14 ms·

Robinhood stock trading app valued at $1.3B with big raise from DST

141 points by taylorbuley 10y ago

SwellJoe 10y ago
That's cool and all, but I trade so rarely that $10 a month would cost me more than my current brokerage (TD Ameritrade). If you re-balance anually, and only hold a handful of different stocks, it's easy to keep trading costs below $120/year. But, I guess one of the reasons I never tinkered with algorithmic trading was the cost per-transaction. So, maybe it's a good thing this didn't exist when I first read about algorithmic trading, as I might have actually tried it.
- thrill 10y ago
  The $10 per month is only if you need some additional ability beyond basic trading. If you can live with three day clearing time (i.e. trading in a cash account) then the trades are free.
- rdschouw 10y ago
  It's free actually. The $10 / month subscription is for their Gold service which gives limited credit and removes the 3 day wait for transactions to settle.
kevinmannix 10y ago
I laughed at the article's url slug playing on the company's name - now-whos-the-rich. I haven't used Robinhood, but welcome new fintech companies who lower the barrier of entry toward financial health for the average consumer. Good for them, and I hope they use this money well.
- Boxbot 10y ago
  I have my doubts that playing with the stock market is in any way conducive to "financial health" for the average consumer.
  - astrange 10y ago
    Traditionally (or when I started looking), a single stock trade was $6 so you'd have to be moving 4 digits at a time to avoid losing everything to fees. But Robinhood's free. You can do $6 of trades in a year, still learn about stocks and not necessarily lose anything. Very hard to complain about that. I think a little literacy is needed, since if you're lucky enough to have savings buying CMF+VXF is a much better deal than keeping it in a bank account.
    - dharma1 10y ago
      Depends on what stage of the cycle you buy in at and what stage of the cycle you sell. Right now equities are priced very highly
      - walshemj 10y ago
        Especially the USA its looking quite expensive atm an index fund targeting the USA might not be the best bet right now
    - matwood 10y ago
      > But Robinhood's free. Most of the traditional brokers also offer commission free ETFs like VTI and VOO. I would argue it is much better for new investors to be buying VTI over thinking about getting rich buying penny stocks.
  - jmathai 10y ago
    You can use Robinhood to purchase index funds. I know many of the Vanguard funds including VOO are on there.
  - md2be 10y ago
    I'm not sure what you mean by "playing" the market but there has been no better creator of wealth for the working professional than owning, (yes that what you are doing when you "play") the total stock maket index. conpanies
- greenyoda 10y ago
  "who lower the barrier of entry toward financial health for the average consumer..." The barrier is already pretty low: - Max out your 401-K (and collect your company match, if any). - Invest in low-cost index funds from Vanguard. - Pay off your credit card debt, if any (since you probably won't make 20+% a year on your other investments). - Don't buy lots of stuff you don't need. On average, you'll get much better results this way than by trading stocks.
  - mtbcoder 10y ago
    Is it low though? You read all the time that your average American barely has any money set aside for retirement or that they often need to leverage credit cards for emergencies. Even those that can put money aside, how feasible is it for them to max out a 401K? The barrier to entry into the stock market is incredibly high when you've only got at best $25 at the end of the month in your pocket.
    - greenyoda 10y ago
      1. People who are using Robinhood for trading stocks are probably people with stable jobs and disposable income, not people who are struggling to get by. If you have enough extra money to trade stocks, you probably have enough to max out your 401-K. 2. If you only have $25 left at the end of the month, you shouldn't be investing in stocks at all. You should be putting your $25 in a savings account for emergency expenses.
    - lotsofpulp 10y ago
      Exactly, I would even say the situation is so bleak for some Americans (and even people all around the world) that they might as well enjoy themselves in the short term, especially when they're young, while they can, as opposed to risking it on the uncertain future. Edit: Also, as the tax base gets smaller, I can see some of the tax advantaged accounts people have money in become not so tax advantaged. The money to replay all this debt (including infrastructure, environmental, and policy debt) has to come from somewhere, and I'd bet it's both from inflation and savings. Or someone hits the reset button with a revolution or war.
