to drive a motorcycle without a helmet for example.
| Laws aren't made just to piss people off or create a thriving
| helmet industry. They are there to make it harder to fall
| into the stupidity trap.
| mustacheemperor wrote:
| Yes, I would be happy to see more of the criticism aimed at
| Robinhood focus on its more pointed flaws as an actual
| brokerage. I used it for "fun money" speculating/investing
| because of the easy interface, but it has repeatedly failed to
| transfer into my fidelity account. The transfer will succeed
| partially, leave a ton of margin debt in my fidelity account,
| and then reverse entirely in a few days. When the transfer does
| succeed, I still manually need to move the shares from margin
| holdings to real ownership because you don't _actually_ own the
| stocks you hold on robinhood. And Robinhood doesn 't do much to
| make this process easy or well supported because they don't
| want you to use another broker anyway.
|
| During the GME debacle I decided to close my account and
| migrate entirely to fidelity and the transfer half-completed
| like described above, then failed entirely. It seems to me
| Robinhood was using my money to meet other obligations during a
| liquidity challenge.
| md_ wrote:
| The thing I don't see mentioned in this thread is how incongruous
| Robinhood's image is (a professed goal of fighting inequality by
| giving the working classes access to the same return on capital
| as the wealthy enjoy) in relation to their business model.
|
| Say what you will about Wall St, but customers of traditional
| brokers tend to know what the brokers are in it for: the money.
| Robinhood's big product innovation might be zero-commission
| trades and a gamified UX, but their big _marketing_ innovation is
| to wrap themselves in the ever-dingier cloak of Silicon Valley
| "changing the world".
|
| I can't help but think of this absolutely spot-on parody from
| "Silicon Valley": https://www.youtube.com/watch?v=B8C5sjjhsso.
| fullshark wrote:
| If you throw away all the pretense is it just the case that RH
| has a better business model compared to etrade, Schwab etc?
| They recognized that consumers prefer zero commission trades, a
| good UX smartphone app, and don't care about the fact that RH
| sells order flow?
|
| All that other stuff is noise.
| md_ wrote:
| If I'm being candid, what bugs me about this kind of
| marketing is that I work for a Silicon Valley company which
| spends a lot of hot air on "doing what's right"--and I want
| it to be true.
|
| So, for {altruistic, self-interested} reasons, I want to push
| back on the dilution of "doing good by doing well."
|
| To directly answer your questions on Robinhood, though: I
| believe (with low confidence) that the big innovation is
| gamification. That's it. And I have trouble feeling like
| that's beneficial.
|
| If Robinhood had gamified saving for retirement in a boring
| 3-fund portfolio with zero commission trades, I don't think
| we'd be having this conversation. But PFOF on once-a-month
| 401k inputs wouldn't be very good for their investors.
| 99_00 wrote:
| Everyone is encouraging risk taking. If you don't follow suit you
| will won't make money. It's basic strategy.
|
| Eventually the risk taking will result in you no longer making
| money when things go bad.
|
| But at that point when your fund, brokerage, whatever, goes bust
| you will have a very nice personal bank account.
|
| The person who didn't encourage risk will also go out of business
| (because everything will be dragged down) but they won't have a
| nice personal bank account.
|
| Why would you choose to be the poor person?
| derivagral wrote:
| There's an assumption here that you can get out in time. What
| if you can't tell when and you miss conversions due to any
| number of reasons (congestion, availability, liquidity,
| counterparty risk in defi, etc)
|
| I ask because I don't get the sense that most risk-on investors
| in crypto regularly convert gains back to fiat.
| 99_00 wrote:
| It depends. People who have skin in the game are going to be
| the most responsible.
|
| People who's compensation is based on bonuses... not so much.
| haskellandchill wrote:
| Because you actually believe in things and don't just follow
| trends. Fundamentals work, they really do.
| ghufran_syed wrote:
| Seemed to work well for Vanguard:
| https://en.wikipedia.org/wiki/The_Vanguard_Group
| nimbius wrote:
| >is the app democratizing finance or encouraging risky behavior?
|
| For anyone who paid attention to the WSB fiasco This isnt a
| meaningful question.
