Robinhood S-1 IPO | Hacker News Reader

Robinhood S-1 IPO

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298 pointsmarc__1379 comments

Robinhood closed my brokerage account after I did transferred out assets (via ACATS transfer, to get a signup bonus with another brokerage without realizing capital gains).

A few months later I asked how to reopen the account, using the "reopen account" form in their app to generate a support ticket. Three weeks later they sent an email saying that my account was permanently closed and I should apply for a new account. Replies to this email yielded a response saying that their email server was failing to accepting messages.

So as requested I applied for a new account; the application stayed pending for three weeks, then I got an email autoreply telling me that my application is denied because I have a preexisting account (i.e. the old closed one). Replies to this email also yielded a response saying that their email server was failing to accepting messages.

I filed a new support case explaining what had happened, what they told me to do, and asking what I should do next. No reply whatsoever.

RH is basically shit. I immediately transferred out of RH during the whole GME craze when they froze trading

I went through this exact same scenario. Had to create another email address to get the 2nd account going. Total garbage experience.

Why did you want to go back there so bad?

I maintain multiple brokerages. Fidelity, IBKR and Robinhood.

The reason I keep RH around is because they have virtually zero restrictions around advanced trading. I basically put all my hyper-risky options stuff in the RH bucket.

All my serious money lives elsewhere. I use RH pretty much exactly the way they want me to.

This shows that Robinhood is a true "tech company"!

The fact that you are so determined to move back that you are dealing with this amount of shit, makes me want to invest in them.

Short...right?

No, the parent poster is remarking how gp is willing to jump through so many hoops to reopen his robinhood account, that must mean people really like it. Therefore, its a good company to invest in.

That proves it then, what could go wrong...

On a more serious note the investing and fintech market is incredibly dynamic and competitive. Robinhood is popular because it has big shark backers who successfully convinced many young people that trades are free, even though the cost is just hidden elsewhere. Which more and more slowly come to realize. The whole brokerage market has the potential to be shaken up badly by decentralized exchanges. I'd not invest in something like this now and it's unclear why they would need the money anyway. They're cashing out.

Robinhood's model is different from the rest of the trading firms. Since they take ownership and find a liquidity maker post-trade, it would make them particularly adept at handling crypto trades that have very large spreads. Think of them as an additional vampiric layer ontop of retail trades instead of charging for each trade. They'll soon be eating coinbases massive lunch. I'll definitely invest in them, even if they are a shitty company.

The modern era of investment is kinda weird.

Funny, same thing happened to me. https://imgur.com/a/8MDZHti

I had to close my account for work. I left that company and wanted to open back up my robinhood account. Guess not

What do you mean you had to close your account for work?

Worked for a money center bank. They have strict regulations on what brokerages employees can use in an effort to stop insider trading.

Move to Schwab or TD Ameritrade (TDA has ThinkOrSwim which is great for day/swing trading; Schwab is acquiring TDA but you can continue to use the ToS platform after that goes through). And then never look back.

At least give it a look: https://www.tdameritrade.com/tools-and-platforms/thinkorswim...

I had a trial (with paper trading) with ToS a while ago, before the Schwab acquisition. I didn't find their platform particularly compelling, so I went back to using StreetSmartEdge by Schwab. Can you explain why you find ToS better?

I like StreetSmartEdge better but I would say ThinkOrSwim is much better on mobile especially for options. Real time quotes go a long way and the options are displayed in a condensed fashion.

They are definitely on their way to reach Google level. Bullish!!!

this thread wasn't made for you to spout your unrelated account shutdown

I understand that many give Robinhood crap because it is not "sophisticated enough" or because of the Gamestop fiasco. Although many startups like to claim that they are "democratizing [x]", I honestly believe they did it. I have many friends that never traded before, and after they got their Robinhood account they feel comfortable enough to do it often. Even myself, who used to only trade a couple of times a year, started with $300 in my Robinhood account a few years back. Now I have at least ~60k that I rotate around in my Robinhood account on a daily/weekly basis. Yes there are other services that I now use or other apps that seems better, but for all intents and purposes, Robinhood did "democratize" trading for me.

If they removed all of the dark patterns from their UI, I think they could be a real social good.

If I went for this positive spin, I'd talk about democratising investing, not democratising trading.

Democratising trading is not inherently good, similar to democratising gambling.

If people want to gamble (or do drugs), why should we be nannies and stop them?

I get the desire to stop commercial banks from gambling YOUR savings. But why shouldn't you be able to gamble your own savings if you want to?

Huge societal costs that we all bear?

A few randos going bankrupt is a minor societal cost at worst. The big societal costs are when the big boys get bailed out, usually by deflating all of our currency.

It depends on how much you care for the person doing the gambling or drugs and at which stage its at. Being a nanny to everyone doing something 'bad' would be a 24/7 affair.

On a large scale, eventually lots of people will be hurt. Everyone thought they were having lots of fun in 2007, and then people started jumping out of buildings. Those people had family and friends. Many of the young people in the market right now have never seen or gone through that, and if they keep preaching 'stocks only go up' while trading on 40x margin, they will eventually find out that stonks sometimes go down.

I'm not saying we should be stopping them. But I also don't consider democratising and enabling gambling or taking drugs heroic.

Similarly, I'm all for drinking alcohol yet wouldn't cheer for an innovation that would make people drink more.

----

That being said, I think that RH (and many other platforms) do in fact democratise investing (and that's great).

Do you consider legalising drugs as good for the society? Do you think drugs won't be advertised like how cigarettes and alcohol is being advertised. This is the price to live in a free society. You allow people to make their mistakes and live by its consequences.

> Do you think drugs won't be advertised like how cigarettes and alcohol is being advertised

Many countries ban advertizing for cigarettes. So while it's not banned the cost on society and public health is large enough that it's worth restricting advertizing.

I realize that likely seems totally weird for US folks, but that's really not weird at all in Europe. Same as regulating advertizing targeting kids, etc.

The US has banned tobacco ads on TV and radio for over half a century. It does not seem "totally weird" to us.

Then I understand parents comment even less :)

I don't get how that's relevant? I can consider legalising X good and also consider it bad when more people in the society become addicted to X. That's not an inconsistent view.

Yes ofcourse the view is not inconsistent. The trouble is most people immediately want the government to get involved to regulate it all the activities that they do not like or do not approve of.

There’s a difference between stopping them and stopping exploitative companies who want to profit off of them.

Your use of the word "trade" versus "invest" perfect encapsulates the nuance of Robinhood.

What exactly is Robinhood's product? It's certainly not the newly-minted traders -- their orders are "free". If you follow the money, it looks like it's mostly Pay For Order Flow (PFOF). I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain.

> I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain.

It really isn't. They're making money off the spread (eg. $105.01 bid vs $105.02 ask), which exists regardless of PFOF (regulation NMS mandates that the price be better or equal to NBBO). The reason why they want retail flow is that it's mostly "uninformed" and they're less likely to get run over.

matt levine explains this in detail: https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...

>I like to tell a fairly textbook version of that story. Market makers stand ready to buy or sell stock from or to customers; they try to buy for a bit less than they sell at, and pocket the spread. If you go out into the market and say “hey I’ll buy anyone’s stock for $10,” and a really smart hedge fund comes to you and sells you stock for $10, that’s probably bad. You’ve probably made a mistake. The hedge fund is selling you the stock for $10 because it knows it’s worth $8. This is called “adverse selection.”

>More subtly, if a really big mutual fund comes to you and sells you stock for $10, that also may be bad. The mutual fund is probably selling lots of stock, because it’s so big; it sells you a little, then sells a little more, then a little more, until it pushes the price down to $8. The mutual fund isn’t necessarily smart, but by virtue of being big and doing big trades, it moves the price; if you are on the other side of its trades, you get run over. This is also a kind of adverse selection: You buy at $10 and are stuck selling at $8. Part of the spread that market makers earn in public markets—the difference between their buying and selling prices—compensates them for adverse selection, the risk of being run over by a counterparty who knows something they don’t.

>Market makers, the textbook theory goes, would much rather trade with retail orders. Retail investors generally don’t know much, so if you buy stock from them you’re probably not making a mistake. And retail orders are generally small and uncorrelated: One investor buys a little, another comes along a moment later and sells a little, it’s all pretty random, and you’re not facing an avalanche of steady sell orders that push the price down. Trading with retail is so nice that market makers—wholesalers—will both give retail orders a tighter spread (pay more to buy their stock, charge less to sell stock to them) and pay their broker for the privilege of doing it.

What you are describing is market makers, not Robinhood. Quoting directly from the S-1:

> Our PFOF and Transaction Rebate arrangements with market makers are a matter of practice and business understanding and not documented under binding contracts. For the three months ended March 31, 2021, 59% of our total revenues came from four market makers.

So 59% of Robinhood's revenue comes from selling PFOF to market makers. I promise you that there isn't some magic altruism on the part of market makers buying the PFOF and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools.

This is precisely why there's an entire section dedicated to PFOF regulatory risk in their S-1. It's increasingly a rigged game and rightfully deserves deep Congressional intervention.

> What you are describing is market makers, not Robinhood. Quoting directly from the S-1:

Did i claim that robinhood is a market maker and/or participates in market making? I simply explained how market makers are making money in a non-nefarious way and why they might pay robinhood for order flow.

> I promise you that there isn't some magic altruism on the part of market makers

As explained in my prior comment there's no altruism involved. Retail orders are valuable because they're uninformed/non-toxic

>and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools.

Why bring in dark pools and "off-exchange"? The whole point of buying orderflow is to execute it yourself rather than letting anyone execute them.

> If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools.

When the broker gives the order to a market maker directly, they can't offer a worse price than the exchanges (national best bid offer). Typically, they offer a better price (=price improvement, a "discount").

Robinhood takes a cut of that discount (and a larger cut than other brokers).

The other poster explained why the market maker gives a discount on "uninformed" retail flow compared to the NBBO.

I agree that HFT is just a silly game of being faster, and is largely rent seeking and even destroying value. But market making per se is valuable, and pretty competitive, and the spread constitutes the necessary and benign payment for that service.

Here's a suggestion:

1. Restrict trading to, say, 4 hours a day, 2 in the morning, 2 in the evening. You could maybe make it such that time zones have partial overlap.

2. During these hours, have an auction every minute, instead of continuous trading. Maybe with stochastic end time (to negate HFT techniques/sniping).

3. Impose a Tobin tax of, dunno, 1 basis point on every trade.

Measures such as those might limit the opportunity for profit from silly HFT (like replacing the cable from Chicago to NY by a slightly straighter cable to shave off a few milliseconds).

Former CBOE market maker here. You and the person you're responding to both have valid arguments. The problem is you are choosing only to present the ones that make this situation look good, and he's only insinuating the bad ones.

The fact is that this "spread" you speak of is a much more theoretical concept than Matt Levine understands. There is ample liquidity between the bid-ask in 99.9% of markets, and by selling order flow to someone who will internalize it at the worst legal price possible, they are intentionally failing to fill an order at the best possible price.

RobinHood also features various dark patterns that are designed to remove money from the pockets of their users and put it into their own pockets. Off the top of my head, I can list the following:

(a) Very difficult access to bis-ask spread information across multiple options. This keeps users ignorant of the fact that some options may be better priced than others, and gives market makers more opportunity to make more than a fair market spread on the transaction.

(b) Forced close-outs for reasons that no other legitimate brokerages use. Even worse than being ill-infomed about what to trade is to have all of your agency removed. It's situations like these where the gap between a fair market edge and the edge that market makers take becomes offensive.

(c) Disallowing option exercise before expiration. There are many situations where an option owner should exercise his option prior to expiry. Not only does RobinHood keep its users ignorant of this fact, they actually don't even allow their users to do it. In some circumstances, this can give market makers a massive arbitrage opportunity.