    - 10y ago
hienyimba 10y ago
I don't know if I might be a little less smarter than average but could someone please enlighten. e on why RobinHood is valued at such an amount? What special purpose do they solve that C.S wouldn't copy as a feature or own in the nearest future?
- whitepoplar 10y ago
  1) Robinhood Gold is margin lending i.e. lending money to customers who want leverage. The monthly fee is effectively the loan's interest rate, rebranded in less shady terms. 2) They have very valuable order flow, which they sell. Almost all of Robinhood's customers are unsophisticated investors. Trading firms pay a lot of money for unsophisticated trading flow as there's room to "skim off the top". 3) Add in the typical "successful VC-backed startup" premium.
  - mcguire 10y ago
    "...less shady terms"? I'd say more shady. If you use less than the margin amount that they allow you, that fee looked at as an interest rate can be rather usurious.
    - whitepoplar 10y ago
      Sorry, what I mean to say is that it's very shady, but they try to mask it in innocuous terms.
- clock_tower 10y ago
  I understand that their advantage is the $0 trading commission. From what I've heard, they have a minimal feature set in order to support commissionless trading, and most of their funding comes from 'float' (interest on unspent money in their members' accounts) -- although, from other comments here, it sounds like this might be changing. Schwab can't copy $0 commissions without removing their reporting tools; I expect the companies will be comfortably able to coexist.
- sebleon 10y ago
  It's the millennial user base that none of the older brokerages have been able to capture. If Robinhood holds most brokerage accounts of people born after 1980, CS will pay billions to acquire these accounts. While these accounts are small today, the idea is that total AUM will increase significantly as this user base matures and earns more $$$
whitepoplar 10y ago
I think what Robinhood is doing with Gold accounts is pretty shady. I'm guessing that the vast majority of people who trade on margin don't fully comprehend the risks in doing so.
- benbowdene 10y ago
  I agree. Especially when most of their user base is probably millennials who are < 2 years into trading. A bit scary.
  - whitepoplar 10y ago
    It's so bad. If you offered the same people a loan at x% annual interest rate, I bet far fewer of them would bite, but that's exactly what the Gold monthly fee is.
    - charlesdm 10y ago
      At $10/mo (=$120 year), assuming a 1.5% interest rate, you're actually saving money on interest expenses if you invest more than $10k on margin for > 1 year. Doesn't sounds that bad to me?
      - marcell 10y ago
        It's $10/mo to borrow up to $2k. The cost to borrow more goes up.
        webaholic 10y ago
        It's 100$ pm to borrow 24K$. It is not bad overall.
        mcguire 10y ago
        At least 6% and 5%? Not bad. If you use all of it. Still, I'm predicting margin calls in someone's future.
masonhensley 10y ago
FYI - you will not have a good time buying and selling stocks onesie-twosie when it comes time to filling out your tax return. If you want to avoid commissions, Schwab & Fidelity have commission free ETF's - just buy and hold.
- sushid 10y ago
  True, but only if you don't use Turbo Tax. My first year after graduating (and dabbling in stocks/ETFs) I had a painful time filling it out manually on H&R Block. Last year, Robinhood's integration made it so easy that I was both simultaneously pissed that I'm pretty much locked into Turbo Tax and amazed that it's so nice with all its integrations (e.g. also works on Lending Club, Wealthfront, etc).
  - prostoalex 10y ago
    Did H&R Block software not support your specific brokerage? Pulling in consolidated 1099s from major brokerage houses seems to be a relatively well-solved problem in tax prep world.
    - Jach 10y ago
      I had an inherited Edward Jones account and brought my many paged paper copy to a local H&R block, it baffled the employee for a bit but he eventually figured it out and did a lot of manual things. Used Turbotax this year and it slurped my Vanguard data without issue. They also support EJ so I bet if I still had that it would be much more straightforward.
    - sushid 10y ago
      A bit late, but no. I don't recall if I had Interactive Brokers at the time, but it didn't support Wealthfront or Robinhood.