|
| When Robinhood halted trading on a stock that had the very real
| potential to harm monied, cloistered elites it basically
| confirmed whatever definition of "finance" it claimed to
| represent was rigged from the start. the app is no different than
| facebook. You arent an empowered investor, you are their product.
| sleavey wrote:
| I think in principle reducing the barriers to trading on stock
| markets is a good thing, but gamifying it is not. How much
| Robinhood are guilty of the latter, I don't know.
| notyourwork wrote:
| The internet makes risky behavior more accessible by very nature
| of connectivity. You can talk to someone on the other side of the
| world with much less friction. Similarly, a fintech company like
| Robinhood decided to make stock trading more modern and reduce
| the barrier to entry.
|
| Granted, this wasn't really a big change in accessibility if you
| wanted to trade stocks. One could simply goto Fidelity ore other
| brokers and do the same thing. However, Robinhood's app is much
| more approachable for someone new to finance.
|
| Reducing the barrier to entry isn't a bad thing and will always
| lead to some percentage of new comers doing dumb things. That
| doesn't mean Robinhood is encouraging it intentionally. I think
| its merely a side effect of their apps approachability for
| someone less familiar with financial instruments.
| cowmoo728 wrote:
| Isn't pushing Robinhood gold (leverage) onto users with
| repeated in app messaging about how great it is, Robinhood
| pushing users to do irresponsible things? Or the fact that if
| you end the day down, your whole app is red, unless you deposit
| enough additional cash to cover your losses and then it
| switches back to green? (edit note: not sure if this is still
| the case but it was true in the early days of the android app).
| The app feels like a mobile game developer switched to the
| stock market.
| themanmaran wrote:
| If you deposit more cash than you lost in a day, does it flip
| back to green?
|
| As far as I remember, it's just based on the gains / losses
| you had during the day. So depositing cash at the end of the
| day shouldn't affect your gain/loss.
| raziel2701 wrote:
| Yes it does flip it back to green.
| cowmoo728 wrote:
| I deleted Robinhood about a year ago but I remember early
| in Robinhood days that I deposited cash and it flipped back
| to green. Hopefully they changed that behavior by now.
| dylan604 wrote:
| Sounds like the ultimate "Deposit another coin to Continue or
| Restart".
| pembrook wrote:
| > _That doesn 't mean Robinhood is encouraging it
| intentionally_
|
| This is news to me. As far as I can tell, everything about
| their app is designed for you to treat the stock market like a
| game. From the notification defaults down to the content
| layout. They also sign users up for a daily stock market
| newsletter that encourages "trading the news" and their
| unofficial user forum is essentially Wall Street Bets, which
| they have never tried to distance themselves from.
|
| Making it easier to trade stocks through better UI design isn't
| inherently a bad thing, I agree. However, looking at the
| insanely disproportionate amount of their revenue that comes
| from "day" traders and speculative option junkies, they're
| _extremely_ incentivized to keep milking this customer group
| over their more sane buy-and-hold users.
|
| And we all know the data, a vast majority of these users will
| lose money on a risk adjusted basis compared to just buying the
| whole market in a passive ETF.
|
| But there's no money to be made in passive ETFs, so Robinhood
| will likely never roll out automated passive ETF investing a la
| Wealthfront.
|
| Robinhood has a responsibility to its investors to maximize
| profits, therefore its hilarious to think they won't do
| anything to keep encouraging their most profitable user segment
| to keep trading.
| jack_pp wrote:
| The stock market is, was and always will be a game.
| lexapro wrote:
| Life is, was and always will be a game.
| sithlord wrote:
| Although robinhood's app was pretty revolutionary, I think
| their real "innovation" was removing the cost of trades,
| basically forced the entire market to remove that. Before, it
| would cost 4.99+ to execute a trade, so if you were not buying
| significant amounts that could EASILY eat up a lot of profits.
| pfisch wrote:
| There have been brokers like that for at least 15 years.
| Zecco was doing it back in like 2006.
| emteycz wrote:
| Yeah, it is standard in Europe for at least the whole last
| decade.