While you are right that one thing that makes RH flow more valuable is the smaller average account money size, this is actually far less of an issue than just the average account financial IQ size. Citadel loves trading with pensions just as much as RH users (i.e. similar financial IQ, but far different sizes). It's just that the type of trading that happens with each is a little different.

Add in the aforementioned reasons for keeping them not only ignorant, but handcuffed, then the more market makers will pay RH for access.

>and by selling order flow to someone who will internalize it at the worst legal price possible, they are intentionally failing to fill an order at the best possible price.

AFAIK they have duty of best execution, so they're supposed get the best price irrespective of PFOF. Obviously this conflicts with their own incentives, but that's what the laws are for.

>RobinHood also features various dark patterns that are designed to remove money from the pockets of their users and put it into their own pockets. Off the top of my head, I can list the following:

I'm not a user so I didn't know any of these. Thanks for bringing these up. Informed complaints like these are far better than the "they're front running you!" complaints that people seem to repeat endlessly.

> AFAIK they have duty of best execution, so they're supposed get the best price irrespective of PFOF. Obviously this conflicts with their own incentives, but that's what the laws are for.

There is a duty of best execution. I honestly don't even know if its a crime or a licensing requirement or what. Reg NMS seemed to have obviated it, and judging by the failures to execute properly on the parts of major banks (e.g. my family had a major bank execute a bond trade for them that another bond trader friend of mine said was 10% below a competitive market price. That is, they paid 90, when you could have paid 100 in the competitive market), my impression is this law is totally unenforced.

Also, it looks like no one will be able to see my criticisms because YC wants to protect their investment going into the IPO by crushing this comment thread

>The fact is that this "spread" you speak of is a much more theoretical concept than Matt Levine understands. There is ample liquidity between the bid-ask in 99.9% of markets, and by selling order flow to someone who will internalize it at the worst legal price possible, they are intentionally failing to fill an order at the best possible price.

I remember reading about this (can't find the original source) and I thought there was a subtle distinction here, where the regulation only requires you to fill at a price at or better than the best quoted price, which isn't the same as the best possible price. Which does allow a broker to make their money (directly or indirectly) from the difference.

And this is an interesting little wrinkle, but one reason for the proliferation of high-frequency trading is to make the quoted spread to be wider than it needs to be. In the presence of predatory HFT techniques people who just want to provide honest liquidity (but who cannot afford 30 FPGA engineers) are forced to either leave the market all together or to provide quotes extremely wide to prevent the HFTs from picking them off (i.e. using information that everyone acknowledges will changes the prices, but doing it half a miscrosecond before you can, and thus forcing you to make a trade at a bad price).

I have read anecdotes that their ToS is geared towards them owning the securities because they pool purchases. Their business model is the brokers are the ones that actually pay them and potentially hold the securities.

Also, from their recent "Systemic Supervisory Failures" [0]:

> Between 2018 and late 2020, Robinhood experienced a series of outages and critical systems failures. The most serious outage occurred on March 2 and 3, 2020, when Robinhood’s website and mobile applications shut down, preventing Robinhood’s customers from accessing their accounts during a time of historic market volatility.

In the event of a large market downturn could you actually transfer that 60k elsewhere or for that matter, even access the platform to exit positions?

Payment for order flow means you are likely in line behind which ever Wall St firm is paying for that order flow. Yes that is illegal for them to do (called front running I believe) but the fines they pay are usually tiny compared to the revenue.

[0] https://www.finra.org/media-center/newsreleases/2021/finra-o...

Robinhood is a broker-dealer, and is subject to the same regulations as everyone else. All the major brokerages hold securities under their name ("in street name") on behalf of the customer. You still retain legal ownership, even for fractional shares. As far as I know, Robinhood has its own clearing house subsidiary, Robinhood Securities, that handles the share bookkeeping, including the fractional share inventory you're talking about.

What I was referring to is most RH accounts are setup as margin because of instant deposits. This means they can liquidate that account without your action. IANAL but it might help to compare their TOS against other brokers.

This latest fine isn’t there first fine. I wouldn’t trust them with a penny. There is too much shady stuff coming to light with RH.

Only in America, mind you. In Australia, all publicly traded companies are under CHESS, which means that when you buy a share, it's directly held in your name.

Index funds democratized investing. Robinhood “democratized” the worst part of investing and exposed unsophisticated investors to the instruments they are most likely to underperform on. Individual stock picking is probably worse than indexes but fine, however the incentive to day trade or trade complex derivatives is almost certainly going to hurt people far more often than a Vanguard account. It’s not a coincidence Robinhood has been directly linked to teen suicide and Vlad gave the proverbial lip service.

In any case, it really doesn’t matter. It’s awful at order execution, so you get worst prices on things. This was proven but SEC just gave slap on wrist.

Its an extremely immature platform and has outages at the worst times.

It’s app is simple but missing key info compared to competitors.

Finally, the GameStop fiasco was unforgivable and only a naive fool would accept the explanation given. Citadel is the MAJORITY of Robinhood revenue and was opposite that trade. The stock market has existed for over a century with online trading for decades, including many volatile stocks, and apologists can’t name a single other example of one way trade restrictions. It didn’t happen during the Volkswagen short squeeze.

Despite that, apologists act like the clearing house explanation is stone cold fact. Source? Not a single investigation other than the word of Robinhood CEO, who contradicted himself multiple times explaining it. It was the fraud of the century and only people with little understanding of finance bought the explanation.

M1, E-Trade, Trading 212, Interactive Brokers, TD Ameritrade/Schwab and WeBull halted options as well.[1] There are a few more I'm missing.

I wasn't happy about it but I don't blame them. As much as people were talking about over 100% of GME shorted, I can't imagine how much margin on top of margin people were trading while there options had yet to be settled. If anything the issue should be how long it takes a trade to settle.

[1]https://markets.businessinsider.com/news/stocks/robinhood-we...

> I wasn't happy about it but I don't blame them.

What they did was illegal, so why not blame them? Robinhood is being investigated for it. Why not blame everyone that's guilty?

https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood...

> Robinhood is being investigated for it. Why not blame everyone that's guilty?

Because being investigated means you're guilty? I guess a fair and impartial trial is just red tape.

Okay, I think you're missing the point. What they did was illegal. Why would you not blame corporations for financial crimes? They stole money - I have no idea why you "wouldn't blame them" for that.

Sure, if it turns out they didn't commit the crime don't blame them (but there is overwhelming evidence that I have personally witnessed so I already know for a fact that they did this). What I don't get is why this guy is apologizing for theft.

> What they did was illegal. Why would you not blame corporations for financial crimes? They stole money

You think that what they did was illegal, but the person you initially replied to (https://news.ycombinator.com/user?id=adabyron) only said he "wasn't happy about it". That's not the same as "apologizing for theft".

>but there is overwhelming evidence that I have personally witnessed so I already know for a fact that they did this

do share.

He didn't just say he "wasn't happy about it," he also said "I don't blame them." You're right, it's not apologizing, but it's exoneration.

I'm guessing you're aware of the trading halts in January and are arguing that's legal (or at least remain unconvinced it's illegal). Rather than have a long argument about whether or not brokers were legally entitled to restrict trading, I'll just concede as it really wasn't the point I wanted to make. I'm not a lawyer, there is nuance in the legal system, blah blah blah. I could go down the GME rabbit hole but nobody gives a shit. I think of it more like when a cop gets away with murder in our legal system. Did he commit a crime? Well, technically no, because our legal system said so - but I still feel comfortable calling him a criminal. Likewise, nobody in the US went to jail for the 2008 financial collapse, so I guess nobody committed any crimes.

But that's me moving the goalposts, making appeals to emotions, and just generally making a very weasely argument. My frustration is with people so willfully absolving others of guilt. I feel like the way to make the world a better place is by holding people accountable for their actions, instead of just chant it as some bullshit mantra at another dumb tech startup that provides no real value to anyone. Obviously other people have different perspectives and may not have seen any wrongdoing in what happened. Everyone is entitled to their beliefs. And I'm allowed to think people are ignorant and morally bankrupt for the beliefs they hold.

So you're right, but I don't care because that's not what matters.

> He didn't just say he "wasn't happy about it," he also said "I don't blame them." You're right, it's not apologizing, but it's exoneration.

Insofar as "I don't think they're guilty", yes. This is a slightly lower bar than "I think they're innocent", because the former covers cases where you're unsure. Maybe the person you replied to actually thinks robinhood is innocent beyond a reasonable doubt, but that can't be confirmed via his comments.

> I think of it more like when a cop gets away with murder in our legal system. Did he commit a crime? Well, technically no, because our legal system said so - but I still feel comfortable calling him a criminal

This analogy only works because you can presuppose that the cop is guilty. It breaks down when you can't. For instance if you only knew that he shot and killed someone. Maybe he acted in self defense (the actual kind).

My understanding of the situation was that robinhood was forced to restrict trading for meme stocks due to increased deposit requirements on them. If they couldn't come up with money to meet deposit requirements (due on the day of trade), then they have to halt trading. Meme stocks like GME had disproportionately higher deposit requirements, so restricting those stocks would allow them to continue operating with the smallest impact. If those stocks weren't restricted, they would have burned through their cash/credit they had (to meet deposit requirements) and would have to halt trading anyways.

Now, this is what robinhood is claiming, and I can't verify every single detail of this story (although some elements were independently confirmed, like the deposit requirements going up). Maybe robinhood had a boatload of cash/credit on hand and could have easily met the day/week's trading volume, or maybe it would have been close and they didn't want to risk it, but you think they should have went ahead anyways. In any case, the whole situation is less clear cut than the standard villain narrative of "they shut down trading because the hedge funds told them to". More importantly, there's enough wiggle room for differences of opinion that if someone says "I can't blame robinhood", you don't have to immediately accuse them of "willfully absolving others of guilt".

Your understanding of the situation is pretty good. I actually believe that Robinhood had to halt trading due to margin requirements, however that's leaving out a lot of context.

Immediately after halting trading, Robinhood's initial public statement was "we have full liquidity for any event and that is not the problem." This is where it starts to become fraudulent, because that contradicts what they later said. Timelines matter, details matter, and you are correct that the court of law has its place for this sort of thing. I'm convinced they were willfully lying at this point, but it would take a long time to explain why in a convincing manner (so I don't blame you for not believing me here).

Now afterwards is when shit gets weirder, but the GME rabbit hole is really deep and the signal to noise ratio is atrocious. There is some good data from Robinhood's S1 filing though. For their transaction-based business, Citadel made up 27% of their revenue - which is significantly higher than anyone else. And last quarter 81% of Robinhood's revenue was for PFOF, payment for order flow.

I agree with you this should go to court and I look forward to it. I could provide you with plenty more data and evidence, but it's lots of little pieces and admittedly a lot of it is circumstantial. In other words, I'm doing a shitty job explaining my side and you don't have much reason to believe me.

I owe you and the person I originally responded to an apology.

I don't know the exact situation with all of them, but at least Robinhood and WeBull both occurred due to reliance on Apex Clearinghouse

https://blog.robinhood.com/news/2018/10/9/introducing-cleari...

Robinhood has been self clearing for years before the GME incident

Right, but that just means whatever problems that the clearinghouse was experiencing (they're not just doing it willy-nilly) is passed to robinhood directly.

Yeah, I should've said DTCC in robinhood case. Thanks for correcting me, GP. I should've remembered this from the tax statements changing

Options are always automatically halted on the options exchanges when the underlying stock is halted. GME was constantly hitting volatility circuit breakers due to the large price moves during the squeeze.

These institutions were limiting the quantity that users could purchase, not necessarily halting the options.

>Source? Not a single investigation other than the word of Robinhood CEO

I'd welcome an investigation, but based on the rest of your comment ("apologists", "only a naive fool would accept the explanation given") my guess is that your mind is already made up.

Not to mention "it was the fraud of the century".