- deleted 10y ago
  [deleted]
  - 10y ago
nodesocket 10y ago
I use Robinhood in tandem with my traditional online brokerage and love it. The Robinhood iOS interface is really excellent, though they provide way less technical tools and analysis than my traditional online brokerage. However this is to be expected since Robinhood is targeting non-pro/power users. Trade execution time and preference has actually been solid on Robinhood, though untested in a highly volatile situation where liquidity could be an issue for non-institutions and professionals. Shameless plug (I've posted it before), but here is a blog post I wrote on leveraging capital using Robinhood Gold (margin) for those who are interested: https://justink.svbtle.com/leveraging-capital-using-robinhood-gold https://justink.svbtle.com/leveraging-capital-using-robinhoo...
- state_less 10y ago
  Well if a humdrum ~%25 correction wipes out half your capital. Then you'll be hoping for a massive 50% run in the market to get back to where you started. I'd want to get paid more than 9.74 - 6 = 3.74 percent to ride that rollercoaster.
- jzwinck 10y ago
  I read your post and am left with two questions. 1. Robinhood Gold interest is 6%. Interactive Brokers is 2.4% [1]. Why do you think there is such a massive difference, and would anyone benefit from paying it? 2. Your analysis works on ten years of data from 2007 to 2017. Did you know that is a very positive period and that shifting it by a few years would completely change the analysis? [2] I'm not surprised you stopped using it. I am surprised you would encourage us to use it. [1] https://www.interactivebrokers.com/en/index.php?f=interest&p=schedule2 https://www.interactivebrokers.com/en/index.php?f=interest&p... [2] http://www.1stock1.com/1stock1_2312.htm http://www.1stock1.com/1stock1_2312.htm
  - RickS 10y ago
    > 1. Robinhood Gold interest is 6%. Interactive Brokers is 2.4% [1]. Why do you think there is such a massive difference, and would anyone benefit from paying it? I've used IB (and don't use robinhood). The IB GUI is a fucking trainwreck. If design had ethical obligations the way bridge engineering does, IB's designers would be in prison. It is bad. And it's still one of the better trading interfaces. Ever seen a bloomberg terminal? That jump from 2.4 to 6% is effectively a "regular people can make sense of this without wanting to kill themselves" markup. No different from the markup any other SaaS company puts on "run this 10 line script periodically". One can sell convenience.
ryankennedyio 10y ago
Does Robinhood sell retail order flow on? I've read conflicting views both ways, but can't really see how they'd make any money if they didn't. I think the way it's being promoted is a bit dangerous though. It seems like they're promoting to the exact market that really, really shouldn't be flipping stocks (and promoting use of margin to do so). Interactive brokers is what, a few bucks a trade anyway? Something aimed at a similar market that I like a lot more is 'acorns'. It just rounds up any transaction you make to some number, and invests the difference in one of a few ETFs. I think it promotes a much healthier view of investing for the average young joe/jill.
- Veratyr 10y ago
  > Interactive brokers is what, a few bucks a trade anyway? IB Commission is $0.005 per share, with a minimum of $1 total. The problem with IB for regular folks is a bunch of monthly fees if you don't have enough activity each month. https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks1 https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...
  - ryankennedyio 10y ago
    True, I forgot about the extra monthly fees -- though you can just use free, 20 minute delayed data. I also forgot that the US is so cheap -- I pay $6 each way with IB on the ASX.
    - Veratyr 10y ago
      Is there a particular reason you trade the ASX? It isn't too hard to get a US brokerage account in Australia.
      - ryankennedyio 10y ago
        Smallcap market here is fun (read: it's pretty stupid). Otherwise, I'm just more used to reading Australian news, more local people on twitter, etc. It's just more in my 'sphere', and I know a lot more about the local companies than I do about the U.S. counterparts. I have an IB account, but even setting that up to trade properly requires owning a company. I did wake up early and trade the US options market a little while ago & that was pretty great. Might play with some algorithmic stuff I have that works on the ASX, but on the US, just need a load more data.
potatote 10y ago
I tried opening an account on Robinhood. But they wouldn't approve my application because I am a citizen of Myanmar (Burma) and the country was under economic sanctions. But those sanctions were cleared a bit over a year ago and when I reached out to Robinhood support again (with the proof detailing there is no more sanctions), they ignored my contact. So I decided to stick to Vanguard and TD for index fund buying and stock trading respectively (both of which accept Myanmar citizens as account holders). I think Robinhood's support team is fairly small and they don't have the capability to support a bit more unusual cases like mine.
gshakir 10y ago
If you are interested in fractional shares investing, check out loyal3 https://www.loyal3.com https://www.loyal3.com and stockpile https://www.stockpile.com https://www.stockpile.com
deleted 10y ago
[deleted]
throwayedidqo 10y ago
Robinhood's Gold tier, which is a different name for buying on margin, has potentially dire implications for the health of the economy.... The great depression was largely the result of massive numbers of everyman speculators entering the markets with reckless amounts of leverage. Robinhood vastly lowers the barrier for gambling with money you don't own. There's a reason you can't buy lottery tickets with credit cards.