| md_ wrote:
| Note that it's illegal in the UK and being scrutinized in
| the EU: https://www.ft.com/content/3254a7c5-3c9b-468c-9ed
| 4-a324f5e42....
| emteycz wrote:
| Yeah, another example of the "great" EU "helping" the
| people...
| md_ wrote:
| Agreed; it's disappointing that the UK beat them to
| banning it.
| dmoy wrote:
| Nobody moved to remove the cost of trades until after IBKR in
| 2019.
|
| The large brokers more or less did not care when robinhood
| did the same thing years and years and years ago.
| sniperjzp wrote:
| It's looks like free but it isn't, RH makes money by selling
| trading requests to high frequency trading firms like
| Citadel, which buy/sell before the actual order in a better
| position so they can earn a penny from selling to or buying
| from you. The more transactions, the more they earn.
|
| - https://fortune.com/2020/07/08/robinhood-makes-millions-
| sell...
| makomk wrote:
| The existing retail brokers were also, with very few
| exceptions, selling trading requests on top of the fees
| they charged. (Also, in general this actually results in
| better-than-market prices because the trading firms know
| that retail traders aren't likely to have information they
| don't and aren't likely to be making large market-shifting
| trades, so they can relatively safely make money by market
| making between people who want to buy and people who want
| to sell at slightly different times.)
| cjpearson wrote:
| That would be front-running and it's illegal. The article
| you linked explains what PFOF is, but in general there's
| nothing wrong with market makers fulfilling brokerage
| orders. It means traders get a better price on their order
| and the market makers earn a profit.
|
| The concern is that when market makers share that profit
| with brokerages they encourage brokerages to select the
| market maker that gives them the biggest cut rather than
| the one who gives the best price for the trader. Still, the
| trader will never get a worse price than what's available
| on the exchange. (That's also illegal.)
| sithlord wrote:
| robinhood isnt the only one selling their requests, they
| basically all do it.
|
| I'm not a robinhood fan - I moved all the investments I had
| out of their years ago. But, to think they are the only one
| selling order flow is disingenuous
| thebean11 wrote:
| All brokerages do this. RH started charging $0 + (selling
| order flow) while everyone was charging $5-10 + (selling
| order flow).
|
| For smaller trades that's charging 99+% less than their
| competitors at the time..
| cyril_st_john wrote:
| As others in this thread have noted, what you described
| would be illegal. But suppose for the sake of argument that
| Robinhood's order flow is actually really bad and users are
| getting a measurably worse price through RH vs other
| brokers. RH targets small-time investors who are trading in
| small amounts - perhaps investing a bit of their paycheck
| every week. It seems unlikely that the order flow would be
| so bad that RH users are losing anywhere close to $5 per
| trade because of it.
|
| So even if "it's not really free" it's still a
| _significant_ discount compared to the pricing that was
| standard before RH came along. Opening up investing to more
| people by making smaller & more frequent trades feasible
| seems generally good to me.
|
| I will admit that other aspects of Robinhood's business
| such as the degree of gamification are still concerning,
| though.
| AdamN wrote:
| That's still 'free'. Every business makes money somewhere
| and when you're not paying money directly to that business,
| we generally call that 'free'.
| gruez wrote:
| >It's looks like free but it isn't, RH makes money by
| selling trading requests to high frequency trading firms
| like Citadel, which buy/sell before the actual order in a
| better position so they can earn a penny from selling to or
| buying from you.
|
| That's literally not payment for order flow works, and it's
| illegal under regulation NMS.
| kortilla wrote:
| No, you don't understand how that works. Citadel wants the
| retail order flow because it's a huge pool filled with
| uninformed investors. They can actually offer you better
| spreads because on average you have no edge.
|
| It's similar to a casino offering free hotel rooms to
| people who play blackjack but who do not know how to card
| count. They even offer 3/2 on blackjack instead of 6/5.
| annexrichmond wrote:
| All the annoying emojis and push notifications talking to me
| like I'm an ignorant child trading stocks ("HOORAY!! YOU GOT
| DIVIDEND _HIGH FIVE_ ") is what made me realize this app wasn't
| for me.
|
| I guess that's exactly what to expect when you apply that SV-
| type growth hacker PMs to a trading platform.