Looks like it might be happening. Robinhood’s CEO’s phone has been seized: https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood...

Why the downvotes? Just pointing out a fact, I’m not supporting any conspiracies.

Here’s an excerpt from the linked article:

> The company also said it is under investigation by a series of regulators, state attorneys general, the SEC, and the U.S. Department of Justice in proceedings associated with the trading restrictions; the company said its CEO Vladimir Tenev has also had his cell phone seized by federal attorneys.

>It was the fraud of the century and only people with little understanding of finance bought the explanation

A CFO of a multimilion dollar company gave me the same explanation independently before Robinhood gave any statement.

> Index funds democratized investing. Robinhood “democratized” the worst part of investing and exposed unsophisticated investors

On the spot! Robinhood has made it so easy to trade that I have seen many people trading from their mobile while having a coffee or commuting! I would really like to see all these "traders" in 5/10 years ... if it is true that 80% of day traders loose money .. I bet tons of improvised traders will learn a very expensive lesson.

I don't do trading, I simply don't have time to fully look into companies balance sheets etc. I buy index/mutual funds , I might have missed the meme stocks but I am happy with my steady growing investments, compounding effect works great!

Everyone feels like a genius in a bull market. A pile of bread mold could make money in the stock market now. It won't last forever though.

I definitely fell into this trap, but fortunately came out ahead. After switching to Vanguard I feel more comfortable in my investments since I don't feel the time-pressure to check performance etc. RH feels too much like a social network where it's trying to push you to buy and sell every single day while more traditional brokerages follow a "set it and forget it" path.

This is also what I've noticed, and it mirrors with investing mentality of their respective users too. Schwab, Fidelity and Vanguard (the 3 platforms I looked at before going with Schwab) gear their experience towards a long-term investing mentality. They'll do a large number of checks and forms until they'll let you perform certain trades (options, futures, derivatives, etc). You actually need to pass a few tests to do those. Meanwhile RH makes that as easy as slicing butter with a warm knife, and barely warns its users of the risks.

I trade at the risk of lower overall returns for the chance of very high returns.

Index funds are for my retirement account, it's fun to have a brokerage account and trade with it as a hobby. It's been very profitable so far but I don't expect that to continue.

I'd imagine day trading has a much higher return than buying lottery tickets or gambling at a casino for example.

In the last 2-3 yrs the market has only gone up. No matter how bad you’re at day trading, you’d have only made money. That being said, options are highly risky things and it will barely take a week for someone to lose their savings.

What do you mean when you say "democratized investing" ?

That people can get benefits from the stock markets? Or that investment/economic decisions van be made democratically?

Index funds rely on the the folks making the index to determine which stocks get bought -- who's on the s&P 500 is not a democratic process

Board members are voted for by stockholders

No, the contents of an index fund like SPY are determined by the prevailing market conditions. You're confusing index funds with actively managed funds. The market is a weighted voting machine so index funds are at least somewhat democratic.

The problem with the conspiracy theory about Citadel forcing Robinhood to halt GME is that plenty of providers for whom Citadel wasn't most of their revenue also halted GME. There are other reasons this conspiracy is silly, but that fact seems to kill it pretty dead.

I don't like Robinhood and don't feel any need to apologize for it; I think they're predatory. But this isn't why.

"Fraud of the century" is pretty funny, though. Kudos.

Idk, Schwab,Vanguard and Fidelity still allowed us to trade GME.

Even here in Australia, the trading platforms I use all restricted trading on GME.

There's little chance that the Big Four banks in Australia were all part of a conspiracy to ripping off investors, at least in regards to GME (they're too busy ripping Aussies off via their superannuation).

IMO if there ever existed an "American Dream" it was: the ability for an individual to work hard, assume a high amount of risk, get lucky, and reap the rewards. There was a time when that was possible in the US, but it hasn't been that way for a long time.

It seems that in the 1900s the American Dream shifted to mean: get a job, buy a house, have kids, don't take risks, trust in the system and the system will support you.

Now in 2021, it's more like: get a job to ensure you don't go bankrupt from stupid high healthcare expenses, your employer will keep all the profits and shift all the risks onto you, and if you're moderately lucky and live in the right place, you won't be homeless.

I don't know how I feel about publicly traded stocks or the stock market, but I can't help but feel like "index funds democratized investing" is like saying "the 9 to 5 job democratized the American Dream".

When you say "It’s awful at order execution, so you get worst prices on things." What does "worst price" represent? How do you get a "Worst price" than anywhere else?

If you're willing to read a lot, this is a decent overview:

https://www.stockbrokers.com/guides/order-execution

Also here's the disclosure from IBKR, which is probably the polar opposite from robin hood in terms of favorable order execution

https://gdcdyn.interactivebrokers.com/Universal/servlet/Regi...

I know the first link said fidelity is better, but that's fidelity vs ibkr-lite, not ibkr-pro.

Robinhood sells to/executes orders through high frequency trading firms like Citadel and (I think) Two Sigma. Because Robinhood isn't connected directly to, say, the NYSE, these HFT firms essentially buy the security and sell it to you for a slightly higher price. TBF, other companies do this too; like, TD Ameritrade, Schwab and E*Trade.

No, HFT firms are obliged to meet the NBBO. They improve prices for retail investors because retail investors are generally safer to transact with.

> Finally, the GameStop fiasco was unforgivable and only a naive fool would accept the explanation given. Citadel is the MAJORITY of Robinhood revenue and was opposite that trade.

Only someone who doesn't understand how any of this works would believe these absurd conspiracy theories.

1) Citadel is one of FIVE of wholesale market markets RH use. Even if they did refuse to accept orders for GME, why wouldn't their four main competitors not happily accept them if it meant blowing up the biggest player in the field? They have no incentive to help Citadel. In fact, they have a clear financial incentive to do the opposite.

2) Why would RH care if Citadel went away? Citadel is one of their five 'suppliers' if you will. If Citadel disappeared overnight, RH would just route their order to the others. It makes absolutely no difference to them. They just route to whoever currently pays the most for orderflow.

3) RH customers are extremely small players with next to no capital between them. Cutting them off makes no difference, because it was professionals with real money driving the squeeze at that point. They recognised that they could make a ton of money, and put a bunch of competitors out of business in the process, so they kept hammering the stock.

4) The claim that Citadel itself even had a GME short position (beyond their MM inventory) is baseless. Citadel Advisor's previous 13F filing shows that they were outright LONG GME stock, were LONG GME calls, and were LONG GME puts. So while those puts will have lost money, the other two positions will have GAINED MASSIVELY during the squeeze. Their short exposure was mainly via the money that they lent to Melvin Cap during the squeeze.

I'm not GP but you are missing the most important fact: a bit over 10% of Robinhood's base revenue was PFOF. Of that more than 10%, the top 3 (~75% of the total) paying them were Citadel, Susquehanna and Wolverine.

Losing PFOF from Citadel alone means kissing away more than 5% of their _revenue_. With essentially no cost associated with PFOF, these payments account for a large portion of their profit.

They would just sell that order flow to the next highest bidder. It would be a marginal, not total, loss.

Part of the problem is that Citadel had insight into the RH order flow before the rest of the market. Normally this wouldn’t matter but this also meant they get to see orders to buy GME went from <lots> to zero in an instant. Given their position on the other side of that trade, this advance warning (potentially) let them take that fact into account before anyone else and thus trade accordingly.

RH stopping all GME purchases was market-moving news and citadel got to know before anyone else, to the detriment of those RH users that were long GME.

> RH stopping all GME purchases was market-moving news and citadel got to know before anyone else, to the detriment of those RH users that were long GME.

Yes, that is the point of paying for order flow. That is doubtless why RH users don't pay commissions.

No it's not, payment for order flow allows market makers to fill non-market-moving customers at better prices, capturing the spread. You're spreading harmful misinformation.

You can skim the S-1 and see why that is problematic.

In 2020, 34% of their revenue came from Citadel. 75% of their entire revenue stream comes from forwarding their clients' orders to one of FOUR market makers like Citadel. This practice in and of itself is contentious, and they readily admit this in their risk factors section of the filing.

They also readily acknowledge the absolute thrashing they would receive financially if even one of the four market makers decide to not do business with them.

Of these four, Citadel is the largest.

I’m sure if they could sell that order flow to 1000 institutions, they would

Is your suggestion that PFOF is "contentious"? Because practically all retail traders are customers of brokers that get rebated for sending trades to firms like Citadel. Even IB does on their normal plans. Message board people believe a lot of weird things about how markets work.

It's contentious in the sense that there's a non-zero probability that the SEC could step in and ban that practice, which is something that Robinhood outlines in their S-1 filing under the risks section.

>Message board people believe a lot of weird things about how markets work.

Message board people also love reading comments and not looking at the articles they're typically commenting about.

> It was the fraud of the century and only people with little understanding of finance bought the explanation.

I think you'll find that the opposite is the case.

This comment has a lot of merit. The expected value from day-trading or short-term investing by retail investors is likely negative. (I learned this during undergrad doing day trading for a few months and nearly losing my tuition. stupid).

The reality is unless you have an algo trading system or are a long-term investor you are going to lose on day trading in the long run. RH has done a great job of making trading easier for the masses; I'm not sure the net outcome is a good one.

While index funds were arguably a much much more important step, there were few funds you could invest in for less than $3,000 up until several years ago. And those that were less than $3,000 initial investment were around $1,000. A lot of folks can't afford that all at once.

Given the expected gains (or losses), is it actually worth investing in equities if you have less than $3000 to invest? If you only have 3 grand to your name, you probably shouldn't be investing it.

Personally, I've never invested less than $2000 in a single lot. I also aim to have around $5000 cash in my accounts, more than that is a waste, and less puts me at risk of being unable to pay for things.

> I understand that many give Robinhood crap because it is not "sophisticated enough"

I don't recall ever seeing anyone criticise RH for this. It's RH's entire model to be unsophisticated and "democratise" trading.

> because of the Gamestop fiasco

Anyone who doesn't criticise RH for this has rocks in their heads. Anyone who believes RH's official explanation lacks basic critical thinking skills.

People complain about unfair advantages regular "retail" people have but Robinhood has made access to stocks & options a lot easier. They've made it easy to get the cheapest rates possible on portfolio backed loans. They're starting to try & give some type of IPO access, although I can't comment on the value of that. If they start to offer IRAs & other tax advantaged accounts, plus a way for non accredited investors to invest early in Start-Ups they would have hit a grand slam in my opinion.

Obviously while I see the above as a lot of great things, in the wrong hands people can do a ton of damage to themselves with margin, options or trading risky stocks. Robinhood, at the demands of critics, has been improving their information in their UI to help people better understand the risks. And yes, their bash the button to get early crypto access shall never be forgotten & always be a tarnish.

The Robinhood app is far better than anyone else out there for your average investor. ThinkorSwim is the only thing even close & it's far to complicated for most. Otherwise Robinhood is faster, cheaper, better info & overall better user experience. The other companies have all been incredibly behind times, as financial companies are known for.

Side Rant: Robinhood wasn't the only one to run into GameStop issues. There are some people who believe the whole GME debacle was very close to having huge negative implications on the entire market that were going to hurt everyone, whether in the trade or not.

Retail investors could still invest using regular tools. Most banks have portals where you can buy/sell, but most of them safeguard against margin bets and they have much less sketchy practices.

Robinhood made it fancy and hid the complexities of investing so they could turn investing into a gambling platform.

There's a reason why retail investors have traditionally been locked out of things like options and investing in IPOs. More often than not it ends up with the less wealthy losing their life savings.

"The wrong hands" is the average retail investor. The philosophical debate is whether those people should be allowed to waste their life savings because they should know better, or if the government should make efforts to ensure that they can't.

I really don’t understand this “democratizing” thing.

In Spain, banks have allowed to trade on all kinds of assets for ages. Some with low fees. If you wanted to buy a certain asset you could do so in like three clicks.

