Hacker News Reader

Comment by kaycebasques | Hacker News Reader

It’s weird to me that they’ve prioritized these complicated options strategies before shipping a dividend reinvestment program (DRIP).

View on HN

Not weird when you realize what the target market is, which is basically those that want to get a little bit of "gamble" on. I'm sure their valuation is also closely tied to the volume of trades they provide, so they want people to be trading as much as possible on their accounts. A DRIP would just take away liquidity for amateur traders. They want people to see money in their account and trade with it, the DRIP would keep that money out of their accounts.

While I obviously think Robinhood is amazing for disrupting an industry with pretty high fees, I worry that it is basically becoming gambling for a certain part of the population.

You make some interesting points about incentives. Robinhood obviously doesn’t make money off of transactions, so they have to make it somewhere else. There’s the premium memberships, and I believe others have mentioned that they make money off of the cash that sits in your account (not sure how that works or if it’s true). In the latter case, DRIP would be directly opposed to their business model, since the dividends that would otherwise sit in your account are being funneled into a share of some sort, instead.

It’s not entirely true that robinhood doesn’t make money on transactions, given that they receive payment for order flow.

Can you expand on how this works? What is "order flow" and who is paying them for it?

If they're smart they are also just simply taking the opposite of all their user's bets, and pocketing the winnings. Statistically speaking most people's options bets expire worthless. All robinhood has to do is take the opposite bet and they are printing money.

They would sweep the cash into an interest-bearing account, and simply pocket the interest.

That's what I figured, but I was wondering what kinds of rules are in place around what kind of interest-bearing accounts they can park the cash in.

From the screenshots I have seen on reddit it appears they could be making a killing selling these orders. Market makers love doing options transactions with people who literally have no idea what they're buying. It's like hosting swimming lessons in a chummed up shark pool.

Wait. They don't have an option for automatic dividend reinvestment? That would probably be in the top five most-obvious features to have.

Of course, it's hard to make money on dividend reinvestment.

Complicated options strategies == more money for the brokers.

They make money off of money sitting around doing nothing I hear.

Reply on news.ycombinator.com