Robinhood’s big gamble(newyorker.com)
newyorker.com
Robinhood’s big gamble
https://www.newyorker.com/magazine/2021/05/17/robinhoods-big-gamble
155 comments
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
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
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.
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.
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.
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.
Taking a guess as an Engineer, they seem like load issues. Because page response times degrade from 2s, to 10s, to 30s, to timeouts.
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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.
Very odd to see massively wealthy industries still struggling to provide stable operations.
It puzzles me also! Isn't handling load a known science at this point?!?
You just need to cough up some $ and hire some ex-SF/SV folks who have done big sites -- something top-5 brokerages should be able to hire.
You just need to cough up some $ and hire some ex-SF/SV folks who have done big sites -- something top-5 brokerages should be able to hire.
Something in the system probably removes the benefits of improving latency. People losing money this way are probably not numerous enough or too immature to sue. "Less efforts and more profit.. why bother" I suppose ? Competition also probably know that and don't pursue this axis. I'm sure they prefer enrolling more newbs and more influencers.
> 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).
Yes they have. During one very red day they were down almost all morning (although StreetSmart Edge worked).
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.
Point is, availability is important.
It’s worth noting that fidelity does take payment for order flow for some orders: https://clearingcustody.fidelity.com/app/item/RD_13569_21696...
Schwab had multiple outages during height of the GME craze.
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.
If that's not putting ones finger on the scale I don't know what is.
Eh, Schwab regularly has outages. Schwab went down five days in a row during the height of the GameStop stupidity, for example.
> 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.
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.
> 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.
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.
> 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.
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.
>> 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.
>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.
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.
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.
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.
"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.
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Not sure I would seek advice about what you find "generally" good trading practices.
> 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.
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.
> 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.
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.
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...
Robinhood is not competitive whatsoever with the better brokers. Their limited UI and super slow execution won't appeal to anyone who has used a good platform.
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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.
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.
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.
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.
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.
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.
> 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.
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.
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.
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.
> 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.
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.
That's actually a much more interesting question, and I admit, not something I had even considered. What kind of outlier situations and stress scenarios should you be required to weather to be allowed to be a brokerage? We as a society instituted mandatory stress tests for banks after the last financial meltdown, after all.
The odd thing about the GameStop mess is that it inadvertantly exposed a lot of internal machinery of finance.
> 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
I don't fall into either category, but I find myself disagreeing. These one-sided failure modes ("can only sell") are in fact common failsafes, although the reasons behind them are more generic. It may well be I look at things very differently because I operate on the other side.
Counterparty risks are real. When things start to fail, or there is a risk that an entity can not meet their obligations, the common fail safe is to limit/reduce exposure. Actions that would increase their exposure are not allowed, while actions that decrease their exposure, are.
When RH went into a one-sided failure mode with GameStop, they did what is required of them: they restricted their ability to increase exposure to a wildly imbalanced contract, only allowing trades that reduced the said exposure. Having these types of fail safes is, funnily enough, part of requirements for operating as a broker.
In effect, they were too poor to handle the outlier scenario. In the same way banks are too cash poor to allow all their customers to empty their accounts.
But oh boy, how they communicated that... now there's a lesson for future students.
The odd thing about the GameStop mess is that it inadvertantly exposed a lot of internal machinery of finance.
> 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
I don't fall into either category, but I find myself disagreeing. These one-sided failure modes ("can only sell") are in fact common failsafes, although the reasons behind them are more generic. It may well be I look at things very differently because I operate on the other side.
Counterparty risks are real. When things start to fail, or there is a risk that an entity can not meet their obligations, the common fail safe is to limit/reduce exposure. Actions that would increase their exposure are not allowed, while actions that decrease their exposure, are.
When RH went into a one-sided failure mode with GameStop, they did what is required of them: they restricted their ability to increase exposure to a wildly imbalanced contract, only allowing trades that reduced the said exposure. Having these types of fail safes is, funnily enough, part of requirements for operating as a broker.
In effect, they were too poor to handle the outlier scenario. In the same way banks are too cash poor to allow all their customers to empty their accounts.
But oh boy, how they communicated that... now there's a lesson for future students.
Yes there are a lot of lessons here, and no easy answers. I can poke holes in my own arguments. I still believe they shouldnt be allowed to be a brokerage based on past behavior and for the common good of everyone but its tough. And money talks, unfortunately.
Robin Hood did the equivalent of designing your bleach containers to look like juice boxes. They gamified day trading and made it look fun.
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.
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.
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...
https://www.independent.co.uk/news/business/robinhood-gamest...
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.
I think Schwab does this, too, and it supposedly gets traders better prices.
...lawsuit alleges.
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.
As other poster has noted, I think you have to apply on Schwab to trade options. I've never done that.
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.
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Signing up for options trading with Schwab or Fidelity requires filling an application including a survey about derivative products and your experience with each type of offering.
Vanguard is even more difficult. Application for a margin account requires mailing in a notarized form.
Robinhood makes it easy in order to profit off inept traders that have no business making these types of trades.
Vanguard is even more difficult. Application for a margin account requires mailing in a notarized form.
Robinhood makes it easy in order to profit off inept traders that have no business making these types of trades.
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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...
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'.
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?
To be fair, it's also the messaging, marketing and target audience.
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.
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.
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.
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.
>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.
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.
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.
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.
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.
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.
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.
That's fair, there could definitely be improvements in the way they explain that.
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.
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.
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.
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.
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.