In the US I know as a fact that some banks like Charles Schwab have also made retail investing accessible for ages…

Robin Hood has “democratized” trading in the sense of aggressively expanding it through marketing, maybe a cool UX (I wouldn’t know), but otherwise I don’t see how it has innovated significantly in the area of retail investing.

Like a sibling commenter is saying it has also popularized day-trading more than anything. The math about day-trading is unequivocal and it may very well be that popularizing this is a net loss for society, or at the very least (yet another?) mechanism for transferring wealth from the middle class to sophisticated elites (I mean, this wouldn’t be a loss if you believe it’s stricly a zero-sum effect, and that wealth is just as well in either set of hands)

To be clear, I may have moral qualms with RH and the popularization of day-trading, but I do believe in free market economics and I think it should exist - I can only hope that in time regular folk become educated about investing and that my transfer theory doesn’t come to fruition.

I’m all open for counterpoints on both my claims that it hasn’t done all that much for democratizing retail investing and that day-trading for the masses may be a bad proposition.

> In the US I know as a fact that some banks like Charles Schwab have also made retail investing accessible for ages…

I was helping a friend open an IRA with Schwab the other day. After you sign up, it just plops you into their dashboard with no instructions at all. Search function was useless, actually took tons of clicks for me to figure out how to fund the IRA and invest it in an index fund (for example, the list of target date funds isn't found anywhere on their menus, I had to google and use their secondary fund site to find the symbol).

Basically they sure didn't make it easy or accessible for new users, where as with Robinhood it is immediately obvious how it works (I know Robinhood doesn't have IRAs but the patterns for regular investing with other brokers are similar levels of clunkiness)

CS had like $9 fee per trade before they felt the heat from RH. Which btw was fine by me since it was small potatoes if you just casually invest and hold for a year or longer. What they really democratized is incessant day-trading, otm calls on dogshit stocks etc. basically a casino pretending to be a brokerage

It was never ok. Trade fees were a gatekeeping measure to dissuade retail investors. Since RH started I have been able to build a portfolio of many single individual stocks (my own market “index fund”), some worth less than $10. This was never possible under pay per trade regime.

What's the point of investing less then 10 dollars?

Earning a return greater than the 0.10% offered by my credit union. Should only those with more capital than 1mm earn returns?

Keep it in your wallet or put it on a blackjack table. Or yes put it in a savings account that won't disappear until you can build up money to invest with.

Or don't.

And you couldn't put that into an Index fund because?

Fund minimums

Managing your own penny stock index is great if your time is worth nothing to you. But also IB had pretty low fees for years and CS had no fees on ETFs

“Time” — this thread is about Rh, and it’s probably the quickest way. We are talking total time of a few hours. Arrange by price, buy, swipe. It’s about having systems in place that provide yield.

It's like, you could upload videos to YouTube all you wanted all the time, but TikTok made it more accessible.

Just curious, what banks are those? Renta 4 is mainly focused on funds, and traditional banks like, say, BBVA, don't have any stock trading features in their apps / websites, as far as I know?

I'm using Degiro for stocks.

BBVA or Bankinter certainly have brokers! I’d assume many other Spanish retail banks do as well.

BBVA has a standard broker that charges about 5€ per trade and also a trading platform called Trader with different conditions.

Bankinter has had a standard broker for ages - some people in my family are pro investors and they’ve been using since the 00s.

Both have a massive selection of funds on top of stocks.

Yeah, whatever you say about Robinhood, the fact that they came in from nothing and massively disrupted a trillion+ dollar industry is undeniable. Mainstream brokers used to charge $10+ for a single trade, and the fees today are all down to 0. They are also starting to build half-decent apps.

> Even myself, who used to only trade a couple of times a year, started with $300 in my Robinhood account a few years back. Now I have at least ~60k that I rotate around in my Robinhood account on a daily/weekly basis.

I don’t think trading more stocks and trading them more frequently is a “better” or even “democratized” outcome. For the vast majority of people trading more shares more often is an objectively terrible investment strategy.

While "day trading is an objectively terrible investment strategy" for most, having more people in the market and market participants being more fluid in their investments than not, is strictly more efficient than a market with less participants who act more illiquid in their positions.

Imagine a market of 1,000 people. If we add 5,000 who significantly under- or overvalue, or make other errors, the good being traded, is that more efficient?

In terms of economic efficiency, if that's what we mean, I would guess not: It causes the misallocation of capital to worse investments. Was the Gamestop market economically efficient?

You are making the assumption that the first 1000 people somehow had a better way to value the assets being trading than the next group that joins the trade. This is a fallacy as the market sets the prices on its own.

No by efficiency I mean the spread and incorporation of more information relating to the underlying asset, making it more closely match their fair value, and the resulting tightening of the spread and reduced volatility overall. See Efficient Market Hypothesis.

It is also worth noting that it is this same hypothesis that backs the "index funds are better than stock picking" argument.

Are the new traders introducing more information to the market? Or are they introducing noise?

Even more interestingly, for relatively cheap, you can spread rumors or seed sentiments into the internet via paid shills, so for small amounts of money you can sow false information and cult-like mentalities around certain stocks, and profit off those. If anything, that counts as anti-information, and makes the market less "efficient", except to those who are using the market variance as a means to extract wealth from retail investors.

You misunderstand. The information is there, constant, regardless of how many participants are in the market.

The addition of new participants helps spread, judge and value the information, more than fewer participants, which allows the information to be better incorporated into the price, resulting in a more efficient (fair value) market. As a result, the asset becomes more liquid and "fairly priced".

There is no "real price" for assets that are market valued, only whatever the market will bare. Market efficiency is about more and more participants agreeing on the going price for an asset. While this overall global disagreement on price can never be captured completely, its state is reflected by the going price and the amount of spread (difference between ask and bid price).

A big part of efficiency is being able to ask yourself how much return can you expect if you were to sell the asset right after you bought it. High efficiency, and you can expect to be able to get your money back with high certainty. Let's use an AAPL stock as an example. If I bought on today at it's low, it would have cost me $135.76. If I wanted to sell it, its be super easy. The closing spread was ask 136.96 bid 136.60, or .36/136.60 = ~0.26%, so if I bought and sold into that market as fast as they could, that is around how much I could reasonably expect to lose. The high liquidity and small spread makes that asset easy to move at low overhead cost, hence more efficient.

Compare that to wanting to buy an asset in a much less efficient market, for example real estate. Buying is not an efficient process. Not only does it take time to close, but there are overheads in both time and money that helps slow everything down and increase costs. There are much fewer participants. Not every house is the same, but also not every house is for sale. If you buy a house, you have very low certainty that you can easily sell that house right away and get your money back completely, at least least not without some other factors (time, money) put in.

If you don't like real estate as an example, consider private equity, where one is subjected in 5, 10, 20+ year lock ins of large sums of money, to buy into slices of partnerships or joint venture funds, where really one has no idea how much their investments are valued until many years later because there is no market for what they bought until everyone gets to cash out in the future. Never mind the equity fund capital calls which make you question whether your investments have indeed gone past zero and are now negative.

Low efficiency doesn't translate into loses though, just like high efficiency doesn't translate into gains. The two are independent. Low efficiency however is rife with opportunity. There is very little chance one can sell $AAPL stock at much above the going fair market value on the exchange. The same can't be said for low efficiency real estate, where it's easier to make a living off the inefficiencies in the market e.g. flipping property to the less educated new participants in that market.

We may be confusing market efficiency and economic efficiency. Economic efficiency is about limited assets (money, etc.) being used most productively. The economic value of something isn't arbitrary or whatever the market says; it depends on how productive it is. For example, the market may price Dutch tulip bulbs at thousands of dollars each, but that's not their value nor is it economically efficient to tie up thousands of dollars in a tulip bulb.

Market efficiency can contribute to economic efficiency. I've long been aware of theories that markets are inherently perfect and accurate, but I believe economists abandoned those ideas many years ago. Efficiency depends on the spread of information; if a large part of the market lacks accurate information or has false information, efficiency is reduced.

> The addition of new participants helps spread, judge and value the information, more than fewer participants

Imagine a market for rockets, and the market participants are the heads of Boeing, Blue Origin, SpaceX, NASA, ESA. Now imagine that we added 1,000 random people to that market; would the information be better? Would the rockets be priced better? Probably not. The market would be flooded with bad information.

I'm not confusing them, I'm making a distinction. My posts have been about market efficiency and I didn't say a thing about economic efficiency.

If 1000 new participants wanted to buy and sell rockets, yet, the price would become more "efficient". There would be more sellers and buyers, and more room to negotiate and trade. Your example is a stupid one.

> stupid

It's disappointing to see that happen.

It's a really bad example. You only have to look back a few years to see the market with less participants, and look at the market efficiency of acquiring a rocket or say putting 1kg into orbit.

The only way your argument works is if we assume every new market participant is completely ignorant and completely susceptible to bad information. Like participants entering the market are doing so in bad faith and completely clueless, and like bad information didn't exist before participants entered. It's a really stupid argument to make.

So ya, it is disappointing to see happen.

> I mean the spread and incorporation of more information relating to the underlying asset, making it more closely match their fair value

The Internet isn't so great at spreading information; it is incredible at disinformation and misinformation.

Democratization is not about making the correct decision or investment strategy. It is about your freedom and ability to make decisions. Robinhood allowed people the choice to buy, sell or not do either, daily easily and from anywhere. That is democratization.

You can do all that with other brokers mobile apps, RH may have better UX but their system stability under heavy traffic doesn’t hold up.

Democratizing investing is akin to democratizing gun ownership. Yes, more people have access to the technology/service/etc. but is it really desirable?

Robinhood "democratized" gambling on the stock market.

Coming from a country where gambling is like a plague (Most UK high streets are identical, gambling shops are everywhere), is that any worse than gambling elsewhere? Your chances of lucking into some money seem better there than on sports.

Yeah, of course. All other forms of gambling have an inherent negative return (the house has favorable odds always), while the stock market has a positive return inherently as most companies on the stock market are profitable, so it's better than slots or sports gambling for sure

There's a side effect where stocks are no longer tied to company performance. It gets harder to seriously invest.

"I have many friends that never traded before, and after they got their Robinhood account they feel comfortable enough to do it often."

This reminds me of the lamentations I sometimes hear about the "unbanked" or the "underbanked".

I always think: "lucky them ..."

They democratized gambling on the stock market, not investing.

“Democratizing” day trading is just putting undereducated and underinformed victims in front of professionals with orders of magnitude more access to research, information, and market access. I said it elsewhere but this would be like praising Harrah’s for removing the rake (the casino’s cut) from poker games and encouraging novices to put their money down on the table with Vegas professionals. People would be mortified, but that’s astonishingly close to what’s happening here. Nobody would think this is a good idea, despite the existence of wealthy and successful poker players.

We don’t give Robinhood crap because it’s “not sophisticated enough”. We do so because they have removed the guard rails, encouraged the some of the riskiest possible behavior (with a particularly poor risk:reward ratio), abrogated any responsibility of steering their users toward financial literacy or sound investing practices, and done all of this toward one of the most vulnerable classes of market participants.

Day trading is not investing. It is to investing as predicting the weather is to predicting the climate. Getting masses of lay people “comfortable” with day trading is—frankly—unmitigated evil. It is a means by which the rich will get richer and the poor will have their money fleeced. The only reason this hasn’t unfolded in complete disaster yet is the absolutely unprecedented bull market we’ve been in. It will end—nobody knows when—but when it does, Robinhood’s customers will be amongst the worst off.

We know this because repeated evidence has proven conclusively that one’s market returns are (on average) inversely proportional to the number of trades one makes. Buying and selling in the short-term maximizes the asymmetry between you and better-informed market participants. Buy-and-hold minimizes this, but that’s not even remotely what Robinhood promotes. Vanguard on the other hand actually did democratize long-term buy and hold investing, which is what we should be steering lay people towards.