| notyourwork wrote:
| Agreed, I typically disable push on most apps because they
| are regularly worthless and not helpful.
| dimmke wrote:
| Why not both? Why are these things supposed to be mutually
| exclusive?
| MR4D wrote:
| Both.
|
| But then again, Hedge funds for rich people also encourage risky
| behavior (leveraging up their models, as imperfect as they are
| from time to time is definitely risky).
| dcolkitt wrote:
| The basis of US securities law is that rich people ("accredited
| investors") know enough to be responsible to take risks.
| Whereas poor people are too stupid to make risky investments
| without turning into degenerate gamblers.
|
| A lot of debates about financial regulation basically come down
| to whether this is a good principle or not. Too many times,
| both sides are arguing at cross purposes, because one
| implicitly assumes this is common sense, whereas the other
| thinks it's classist and paternalistic.
| JumpCrisscross wrote:
| > _rich people ( "accredited investors") know enough to be
| responsible to take risks_
|
| This is a straw man.
|
| The real argument: someone with more money is less likely to
| become destitute as a result of a bad investment. Also:
| someone with more money is less likely to become a political
| problem that shuts down the market, or a drain on the public
| purse, when they lose money.
|
| When it comes to private investments, someone investing
| _e.g._ $10k cannot afford to do legal diligence. They are
| also unlikely to unilaterally pursue someone who sued them in
| court. That almost guarantees they'll be the sucker in the
| long run.
| omegaworks wrote:
| >someone with more money is less likely to become a
| political problem that shuts down the market, or a drain on
| the public purse, when they lose money.
|
| _laughs in 2008 securities crisis_
| lazide wrote:
| A lot of '08 was because it impacted the every day Joe
| quite a lot. If prices drop because people can't get
| mortgages, and people can't pull money out of their bank
| because the bank is insolvent?
|
| Those are now people who don't have the HELOC they though
| they had, or their primary asset for retirement is now
| worth half of what it was, or can't or won't use the
| savings available when they need it - and also the people
| getting laid off because other Joe's aren't spending
| money or buying houses anymore. The banks are at the
| center of this.
|
| Many big banks were nationalized for awhile, Lehman was
| blown up, Fannie and Freddie were taken over. Not because
| they had more money. Rather because they were at the
| center of the crisis that touched assets almost every
| American owned - and had more money because of it.
|
| If this only impacted folks with > $1m net worth, it
| would have looked a lot different.
| MR4D wrote:
| > The real argument...
|
| I would agree with this except for one huge fact that has
| existed for close to 100 years - poor investors can put
| their money into options and blow up in a day, but can't
| put it into private equity.
|
| I'm not ascribing any good or bad intent to the regulators
| here, but this is so big of a hole that I can't believe
| this has anything to do with destitution.
|
| For what it's worth, I've seen an actual person do this
| first hand (options trading), and destroyed their life as a
| result.
| dylan604 wrote:
| >Whereas poor people are too stupid
|
| I get the point you are trying to make, but in the world of
| stock trading, I'm definitely poor. However, I'm not stupid.
| I am smart enough to know that the game is rigged for those
| in-the-know. Much like the poker adage "if you can't tell how
| the sucker is after $shortTimeInterval, you're the sucker".
|
| >make risky investments without turning into degenerate
| gamblers.
|
| It seems to me that this is exactly what they want. Does
| having a gambling problem equate to stupidity?
| lazide wrote:
| It isn't a 'poor people are too stupid' argument. It's a
| 'poor people don't have the resources to do enough due
| diligence, go after someone who scams them using a legal
| team, or diversify enough they won't be eating dog food or
| homeless if this goes sideways'. Which is true.
|
| Additionally, if someone is rich enough they are a
| millionaire or billionaire or whatever and DOES somehow get
| ripped off enough to be homeless or eating dog food out of
| necessity, the general public is going to be cheering for
| whoever did the ripping off in the next Hollywood
| blockbuster, not calling their congresspeople angry about how
| that poor grandma is now destitute and the government SHOULD
| DO SOMETHING.