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.
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.
All that other stuff is noise.
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.
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.
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.
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.
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.
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.
The large brokers more or less did not care when robinhood did the same thing years and years and years ago.
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...
- https://fortune.com/2020/07/08/robinhood-makes-millions-sell...
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.
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.
RH offered free trading in a small selection of issues with a poor ui and worse execution while others were offering great platforms for 50 cents to 7.95 a trade. They built a user base through marketing to the initiated, not through a better product.
Any investor can get 0 now with good brokerages or use something like IB for cheap trades on otc or foreign stocks in small amounts.
Any investor can get 0 now with good brokerages or use something like IB for cheap trades on otc or foreign stocks in small amounts.
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
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
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..
For smaller trades that's charging 99+% less than their competitors at the time..
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'.
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.)
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.)
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.)
>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.
That's literally not payment for order flow works, and it's illegal under regulation NMS.
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.
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.
There have been brokers like that for at least 15 years. Zecco was doing it back in like 2006.
Yeah, it is standard in Europe for at least the whole last decade.
Note that it's illegal in the UK and being scrutinized in the EU: https://www.ft.com/content/3254a7c5-3c9b-468c-9ed4-a324f5e42....
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.
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.
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.
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.
Yes it does flip it back to green.
Sounds like the ultimate "Deposit another coin to Continue or Restart".
> 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.
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.
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.
I guess that’s exactly what to expect when you apply that SV-type growth hacker PMs to a trading platform.
Agreed, I typically disable push on most apps because they are regularly worthless and not helpful.
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.
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.
Cost of tuition.
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...
This guy literally maxed out credit cards and bought doge on margin. https://www.nytimes.com/2021/05/14/technology/hes-a-dogecoin...
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.
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.
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.
>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.
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.
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).
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).
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.
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.
> 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.
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.
> 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.
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.
> poor investors can put their money into options and blow up in a day, but can't put it into private equity
Cost of diligence. One can theoretically fully diligence an option and its underlying stock’s issuer with public information. One cannot do that in private investments. Private investing requires expensive legal work; it also requires the ability to enforce one’s rights in court. Investing $10 or 20k pretty much guarantees one isn’t doing the former and can’t do the latter; that’s a recipe for disaster.
As a former options market maker who is now in private equity, I (a) agree that options should be more roped off from retail investors and (b) minimally dabble in private equity and don’t touch options in my PA.
The only responsible buyers of options buy them expecting to lose money. They’re the lossy leg of the trade, the insurance. When hedge funds want to go long or short they use cash positions or leveraged swaps. Not options.
Cost of diligence. One can theoretically fully diligence an option and its underlying stock’s issuer with public information. One cannot do that in private investments. Private investing requires expensive legal work; it also requires the ability to enforce one’s rights in court. Investing $10 or 20k pretty much guarantees one isn’t doing the former and can’t do the latter; that’s a recipe for disaster.
As a former options market maker who is now in private equity, I (a) agree that options should be more roped off from retail investors and (b) minimally dabble in private equity and don’t touch options in my PA.
The only responsible buyers of options buy them expecting to lose money. They’re the lossy leg of the trade, the insurance. When hedge funds want to go long or short they use cash positions or leveraged swaps. Not options.
There are plenty of opportunities every day to responsibly buy a put or call because it happens to be the best price you can get for entry to execute on an investing thesis. Your background notwithstanding, there is nothing mystical or sinister about options as a vehicle when the price is right.
>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
laughs in 2008 securities crisis
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.
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.
"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.
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?
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?
>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?
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?
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.
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.
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?
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?
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...
https://money.cnn.com/2018/02/24/investing/warren-buffett-an...
If you ever have the need to invest billions that outcome might be meaningful. One need not beat the market. It is not difficult to trade time and thought for an upgrade in returns over funds. Frankly, just being awake to push the button during a crash, and making half ass reasonable investments afterwards is plenty.
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?
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?
Because you actually believe in things and don't just follow trends. Fundamentals work, they really do.
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.
I ask because I don't get the sense that most risk-on investors in crypto regularly convert gains back to fiat.
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.
People who's compensation is based on bonuses... not so much.
Seemed to work well for Vanguard: https://en.wikipedia.org/wiki/The_Vanguard_Group
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.
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.
> 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.
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.
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.
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...
"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...
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.
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
Why not both? Why are these things supposed to be mutually exclusive?
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.
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.
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.
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.
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?
Maybe S&P is the closest to legal, free, easy, little-risk?
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.
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.
> 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.
I hate so much that this is such a typical startup path. Talk about a euphemism.
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.
Only in the same way that all credit card companies encourage risky behavior.
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.
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.
> 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
Whether you like or dislike crypto, this seems false according to both the dictionary and common use definition
It's a speculative investment (or asset). Whatever you call it, not including that word is disingenuous.
Speculation, not investment.
The use value of cryptocurrencies is near 0.
The use value of cryptocurrencies is near 0.
Tomato, tomahto
Did anyone else on reading the headline picture Cary Elwes asking "An archery contest?"
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.
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.
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
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.
>just another form of gambling
Everything is gambling. Gambling in a casino is just a form where the expectation is always negative.
Everything is gambling. Gambling in a casino is just a form where the expectation is always negative.
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?
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?
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.
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.
Intraday settlement may sound good on paper but it also opens up a whole bunch of extra problems that you might not like.
> 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?
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?
I agree, but that's an SEC rule and not something brokers can control.
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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).