> Day trading is not investing

You have no idea how many of my friends I've tried to explain this to. I try to explain that day trading is as much of an investment as betting on horse or dog races, but I think a lot of my mates also see those as legitimate expenses.

Democratizing -investing- is a good thing. But Robinhood democratized -day trading-, i.e. gambling.

I think Wealthfront or the few other similar companies actually democratized investing.

Let me play devils advocate for a minute. Robinhood had the clear market improvement of making trades cost zero dollars. Prior to their entry into the market $7 trades were considered cheap.

Meanwhile wealthfront is marking up investment opportunities that are widely available in funds or etfs for much cheaper.

I think wealthfront is much more predatory than Robinhood if judged on the basis of services rendered to informed actors.

Trades of index mutual funds and ETFs held in the administrator’s brokerage were free for years before RH. (Eg, Vanguard funds at Vanguard and Fidelity funds at Fidelity.) What RH accelerated was $0 individual stock trades, which are not great for retail investors at any price.

I remember seeing their first public demo at LA Hacks in 2014. Seemed like a couple of kids right out of college. They had the iPhone's screen hooked up to the projector and one of their friends kept sending them silly text messages the whole time that they had to dismiss. This was before the Do Not Disturb feature came out.

I remember wondering how it took so long for someone to make a half decent stock trading app for the iPhone -- all the other apps at the time sucked (and they largely still do). I was on ETrade before but signed up for the Robinhood waitlist immediately -- haven't left since being allowed in early 2015.

Can you elaborate on why you think robin hood is better than etrade?

I’m not the most sophisticated trader but I appreciate their UX and simplicity, which I think is true of most of their user base

I think the question is whether RH is sticky, they have good traction in growth, and I think it will be sticky. If enough people are doing fractional shares trading it's really hard to transfer out fractional shares to different brokers. Might actually not be possible.

I did an ACATS from RH. They just sell the fractional shares at market price and send the cash.

Right so you have to purchase your fractional shares on your next platform, which I guess would only amount to the fractions so maybe not a huge deal if you have 100.5 of a stock you're only losing the .5, but it could add up if you have a really diverse portfolio.

Robinhood's value is all UI and UX. Every other finance app is in the past. Vanguard, Etrade, even ThinkOrSwim; none of them even come close to how easy Robinhood is to use. I also left Robinhood after the GME thing but man their app is so streamlined compared to everyone else.

I use RH sometimes to look at prices and then go back to Etrade to make actual trades.

Their app and UI are great, really great; but I closed most of my trades after the Gamestop fiasco and I'm not coming back. I kept the debit card and keep a few bucks in there, still use the app for quick quotes sometimes but that's about it.

same

good fonts, contrasting colors, and large buttons. UI is so important. never underestimate it

won't name them but other big exchanges phone apps are pretty nifty.. you can operate lot with a thumb it was a bit surreal

no advanced trading / charting / analytics but still quite surprising

They aren't an exchange

I think the opposite - UI of Robinhood is awful. For example, to see a list of orders you’ve placed, you gotta interact with a fake chat box and it takes at least 15 seconds to see the last order.

Call me old school. TD Ameritrade and Charles Schwab has the best UI IMO.

iOS development sucks. It had a huge amount of churn this decade due to the transition into Swift. Documentation wasn't just out of date, it was in a different dimension. Every SO answer was a mix of incompatible versions and - what answers existed were best guesses from people who also had no concrete documentation to go off of.

Your best bet was to cozy up to Apple teams or preferred Apple partners like Facebook and Uber, and see if the inside scoop could save you a few months of maddening frustration.

You can see this evidenced in engineering blog posts from companies like Uber and Twitter, they had to hire soooo many people to build out their mobile app.

I know better, and I still use Robinhood. I also use Fidelity, but their mobile and web apps suck beyond description, and used to use Scottrade, who also suck. Robinhood doesn't just look better (although that's important); it's easier to use and faster; bank transfers are WAY easier; you don't have to jump through hoops to enable options trading (which means a lot of people who shouldn't trade options now do, but it's still better for those who want to); you can trade on deposits instantly instead of waiting a week for the deposit to clear; margin is easy to use. There are plenty of foot-guns in everything I said, but there's also plenty of convenience and utility for people who are trading carefully.

Have you tried TD Ameritrade's Think or Swim?

Think or Swim is awesome if you're technical or putting a lot of time & geeking out into this world.

Robinhood is awesome if you're new or want something much simpler.

If I was daring, I might compare it to Linux/MS vs Apple on here but I don't dare because people would take that the wrong way.

ToS is pretty good. Takes some getting used to though and is sometimes confusing.

The ToS people's follow up venture, Tastyworks, is now better IMHO.

I feel like the only person who actually likes the Fidelity app. Sure, it's not visually attractive like Robinhood but the amount of information you get is far greater. Also the iOS app works on both my iPhone and iPad whereas Robinhood only renders the phone view on iPad. The app even has proper support for the Magic Keyboard so cursor interactions work the way they should on iPadOS. Fidelity definitely has a "boomer UX" quality about it but once you get used to it, it's really not that bad.

I like fidelity's app and website. Making complex trades on a phone doesn't make sense I think anyway. It's like programming on a phone, if you want to do anything serious use a computer.

The line between the two are blurring further every day, though. Might not be that far off in the future when they're actually interchangeable.

Hmm I'm not sure, the problem with phones is the screen size. Just getting enough information on a screen is difficult then intuitively managing it. Even a tablet might struggle.

I also know better and still use Robinhood. I don't day trade (actually can't since I work in finance) and I haven't even considered options or buying on margin. So none of those were what drew me to using Robinhood. Instead it was that the experience of trading via their app was excellent.

Maybe others have gotten better now, but I really don't see a dire need to switch.

I was at that LA Hacks as well! The first one right? That was the highlight of the hackathon! I remember everyone really tripping over themselves to try to sign up

Robinhood is the example I use for showing that good design can be a company making differentiator. In many ways Robinhood is much worse as a trading platform, but the usability and simplicity of getting started is orders of magnitude above all other competition.

Absolutely. Their front-end is phenomenal, even if their back-end is subpar.

It's to the point where I use Robinhood to look at market info, then open my actual brokerage app to execute the trade. Robinhood is lightyears ahead of traditional brokerages in terms of UX.

Per-user revenue was $109 for 2020. My goodness payment for order flow and cryptocurrency rebates are lucrative.

Funny that you are being played most, when you think you are in control.

yea - everytime I try to explain to peers and family what the price of free is, deaf ears.

It’s better than free, you get a discount relative to NBBO.

The higher-level argument might be that if PFOF didn't exist, NBBO might be better. If Citadel et al wanted to make markets they'd have to publish their prices.

(Of course, that gets rid of the "market segmentation" signals, so it'd probably make life a little better for institutions and make life a little worse for individuals, on net. No doubt smart people could disagree about how much of each effect there would be.)

> that gets rid of the "market segmentation" signals

Exactly, retail investors should basically be happy with PFOF.

I understand that Robinhood sells order flow and that you may get a worse fill because of it, but is the average Robinhood user getting 3 cents of slippage on their order of 1 share of Ford worse than a $10 round trip in order fees from a more premium broker on the same trade?

I think the order flow model is better for most retail traders. Obviously, if you're buying $20k in stock at a time, paying the fees will be better, but that's not your average Robinhood user.

Everyone sells order flow. It’s: do you want sale of your order flow to be the only fee you pay or do you want to pay commissions on top of that, too?

That’s not true. Fidelity does not receive pfof.

Their 606 disclosure does have PFOF https://clearingcustody.fidelity.com/app/proxy/content?liter...

First I’ve heard that. I looked it up and this is for options not equity. https://www.spglobal.com/marketintelligence/en/news-insights...

You are literally required to get better fill prices than the market with PFOF. You aren't being played any more than if you just send a normal limit order to the market

Why—exactly—do you reason that someone is willing to pay $109 per user per year for their order flow?

Put another way, Robinhood’s actual customers are confident that they are able to extract in excess of $109 in value each year they purchase the flow of orders from a given Robinhood user. From where and/or from whom do you suppose this money is being extracted?

There may be opportunity to build a Robin Hood competitor by transparently passing the PFOF fees through to users, rather than pocketing them (as Robin Hood does). Imagine if you paid a monthly $5 subscription to be a member of a broker, and then had unlimited free executions, with the PFOF fees being clearly shown, and credited to your account.

>From where and/or from whom do you suppose this money is being extracted

My guess is from other funds that aren't privy to what horse the lemmings are betting on today and riding that wave.

> Why—exactly—do you reason that someone is willing to pay $109 per user per year for their order flow?

Adverse selection is scary and knowing your counterparty is worth a lot. This is not as sinister as you're making it out to be.

In other words, Robinhood is bringing fresh chum to the financial sharks of the world.

How do we reconcile this with the narrative that they’re the good guys delivering wealth generation through investing to the masses?

a lot of people have given very thorough explanations of why pfof is not an evil thing in this thread. i suppose you're free to believe your own narrative, if you want.

I have never claimed that PFOF is evil.

My only point is that the narrative of Robinhood is completely backwards. Far from the “stealing from the rich to give to the poor” backstory from which the name comes from, all they’ve done is encourage hordes of unsuspecting sheep to venture deep into the wolves’ den.

PFOF may not be evil, but Robinhood certainly is. The fact that their customers’ orders are of such high value makes it abundantly clear who the moneyed players think losers at the table are. Anyone paying attention understands that Robinhood’s product is a continuous flow of suckers to their paying customers. Trading on Robinhood is an implicit bet with apparently quite poor odds that you’re not one of those suckers.

That doesn’t mean you’re better off trading on some other platform. It means they're goading you into playing the wrong game in which entities with billions at stake are so convinced you will lose they’re happy to pay for the privilege of sitting down at the table with you. The real lesson is that you should be playing a different game than the one Robinhood is promoting.

Robinhood users are unsophisticated (= to put it another way: "idiots" who don't have advanced data to inform their trades). This means taking the other side of their transactions is more likely to be profitable than taking the other side of orders coming from, for example, RenTech. Knowing that an order comes from RH (or in other words, not from sophisticated traders) means it's more likely to be profitable for the market maker to fill it. This difference in EV is worth more than $109 to the customers.

It's essentially a "first dibs" approach to fulfilling a transaction. By law it's required to fill at the best price available, so there's no difference in price, and it may even fill quicker if it's in between the bid/asks because of the reason explained above.

If UX was the gating factor for buying crypto, and Robinhood let you buy crypto... you had _enough_ control.

Just like "no fee" money exchanges in airports with huge spreads. Same business but internet scale and with the new hype of investing.

Though, to be fair, Robinhood offers reasonably spreads.

They must execute client orders at a price as good as or better than the national best bid offer, if I understand correctly (Reg NMS [1]). Now, the firms that buy that order flow offer better (tighter) prices, an improvement over the NBBO, and what Robinhood does is take a cut of that improvement.

(Robinhood takes a larger cut than other brokers, fair enough, but those other brokers used to charge an additional flat fee. So, for small orders, you're better off with Robinhood, for large orders you're better off with a different broker. Note that this was the behaviour that triggered regulatory action a while ago, and the situation might look different now, given that other brokers also offer trades without commission. Either way, you should get executed at NBBO or better.)

[1] https://www.investopedia.com/terms/r/regulation-nms.asp

Robinhood's spreads are much larger than many other brokerages because of the deals they make with order flow buyers. Yes, they are still at or better than NBBO, but many brokerages will give you price improvement on crossing orders down to near the midpoint price (unless you are very good at timing the market and already have a great price from crossing).

I did an A/B test of this, and found that RH was actually an outlier in terms of how bad your executions are.