|
| It's a combination of having enough resources to plausibly be
| able to defend themselves and not lose everything, and a lack
| of public empathy if they screw up and get ripped off.
| NortySpock wrote:
| "Rich people" can also afford time / money / labor costs to
| do independent due diligence to confirm if a company's
| finances are true and correct, or an elaborate sham.
| JakeTheAndroid wrote:
| Yet WeWork happened still. And tons of investors get
| screwed by scams or companies completely lying.
|
| Makeup company Coty couldn't verify Kylie Jenners companies
| earning and once they audited it they found out that it
| wasn't making nearly as much as they thought.
|
| So it's not like its uncommon for investors to get taken
| for a ride. Why should we then treat them differently than
| lower income investors?
| moshmosh wrote:
| Should be easy enough to look up what was happening that
| motivated those rules in the first place, for anyone who
| cares about them enough to consider removing them.
|
| I tend to find "argument from reality" more compelling than
| arguments based on feeling, ideology, guesses about why
| people support a position, or reasoning from some moral
| axioms like one is completing mathematical proofs,
| personally. Possibly there were no major problems without
| those rules and it would be fine to remove them. Possibly a
| bunch of people were being significantly hurt with no
| recourse. Which was it?
| dehrmann wrote:
| Hedge funds also spent a decade not beating the market.
| Remember Buffet's hedge fund bet?
|
| https://money.cnn.com/2018/02/24/investing/warren-buffett-an...
| pueblito wrote:
| Robinhood seems to being doing both, but it feels like small
| retail investors are getting the blame for a speculative bubble
| that they have little fault for.
| walleeee wrote:
| And even if small investors do share some fault, it is
| incoherent to end a critique with them and their (perhaps
| understandable ab)use of Robinhood's business model, and skip
| the pervasive estrangement of financial speculation from
| productive enterprise, a situation for which the largest
| players are predominantly responsible
| ullevaal wrote:
| I think democratising asset investments is a worthwhile goal. The
| gamifying and the fact that RobinHood makes it money from trades
| does lead to some strained incentives, where most people would
| probably be better of maximising their tax advantaged pension
| contributions or setting or forgetting an index fund savings
| plan. However, I think also direct access to small and free to
| stock picks is generally good, so hopefully RobinHood is able to
| thread the needle, and make some money also when their customers
| make money.
| md_ wrote:
| But statistically speaking it empirically isn't. Piketty, as
| mentioned by Tenev in the article, does indeed point out that
| one of the reasons return on capital is higher for the wealthy
| is because of access to lower-cost asset management and higher-
| return esoteric investments that the rest of us don't enjoy,
| but it's absurd to suggest (as Tenev does) that this is
| materially changed by bringing the cost of retail stock
| purchases from $4 down to $0.
| diabeticApe wrote:
| Well seeing as stock trading is inherently risky, democratizing
| trading makes this risky activity more accessible to more people.
| Now instead of just the elite manipulating the market to benefit
| themselves at the expense of the public, the public gets a chance
| to turn the tables. Some of the newbies will make mistakes or do
| stupid things along the way. To consider them mutually exclusive
| seems a bit disingenuous. Also I dont recall this much media
| turmoil over the credit default swap mortgage crisis fiasco of
| 2008. But then again that only screwed over the entire economy
| instead of the few elites that benefited from everyone else's
| loss.
| quickthrowman wrote:
| > Also I dont recall this much media turmoil over the credit
| default swap mortgage crisis fiasco of 2008.
|
| Were you a small child in 2008 or something? The GFC and its
| causes (CDS and CDO blowups, among other things) were widely
| talked about when it was happening, you couldnt go a day
| without hearing about exotic derivatives and their effects on
| the economy/markets in the news.
| endisneigh wrote:
| what's really dumb is the fact it takes 3 days for a trade to
| settle. why can't I buy $SPY and get my money immediately? it's
| 2021, jeez.
| nightski wrote:
| From what I have heard is that they are working towards 1 day
| settlement, which isn't too bad.
|
| Intraday settlement may sound good on paper but it also opens
| up a whole bunch of extra problems that you might not like.
| endisneigh wrote:
| > From what I have heard is that they are working towards 1
| day settlement, which isn't too bad.