Matt Levine has some insight on this [1]. And you're right, Robinhood's price improvement was bad compared to standard brokers:

> By March 2019, Robinhood had conducted a more extensive internal analysis, which showed that its execution quality and price improvement metrics were substantially worse than other retail broker-dealers in many respects, including the percentage of orders that received price improvement and the amount of price improvement, measured on a per order, per share, and per dollar traded basis.

But again, it's a relative issue. For small trades, overall you got a better deal than paying a slightly better price plus a fixed commission. For large trades, nope. So, at Robinhood the rich big traders subsidised the smaller ones. Kind of fitting for the name.

> For most orders of more than 100 shares, the analysis concluded that Robinhood customers would be better off trading at another broker-dealer because the additional price improvement that such orders would receive at other broker-dealers would likely exceed the approximately $5 per-order commission costs that those broker-dealers were then charging.

All in all, I think their model is defensible, but lying about it isn't.

ETA: To be clear, I think their pricing and revenue model is defensible. But: a 10$ fee for a long term trade is also pretty negligible. What Robinhood have democratised is day trading and gambling, and that's not good.

[1] scroll down to "Robinhood (1)": https://www.bloomberg.com/opinion/articles/2021-01-07/the-ip...

> democratised is day trading and gambling, and that's not good

why is it not good? I think as long as the person doing the trading understands the consequences of their actions, they should be allowed to make that trade. If you could prove that people are being defrauded into thinking trading is risk free, then the problem isn't with robinhood but with education and awareness, and that issue must be solved at a societal level, rather than placing all responsibility onto the company providing a utility.

I always had that little voice in the back of my head, that told me that RH and all the others are just feeding small investors' money to the big ones. I never really figuered out how, selling their order low at worse spreads than others explains a lot of my doubts, so. It also means that I will stay away from those brokers as far as possile. Well, not that I'm a potential client anyway, the only trading I do is with RSU and ESOPs I received over my career using whatever brokerage came with these packages. And then only to sell some from time to time, like once every other year if a all. If I want to gamble, I take ten bucks to the nearest casino's roullette table and have fun or an hour or so.

What was the equivalent per-user revenue for e-trade, schwab, fidelity, etc before Robinhood came to town?

$9/user per month?...

Out of curiosity what's the fastest way to find that metric in the S1?

ctrl+f arpu ctrl+f churn ctrl+f key performance

etc

“ A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected.

For the three months ended March 31, 2021, 17% of our total revenue was derived from transaction-based revenues earned from cryptocurrency transactions, compared to 4% for the three months year ended December 31, 2020. While we currently support a portfolio of seven cryptocurrencies for trading, for the three months ended March 31, 2021, 34% of our cryptocurrency transaction-based revenue was attributable to transactions in Dogecoin, as compared to 4% for the three months ended December 31, 2020. As such, in addition to the factors impacting the broader cryptoeconomy described elsewhere in this section, RHC’s business may be adversely affected, and growth in our net revenue earned from cryptocurrency transactions may slow or decline, if the markets for Dogecoin deteriorate or if the price of Dogecoin declines, including as a result of factors such as negative perceptions of Dogecoin or the increased availability of Dogecoin on other cryptocurrency trading platforms.”

Dogecoin, created as a joke, is now in an S-1 as a material item.

after trump tenure this is the 2nd most absurdist fact about humanity the last 20 years to me

what could possibly go wrong

I would've guessed it had appeared before, but nope never on it's own before

https://www.sec.gov/edgar/search/#/q=dogecoin&dateRange=all&...

Anecdotal:

My two under-18 cousins both described using their parent's credentials to buy Dogecoin on Robinhood. Great stuff driving Robinhood revenue right here.

Think of these meme stocks as baseball cards or pokemon for gen-z and everything starts to make sense.

10$ a good amount of defi is trying to sell a few finance tricks to teens through web-scale lingo

Is NFT support coming soon to Robinhood?

This is true at the level of basic buying and selling. However that isn't all that is happening with Robinhood. One of Robinhood's "innovations" was making it easier for novices to engage in more complicated trading including buying on margin, short selling, etc. This allows people to lose more money than they initially invested. A kid in the 90s wouldn't be buying Pokemon cards on credit with the potential to literally bankrupt themselves or their parents.

Robinhood has also gamified the trading experience. Once a day I get a push notification with something like "here are the day's biggest movers, hop on the train before it's too late!" and its essentially playing to that addictive quality that short term trading can have.

Exactly. A push notification like that is preying on the fear of missing out (FOMO), which is completely at odds with proper assessment and risk management.

Imagining an IPO for a company that enabled baseball card and pokemon transactions has not helped me make sense of this situation.

What's most ridiculous about this level of crypto trading volume on Robinhood is that you don't even own the crypto you trade there. You can't use your own wallet, you can't transfer it to your own wallet. Robinhood holds it; you're just gambling on their holdings.

It really irks me because “owning” it in that way flies in the face of cryptocurrency’s supposed raison d’être: anonymous decentralized currency. Dogecoin held at RH is none of those things.

What remains of cryptocurrency ethos? It’s all about the value today.

You could argue that it isn't even about the value, but simply the price.

That's not ridiculous, that's the primary purpose of crypto

It also speaks volumes about "crypto" these days. The vast majority of folks I know treat crypto as an investment opportunity (albeit, a highly speculative one). They're not concerned about blockchain technology or decentralized finance.

Robinhood is the perfect platform for them - There's no need to "swap" tokens or sign up with exchanges. For the most part, RH just "works".

I find it interesting that Elon Musk has tweeted about Dogecoin several times in the past day, and his tweets no longer seem to be causing price spikes.

A lot of Cryptocurrency twitter is mad at him for his actions and statements on Bitcoin, I wonder if that has broken his ability to manipulate price with tweets.

If that's the case, probably a bad thing for Robinhood. But maybe people will come back around to him with time.

At this point a Musk tweet is likely priced into the asset

A sign of a maturing marketplace!

If you make the easiest to use Ponzi consuming tool, it doesn’t matter. There will always be more ponzis.

True, but that doesn't mean we should give the best ponzi scheme a free pass. It's still a ponzi scheme.

Risk factors are lovely:

We have been subject to regulatory investigations, actions and settlements and we expect to continue to be subject to such proceedings in the future, which could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

We are involved in numerous litigation matters that are expensive and time-consuming, and, if resolved adversely, could harm our reputation, business, financial condition or results of operations.

Our platform has been, and may in the future be, subject to interruption and instability due to operational and technological failures, whether internal or external.

I am 100% sure most companies can and do have those exact same risk factors, they don't really mean that much.

Any company that operates in a highly regulated area (finance/health/gambling/etc) are going to have regulatory on their risk factors.

Any Company whose business is run on an app or a website is going to have the tech failure one.

"involved in numerous litigation matters" and "have been subject to regulatory investigations ... expect to continue to be subject to such proceedings" coming in on the heels of record-setting fines moves these risk factors from the usual corporate boilerplate to quite acute issues.

I'm skeptical that this claim is true. Even a cursory look at news articles related to Robin Hood shows that these concerns are way more than boilerplate legalese.

I think it is one thing to have regulatory risks(of course those are always present), but another to have a recent history of investigation and to be wrapping up the largest fine in history.

Obviously some or even many people will take these risks as a possible promise of greater returns and for the sake of Rh, I hope they get better and better at navigating the regulatory waters. It would be interesting to see the financials if and when another prolonged downturn happens.

Most companies that go public haven’t recently violated securities laws and most don’t readily admit that they’ll probably do it again. (But at least they’re truthful in their disclosure! As required.) They also have the boilerplate “this is a highly regulated industry” language as a separate risk:

> Our business is subject to extensive, complex and changing laws and regulations, and related regulatory proceedings and investigations. Changes in these laws and regulations, or our failure to comply with these laws and regulations, could harm our business.

This risk also stood out to me because it’s something I usually associate with SPACs:

> As a result of our recent settlement with the SEC, we are currently considered an “ineligible issuer,” which limits our ability to use certain free writing prospectuses in securities offerings and will delay our ability to qualify as a “well-known seasoned issuer” in the future.

SPACs are an ineligible issuer because they’ve been a blank check company, shell company, or penny stock issuer in the last three years. While I don’t have many nice things to say about SPACs the ineligible issuer language is pretty benign boilerplate in that situation.

RH, on the other hand, is an ineligible issuer because they were C&D’d by the SEC for violating the anti-fraud provisions of the federal securities laws in the last three years. Companies typically seek to avoid committing securities fraud in the run up to their IPO. So while the risk factor itself (not a WKSI) isn’t necessarily unusual the reason for the risk is and it speaks directly to management’s (at best) inability to appropriately manage the regulatory risk or (at worst) lack of trustworthiness.

The illegal shit they do is just a "cost of doing business" for them. It is just hard to calculate how much of a kickback the FINRA and SEC would like to have.

Regulation is so critical, the financials I've worked at are soul-destroying because of the bureaucracy. Its impossible to do anything. I'm surprised RH has managed to get this far, I'm sure they'll get fine after fine until they start to stagnate like everyone else.

Just because they expect more regulatory slaps on the wrist doesn’t mean they won’t add back regulatory charges to their Adjusted EBITDA metric, lol.

Headline financials:

  FY Ended December 31, in millions except percentage and assets per user

                 |  2019  |  2020  |  YoY  
  ---------------|--------|--------|-------
  revenue        | $278   | $959   | 245%   
  op ex          | $384   | $945   | 146%   
  net income     | $(107) | $7     | (107)%   
 
  assets held    | 14,136 | 62,979 | 346%
  monthly users  | 4.3    | 11.7   | 172% 
  assets per user| 3,287  | 5,382  | 64%

Also the cash - liabilities calculus not looking good.

$8.8B in cash - $7.7B in liabilties = - $1.1 billion

I'll pass.

Yup....Their business depends on dogecoin I mean good luck with that.

it is slightly worrying that society allows something so big that's so... fragile? it's like a disaster waiting to happen and bound to cause massive amounts of damage...

Exactly, imagine if they're margin is margin called. They don't have enough assets to handle abnormal (but not unlikely) swings. So they're forced to disallow types of trading.

I'm surprised capital requirements aren't in place

I'm curious why this alone is such a problem? This is substantially better than many other companies at IPO.

I have certain things I look for to determine if a company is worth researching more, and one of them is if they're highly profitable (they're not), if they have a lot of free cash flow (they don't). I cannot evaluate what their assets amounting to $15B are and whether or not these are under/overvalued, so instead I look at cash - debt as that's something I understand much better.

There's no magical formula, tons of people like to put money on unprofitable companies that have a lot of hype and tell you a good story about their mission. For me, I look for companies that are making money today, that have a good earnings rate of growth relative to their p/e ratio, and a business that I understand.

Robinhood is not that. It could be that in the future when I revisit it in a couple quarters or more, but it's not for me.

Hence why I'll pass on this one.

The 3 months ended 2021 are even more impressive. They have already made ~500mn in 2021. This is a rocket ship

Hmm. Vice says the CEO (Vlad) had his phone seized - not for this thing but for the meme stock mess. Seems like a very big deal.

https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood...

I was called a conspiracy theorist only yesterday for claiming there was anything wrong with the restrictions. I’m glad to know numerous federal agencies share my views.

I don’t know why you’re getting downvoted… You’re not the only one.

For some reason, defending hedge funds who’ve been blatantly manipulating the market seems, to draw a lot of vigorous defendants on here.

https://prospect.org/power/how-the-gamestop-hustle-worked/

There was literally a congressional hearing months ago about this. It's not like it's new that there is attention on this from the federal level.

Federal agencies investigating the situation does not mean they think there was anything wrong with it.

The Chief Legal Officer, Daniel Gallagher, made $30M this year. It breaks down into $257k cash, $4.2M bonus and $25.5M in stocks and options. This is a far larger amount than any other executive.

In 2011-2015, Daniel Gallagher was 1 of 5 Commissioners of the SEC (Securities and Exchange _Commission_), the highest role of the SEC, appointed by the US President.

He was hired by Robinhood in May 2020, and his previous job was at WilmerHale, a firm specializing in defending other firms against the SEC.

This guy must be worth his weight in gold in avoiding regulatory fines for Robinhood.

How do you value the stock options of a company that hasn’t had its IPO?

Maybe off of current worth estimated after sale of shares to earlier investors? I'm not completely sure though.

Probably using the same fair market value that pre-IPO startups calculate to assess your tax liability when you exercise options.

Same way you do after an IPO. Based on the sale price of the stock.

You generally use 409a valuations, which increase in regularity and accuracy as the company matures (ie. gets bigger and closer to an actual IPO).

As a former Uber employee, I assure you they do not become more accurate. It’s all based on funding rounds etc. The stock market is a different beast altogether.

Lots of ways to value a company. Once you have the value of the entire company, the price per share just depends on the number of shares. Options are then calculated based on a formula using the price per share as one input.

You can value a company by comparing it to its peers (this is like company Y which has similar users, growth potential etc)

You can value a company by only caring about its assets and liabilities.

Private shares of a company can exist and be traded, another market based valuation just with fewer data points that are private and not publicly shared.

And plenty more ways. Finance is really all about answering this question, how much is something worth and then creating mechanisms to trade that value in different ways.

When I worked at a pre IPO startup they always used the valuation of the last investment round.

409a valuation.

Talk about a revolving door...

> In 2011-2015, Daniel Gallagher was 1 of 5 Commissioners of the SEC

> his previous job was at WilmerHale, a firm specializing in defending other firms against the SEC.

How is that situation even remotely legal?

Why wouldn't it be as long they follow the law in both jobs? It is like defense attorney becoming a prosecutor or an IRS employee becoming a tax advisor.

The best person to give advice on a subject are those who have experience on both sides.

Its not a good idea to allow heads of massive institutions to just hop around right after their tenure is over.

For one, it creates a negative incentive for the regulatory roles. Now people will seek to be head of the SEC just so they can score a specific job after. Incentives are misaligned.

Lots of private sector companies (especially law firms) include non-compete clauses for similar reasons. They want to prevent their former employees from leveraging their insider information against them.

An IRS employee becoming a tax advisor is one thing. The head (and more broadly executive level personnel) of the IRS becoming the head of accounting of a major firm is another.

>For one, it creates a negative incentive for the regulatory roles. Now people will seek to be head of the SEC just so they can score a specific job after. Incentives are misaligned.

I just don't see the misalignment in incentives. Everyone is thinking about their compensation next job, and it is only a problem if being bad at your current job somehow makes you more attractive to your next employer.

Unlike the private sector, there shouldn't be any insider information to protect. The SEC should be transparent about the law.

Think of it this way as well, Robinhood's chief regulatory officer quits and gets hired as head of the SEC. Works as head of the SEC for a few years. Their tenure at the SEC ends and they jump right back to Robinhood.

I have 0 doubt in my mind, anyone in that position wouldn't already be predisposed to believe that actions (regulations, enforcement etc) that help Robinhood (and other trading platforms) are a good thing and will work for those corporate interests because they share the same beliefs by default.

Then, once they leave the SEC, they're welcomed back with massive pay as a thank you for the job they did pushing Robinhood's agenda forward which is at odds with good governance principles.

Its like making the head of Exon the head of the govt's renewable energy initiatives. They're gonna say increasing renewable energy output isn't a worthwhile pursuit, what we really need is more oil. Let's sign a big contract over with exon, I even know the people who work there and can make it happen!

Working against society's interests in favor of the corporations

The problem with this view is that SEC chairman is selected by the president, so their values and positions all baked into their appointment. If the president's office wants someone with a more or less favorable position on to trading platforms, they find one. If they don't comport with the government's expectations, they are replaced. Same with the Exon example.

I work in a highly regulated industry and think that the cop and robber idea people have is out of tune with reality witch is more collaborative. Most agencies want businesses to succeed and actively work to help them do so within the confines of the law.

As far as I know, non competes for lawyers are almost universally non enforceable, and some states have determined that lawyers can't even sign such an agreement as it violates legal code of ethics.

Because its a massive conflict of interest.

Its the same reason you wouldn't let a Defence contractor CEO be secretary of defence, or why you shouldn't let a telecoms lobbyist run the FCC.

Oh wait...

So the Big Short was spot on when it showed the SEC lady using that position to leverage her way into a job in the sector she's supposed to regulate. It makes sense an SEC regulator knows all the ins and outs and would be the best person capable of finding and exploiting loopholes.

It also makes sense as a quid pro quo. But we can only speculate either way.

yeah basically every obama official now works in big tech.

but somehow people think only republicans are corrupt. the biggest companies are chock full of obama staffers.

I wonder if they will list themselves on their IPO access offering: https://robinhood.com/us/en/support/articles/ipo-access/

It's going to be interesting to buy Robinhood with Robinhood...

It’s interesting that they could be earning fees off their own underwriting. That would probably be an industry first.

Intercontinental Exchange is a publicly traded company. And they own and operate NYSE.

Yes, I know. I’m specifically talking about underwriting where the company raising funds typically pays a portion of the proceeds. This would be the first instance where the underwritee is earning fees off this process.

This is different to having ICE shares trading on NYSE.

Looks like it:

"RHF, one of our broker-dealer subsidiaries, is a member of the selling group for this offering. We expect the underwriters to reserve approximately 20 to 35% of the shares of our Class A common stock offered by this prospectus for RHF, acting as a selling group member, to allocate for sale to Robinhood customers through our IPO Access feature on our platform. Any such sales will be made at the same initial public offering price, and at the same time, as any other purchases in this offering, including purchases by institutions and other large investors, and in accordance with customary broker-dealer practices and procedures."

Interesting, is that allowed in the US? In Germany, you can't buy Lang&Schwarz shares via the Lang&Schwarz trading platform (akin to an exchange) - doesn't matter what broker you are using. You always have to use Xetra or some other exchange.

Robinhood's "values":

Safety First, Participation Is Power, Radical Customer Focus, and First-Principals Thinking

There's a real dissonance in the combination of Safety First and Participation Is Power points.

Where do we draw the line between providing the ability to participate and safety?

Many of the tools Robinhood has "democratized" for the masses are in fact quite financially dangerous to unsophisticated users. They've game-ified complex financial instruments; that doesn't exactly speak to safety.

Would it be "dissonant" if a skydiving company advertised one of its values as prioritizing safety?

This is incredible on many fronts and I congratulate them.

But I do need to reiterate my stance on this: they are a gambling company.

The proof is in their own words in the S1: we are a safety first company. What Fintech firm says that?

Nonetheless I'm sure they will continue to expand their product line away from gamification of day trading and into gamification of investing... A much better business.

What does safety first even mean in that context?

Do they mean safety of the company and/or end user?

By danger, are they referencing the danger of losing all your money due to gambling it away? Or maybe avoiding suicides by making sure they always report correct balances?

It would be poetic if the Robinhood IPO marks the local top of this bull market :-)

Highly unlikely.

Coinbase IPO did it for Bitcoin.

I think it will be shortly after independence day. Bad for nation building to have a correction right before the holiday.

$1 billion in top line revenue in 2020. Wow.

So much for that media narrative of rh being hurt by bad press about gamestop. Rh is still hugely popular

Well, said bad press was in 2021 so any effects have yet to be seen.

Will it be the PR or that people were actively trading while lockdown was on? Anecdotally, I know several people who were active on RH until they went back to work

You should see their 2021 numbers. They are growing faster.

My guess is all the media attention actually got them more signups

Certainly puts that $70M SEC fine in perspective - that's not a trivial amount.

Stocks only go up

~70% was transactions and ~20% was interest. For comparison about 60% of Etrade's revenue is interest and 30% is fees + commissions.

Either Robinhood has found a smarter business model re: selling order flow or they are making a killing on crypto fees. The commission business model is dead for good I think.

https://www.nasdaq.com/articles/net-interest-revenue-will-fo...

>or they are making a killing on crypto fees.

They don't charge commissions to trade crypto. Not sure where they're skimming the money but the terrible order fills you get there gives me an idea.

Front-running?

No need. It's just like those "commission free" currency exchange places you see at airports and tourist areas. There might not be a commission, but the spread is several percent, and they make all their profit off that.

A rose by any other name...

There are no regulations on execution quality for crypto. RH treats crypto as forex and quotes their customers a huge markup on the bid/ask spread (think airport forex booth type spreads). RH customers can only trade with RH and their crappy spreads. RH won't match customer crypto orders against each other.

In the S-1 they write: "For the three months ended March 31, 2021, 17% of our total revenue was derived from transaction-based revenues earned from cryptocurrency transactions, compared to 4% for the three months year ended December 31, 2020."

So they do charge something on crypto transactions?

Commission model is going nowhere. Ask anyone who trades for a living. They pay handsomely for direct market access.

Pretty sure they're counting any crypto bought as revenue, which seems highly misleading.

Are they counting any stock purchased as revenue too? I don't understand the justification for that accounting at all. The profit on any transaction for them is 0 dollars, unless they're skimming on spreads or frontrunning or something else scammy.

Square does this as well, which is how they got "200%" revenue growth.

Correct me if I'm wrong.

you are absolutely wrong. honestly the s-1 is not that hard to read. here is it page 131.

Key Components of our Results of Operations

Revenues

Transaction-based revenues

Transaction-based revenues consist of amount earned from routing customer orders for options, equities and cryptocurrencies to market makers. When customers place orders for equities, options or cryptocurrencies on our platform, we route these orders to market makers and we receive consideration from those brokers. With respect to equities and options trading, such fees are known as PFOF. With respect to cryptocurrency trading, we receive “Transaction Rebates.” In the case of equities, the fees we receive are typically based on the size of the publicly quoted bid-ask spread for the security being traded; that is, we receive a fixed percentage of the difference between the publicly quoted bid and ask at the time the trade is executed. For options, our fee is on a per contract basis based on the underlying security. In the case of cryptocurrencies, our rebate is a fixed percentage of the notional order value. Within each asset class, whether equities, options or cryptocurrencies, the transaction-based revenue we earn is calculated in an identical manner among all participating market makers. We route equity and option orders in priority to participating market makers that we believe are most likely to give our customers the best execution, based on historical performance, and we do not consider transaction fees when routing orders. For cryptocurrency orders, we route to various market makers that we believe offer competitive pricing, and we do not consider Transaction Rebates when routing cryptocurrency orders.

Net interest revenues Net interest revenues consist of interest revenues less interest expenses. We earn interest revenues and incur interest expenses on securities lending transactions. We also earn interest revenues on margin loans to users, as well as on our segregated cash, cash and cash equivalents, and deposits with clearing organizations. We also incur interest expenses in connection with our revolving credit facilities.

Other revenues Other revenues primarily consist of Robinhood Gold, a monthly paid subscription service that provides users with premium features such as enhanced instant deposits, professional research, Nasdaq Level II market data and, upon approval, access to margin investing. Other revenues also include proxy rebate revenues and miscellaneous fees charged to users.

Ok, so only Square does that then.

The share count and price are redacted, though likely to be somewhere in the $30 billion range. Regardless, that helps put the $70 million fine from yesterday [1] in context.

It was the largest fine in FINRA history, but will it have been worth it? The $65 million fine in December suggests they weren't sufficiently deterred to change.

[1] https://news.ycombinator.com/item?id=27690543

$81B in assets under management vs. Fidelity with $10T? At some point, your revenue is capped at a fraction of a percent of assets under management.

If you have high enough turnover in your account sky is the limit.

>The $65 million fine in December suggests they weren't sufficiently deterred to change

People keep saying this, but the FINRA fine was for actions that took place before the 2020 SEC fine, and the SEC fine was for actions in 2015-18.