|
| awesome - any more details? I saw this:
| https://www.cnbc.com/2021/02/24/wall-street-clearing-firm-
| pr...
|
| I assume that's what you're referring to?
|
| > Intraday settlement may sound good on paper but it also
| opens up a whole bunch of extra problems that you might not
| like.
|
| I can imagine problems like liquidity or fraud on certain
| tickers, anything else? is it even possible to reverse a
| trade under any circumstances now?
| partiallypro wrote:
| I agree, but that's an SEC rule and not something brokers can
| control.
| liquidise wrote:
| Articles like this strike me as FUD no matter how hard i try and
| read them another way. "Risk" is such a wide spectrum when it
| comes to financial investments. Just look at the crypto crash
| today, and there are hundreds of billions invested there still.
| Robinhood giving younger people access to options is hardly a
| doomsday risk scenario in my mind.
|
| Robinhood may well be responsible for a generation gaining
| investment literacy decade(s) before adults have in the past.
| Some of these young investors might be burned early, but i'd take
| the long view and wager that those who start learning now come
| out ahead in 10-20 years.
| andreilys wrote:
| Or they end up spending the next 10-20 years paying off margin
| and credit card lines they used to invest in high risk assets.
|
| This guy literally maxed out credit cards and bought doge on
| margin. https://www.nytimes.com/2021/05/14/technology/hes-a-
| dogecoin...
| nexuist wrote:
| How is this any different from spending $70k a year on some
| useless degree with 0 job prospects? People will always find
| ways to lose money.
| s1artibartfast wrote:
| Isn't this the point of bankruptcy. If this guy ends up
| bankrupt, it will be signal to future creditors that maybe
| they aren't the most prudent investor.
|
| From the other perspective, isn't it the individuals risk to
| take? Even if it is essentially gambling, this is something
| that people are allowed to do. Why would a person be
| permitted to bet their life savings and max credit on black
| in a casino, but not some speculative coin?
|
| Random fact: Terrance Watanabe may be the largest looser in
| the history of las vegas gambling, having lost over 220M over
| a 5 year period. He was also sued by Casinos for over 15M of
| credit they provided him to gamble with.
| RosanaAnaDana wrote:
| Cost of tuition.
| yalogin wrote:
| I would love ve to understand what kind of user data they sell to
| what kind of clients and how those clients use it. Feels to me
| they might have opened up a can of worms that was kept shut or
| may be it already happened before too.
| void_mint wrote:
| Only in the same way that all credit card companies encourage
| risky behavior.
| [deleted]
| ireliamain wrote:
| Working in a sports gambling field, I know the data shows that
| less than 1% of total players actually make a consistent profit.
| I wonder how similar it is for nonpassive traders(not investors)
| on the market, regardless of the platform. People trading futures
| or actively trading might not be making much money at all.
| Investing has been very profitable for a layman, but I do
| definitely believe that trading has been over glorified as a
| money investment method.
| zie wrote:
| The professional "active investors" generally lose money after
| fees are taken into account:
|
| "When performance is measured using before-fee model alphas and
| compared across the cross-sectional distribution, any active
| fund performance advantage is substantially less than one would
| conclude from benchmarking to average index fund performance.
| Moreover, any advantage of the top active managers over the top
| index funds is much less than the advantage of the worst index
| funds over the worst active funds. When performance accounts
| for residual risk, active funds no longer outperform index
| funds. " -https://www.cambridge.org/core/services/aop-
| cambridge-core/c...
|
| JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS Vol. 53, No. 1,
| Feb. 2018, pp. 33-64 COPYRIGHT 2018, MICHAEL G. FOSTER SCHOOL
| OF BUSINESS, UNIVERSITY OF WASHINGTON, SEATTLE, WA
| 98195doi:10.1017/S0022109017000904 Passive versus Active Fund
| Performance: Do Index Funds Have Skill? Alan D.Crane and Kevin
| Crotty
|
| I'm sure there are better sources, but I'm lazy today.
|
| Day traders get even worse:
|
| https://mathinvestor.org/2020/07/day-trading-in-the-age-of-c...
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