It's not like they have a time machine.

Looks like the founders already sold $220M worth of stock:

> 2019 Tender Offer

> In August 2019, we entered into a letter agreement with certain holders of our capital stock, pursuant to which we agreed to waive certain transfer restrictions in connection with, and assist in the administration of, a tender offer that such holders proposed to commence. From August 2019 through September 2019, these holders commenced a tender offer to purchase shares of our capital stock from certain of our employee stockholders, including our Co-Founder and CEO, Vladimir Tenev, and Co-Founder and Chief Creative Officer and then-co-CEO Baiju Bhatt. An aggregate of 5.4 million shares of our capital stock were tendered pursuant to the tender offer for an aggregate purchase price of $67.6 million, or $12.4827 per share.

> 2018 Secondary Sales

> On April 3, 2018, our Co-Founder and CEO, Vladimir Tenev, our Co-Founder and Chief Creative Officer and then-co-CEO, Baiju Bhatt, our then-Chief Operating Officer, Nathan Rodland, and one other employee, each individually entered into common stock purchase agreements with certain other holders of our capital stock, including entities affiliated with DST Global, pursuant to which they sold shares of our common stock to the purchasing stockholders at a purchase price of $10.145 per share. In total, Mr. Bhatt sold 5,421,389 shares of common stock for an aggregate purchase price of $55.0 million; Mr. Rodland sold 295,712 shares of common stock for an aggregate purchase price of $3.0 million; and Mr. Tenev sold 5,421,389 shares of common stock for an aggregate purchase price of $55.0 million. As part of these sales, each of Mr. Bhatt and Mr. Tenev sold 739,280 shares of our common stock to entities affiliated with DST Global.

What a joke. Founders got rich beyond imagination dumping all the risk on employees.

“dumping all the risk”

except it’s ipoing for far higher price than they got. so the employees are going to make far more per share than they did.

I am too lazy to go dig up the links, but there were many, many people on HN who declared Robinhood completely dead after they temporarily prevented users from transacting GME… they said they would either go bankrupt or users would just completely stop using them, and they were absolutely and comically convinced of that. HN should stick to programming opinions :-)

You didn’t live thru 1999-2001 then. Just cuz a company has an IPO doesn’t mean they have a viable business.

They went from 170MM in revenue in 2019 to 720MM in revenue in 2020. Wow will that be a temporary spike or sustained?

Temporary; meme stocks and meme cryptocoins can not last forever.

Sure but something else will come and replace them. Selling shovels is always a smart business move.

They count crypto sold as revenue. So that number is very misleading

3 months ending 2021, they have already made ~500mn. This is sustained rocket ship

Ok let's see. Average funds per user in custody is 4500$. Organic or referred new customers 80percent is an incredibly misleading number. I know that in this industry lead generation, rev share or signup deals are very lucrative/expensive, only crypto exchanges and online casinos pay out more. If they are holding 4500 on average and and we assume 2 percent commission fees, then that will be 90 use life time value on average, let's not even calculate the acquisition costs, might well be that 80percent come from referrals. That will be 1.6 annual revenue before marketing cost, salaries, referrals, rent etc. Maybe they sell some customer data but what would a good stock price estimate be here? How many shares will be issued?

"For the three months ended March 31, 2021, 17% of our total revenue was derived from transaction-based revenues earned from cryptocurrency transactions, compared to 4% for the three months year ended December 31, 2020."

That's some pretty crazy growth! Granted, that was a unique time in crypto. But I'm sure history will repeat. Will be interesting to see how RH's crypto strategy develops based on this. Crypto essentially brings the payment for order flow in-house and makes RH the market maker for doge, BTC, etc. So maybe RH will just start to look more like Coinbase!

I imagine a large portion of the internet newly flushed with GME/AMC/WISH cash are lining up to short this in to the ground.

I'll personably be buying everything i can get my hands on three months after launch

Would be hilarious if they ended up on the other end of a short squeeze.

That's exactly what i'm aiming for, i'll chuck a few grand in the opposite direction just for a laugh.

Alright, wsb has been waiting for this. Time to short (or buy puts) on Robinhood through Robinhood.

Though Robinhood advanced 0 commission trading (though I think it was inevitable), it's a terrible platform.

RobinHood users should consider M1 Finance. It’s a better way to invest by allocating pies instead of making trades.

However there are no options and they don’t offer OTC or anything low liquidity.

I always wonder how many hours goes into creating & reviewing this big ass document

also how careful you have to be to get this right

Wow, I should become a Chief Legal Officer..

in other news this : https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood...

its crazy how the CFO and CLO total compensation were 18m and 30m respectively.

They should have waited longer. They just pissed off the internet.

Yours. In size.

Robbin’ Da Hood. The GameStop fiasco was unforgivable.

i have $22k in Robinhood as "play money" to trade and learn. i lost $400 on AMD calls. WSB said the first time is free but i didn't win at the Casino. after my first failed calls, i just buy and sell stock. i bought 600ish HP stocks when it was low and sell it too soon when HP stock went up.

overall, Robinhood have the best UI compare to tdameritrade and it isn't too bad if you just do normal trade and not options.

one thing that Robinhood did that disrupt the retail trade is their no fee. tdameritrade used to charge $7 to buy/sell stock.

buy buy buy. Bullish! Opinion:

* RH will drag the industry to T+0 settlement, thus breaking wall street shenanigans with 100%+ short selling. Inevitable to see the merging of on-chain settlement with traditional stonks.

* RH has the largest amount of Dogecoin AUM globally (8.7B $USD equiv)

* RH has a lot of bitcoin, ether and other coins AUM.

* RH will eventually be the biggest broker in the US (world)?

* RH encourages dollar cost averaging and investing over time.

* RH has lots of first time investors (18-24), who over time will grow to be big investors

> “ lots of first time investors (18-24), who over time will grow to be big investors”

Or will be burned by the next prolonged downturn and exit the market permanently.

Absolutely. Sofi is the smart play there vs RH. Getting HNW folks onboard with student loan and HCOL property mortgages, and then cross selling them deposit accounts and investing access. “Young Money” Fidelity or Schwab.

(not investing advice)

Getting young people to get into debt is a very different thing than getting them to build assets. RH gives (small) margin loans from trading, not (large) student loans for marginally useful university courses.

"There is a famous story, we don’t know if it’s true, about how in the late summer of 1929, a shoe-shine boy gave Joe Kennedy stock tips, and Kennedy, being a wise old investor, thought, “If shoe shine boys are giving stock tips, then it’s time to get out of the market."

Seems like I'm getting a lot of advice about the market from people with less knowledge about the market than shoe shine boys. My mom and my sister are invested in Dogecoin and neither can explain what a cryptocurrency is or even what the doge meme was to begin with. Seems like the next prolonged downturn is right around the corner.

Well, it was a shoe shine boy on wall street. So, especially back tue day, he should have been quite well informed!

Yes, this apocryphal story sucks. Why wouldn't a shoe shine boy (or an uber driver -- for contemporary equivalence) not have insight from the many conversations he would have with informed people during their day?

The casual throw away statement about business made during transit from a passenger might be important info.

This story is just elitism, and exactly the argument Wall Street used against RH. "unsophisticated traders". Sorry Mr Banker, the market is made up of people. Claiming unsophistication is a projection of their own insecurities.

There are two aspects to the story. One, the shoe shine boy probably heard a lot of stuff. Two, he definitely had no business in trading stock. And two is the important one, once "dumb money" shows up in droves it is maybe time to get out.

If that shoe shine boy (or uber driver) was alive in the mid to late 2010s, they would probably do trading business with RH. And that is why I am bullish on RH.

Because 2 reasons: 1. Insight is great, but I would hope that there is underlying understanding of the field based on actual study and experience(assuming the shoe shiner is not in finance). 2. The shoe shiner or Uber driver likely has no idea who they are talking to, past the initial impression. I would be open to a conversation about finance with an Uber driver, but I would probably not rush home to put money on it.

A few months ago I was at a car dealership filing out paperwork on a new car. The sales guy asked me what I did for work. I told him I was in finance. He immediately perked up and asked "Are you into crypto? We all trade it here."

Turns out the whole dealership, or at least most of the employees, traded crypto as a hobby. I asked a few questions, mainly about Proof of Work, and the salesman had no idea what that was. He was completely ignorant of how crypto worked.

The most common feature of assets bubbles is that they draw in people who would normally never engage in risky financial speculation. People early to the party get rich and that draws in everyone else. Its hard to stay out of the market when your neighbor has short-term gains larger than your salary.

In the tulip bubble, everyone was a botanist. In the tech bubble, everyone was an equity trader. In the housing bubble, everyone was flipping houses or getting their real estate license. Now everyone is a crypto trader. Regardless of how useful crypto will be in the future, there is only one way this party ends. Pumping trillions of dollars into the economy can delay the pain, but the pain seems inevitable at this point.

Yeah. Hard to make predictions, but this sort of breathless enthusiasm seems worrisome.

Optimism > Enthusiasm > Exhilaration > Euphoria

Hard to know exactly where we are right now, but certainly feels closer to the latter.

Does this remind anyone else of the high APR (20-30%) credit cards offered to college students? I remember a table set up outside the main dining hall where they pitched getting started building that credit history ASAP. Now it's about building that portfolio ASAP and offering it to the most risk-tolerant age demographic. Subtly updated buying whatever you want on credit and worrying about whether you could afford it later, to buying into whatever risky position you want and worrying about covering it later.

No? Because high APR cards are a trap to leech money from the young -- eg debt. Investing in growth assets like stonks is building assets. Very very different things!

If you’d bought a portfolio of the 2000 class of stonks, most of those equities would now be worthless or acquired for pennies along the way.

There were very few Amazons in the mix, and very many Palms. Even a reliable blue-chip like Cisco is still underwater compared to its March 2000 price.

These people have no other option but to buy stonks and crypto. Their dollars lose value every year, and even a market downturn will look attractive vs fiat inflation. Bull market for the next 100 years!

the WSB crowd despises RH now

The biggest broker in the world?

I use both Robinhood and Schwab, and the Robinhood app is absolutely terrible.

The visual aesthetic is nice, but usability is awful... I don't really understand the hype. For example they have no dedicated orders screen to cancel limit order that I can tell. There's an "inbox" where your limit order will show up after some delay. I placed an order once and decided to cancel it, but the inbox message didn't show up for 5 minutes, so I had no way to cancel it.

Also you can't see older than 5? years on stock charts. Or zoom or anything, only specific presets.

Finally, I bought a small amount of crypto, and did a market order sell once, and my fill price was like 10% under current market value. Obviously market orders are bad, but most brokers have safeguards that prevent executing them at such a difference from last traded price.

Anyway, bad experience all around. I imagine the only people who use it seriously are those that haven't tried more serious brokers, or that don't know any better.

The idea behind Robinhood is good, but it could be done so much better. So many obviously bad design elements

Totally agree, I have multiple brokerage accounts and RH is the least feature rich. RH was my first, but I understood its limitations early. It did also allow free trades which was unbelievable at the time. It is the easiest to use and most approachable broker for new people, young people. The UI is kinda genius, really, for what it is.

Most people will stop at RH, the idea of a complex brokerage account is beyond their comfort zone. They will not see the need to look elsewhere, as it has everything they believe they need in one app.

These things are not about you or I, they are about the acceptability by the masses. And the masses love RH. You cannot dismiss the huge effect they had on the industry with their business model, and they have lots more things planned.

Definitely the concept is great! However it can be done so much better.

I only used the app for a few weeks and encountered so many problems. I'm even surprised people tout their UI as a pro. The visual flair/theme is nice, but it's quite poor from a UX perspective.

Sidenote, I don't get why brokers don't offer a monthly payment to avoid having your order flow sold/provide better fills. Lots would take up on that

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