- lend000 10y ago
  > The great depression was largely the result of massive numbers of everyman speculators entering the markets with reckless amounts of leverage. The Great Depression is a lot more complicated than Black Thursday... (inflationary monetary policy during most of the roaring 20's, contractionary policy during the market crash causing bank runs).
- asddddd 10y ago
  They offer 2x margin with the normal rules against pattern day trading with <25k balances, which is pretty mediocre. There are much better options for high-risk (reckless) trading, like 500x Forex accounts, "binary options", and lots of other nonsense enabled by offshore jurisdictions. For an easy example of how reckless/risky these alternatives are, look at FXCM/Alpari/etc after the 2015 EURCHF action.
  - throwayedidqo 10y ago
    Holy shit you weren't kidding. A search for 500x forex brings up all sorts of day traders doing this stuff. Scary.
  - rl3 10y ago
    How do sketchy offshore shops collect on negative cash balances? 500:1 leverage sounds so crazy I wouldn't be surprised if it's used as a money laundering vector.
    - nicholas73 10y ago
      They don't, or shouldn't have to. Brokers that offer generous margins do something typical brokers do not - they auto-liquidate when you fall below minimum maintenance margin. Most retail brokers would give you a friendly phone call and let you liquidate the next day or so. Next, forex markets are so heavily traded they have a virtual guaranteed stop. That is, if you set the order you will get it filled no worse than that price. The only way a broker gets hit is a sudden currency drop, like the Swiss franc did a few years back.
altern8tif 10y ago
Aren't there opportunities for arbitrage given the zero transactional costs on Robinhood? I haven't thought it through that much, but it feels like a lot of sound trading strategies (which were previously impractical due to high transactional costs) can be made to work on Robinhood. *Maybe arbitrage is the wrong term, but zero cost of trading would mean more efficient trading strategies. No?
- rl3 10y ago
  That's my line of thinking as well. Not arbitrage, but perhaps trading at a frequency not profitable on other retail platforms (and obviously a couple orders of magnitude slower than HFT). Some things you could perhaps do on Robinhood that aren't feasible with other retail brokers include: a) Tiny, tiny position sizes, even on small accounts. 1% position sizing? What about 0.1%? b) Not incurring a transaction fee if your system decides to immediately exit a position after entering it due to adverse movement in the time it took to fill the order. Potential concerns might be: 1. Order execution speed. Sending orders to retail brokers via the internet can only be so fast, but it'd be interesting to benchmark Robinhood vs IB for example. 2. Order execution capability. There's no public API, just Quantopian integration. My other post in this thread touches on that. 3. Order execution quality. RH sells order flow. How much this matters is probably beyond my knowledge. I'm inclined to think that it wouldn't matter too much, and is more likely to adversely affect competing HFT firms who are in competition against the order flow buyer(s) than it would people trading at even the upper bounds of retail frequencies. 4. How many trades is too many? Will Robinhood shut you off at some point? Another post suggested RH is paid a fixed amount per share in their order flow dealings, so if that's the case then maybe Robinhood wouldn't care. Certainly as soon as they have a public API there's going to be people making a lot of trades, barring any artificial limitations. Of course, if your margin account balance is below $25,000 you'll be subject to pattern day trading restrictions and unable to execute such a system since Robinhood is purely stocks. I loathe PDT rules to the core of my being and believe they actually increase risk for short-term traders, but that's a rant best saved for another time.
  - vostok 10y ago
    > Order execution quality. RH sells order flow. How much this matters is probably beyond my knowledge. I'm inclined to think that it wouldn't matter too much, and is more likely to adversely affect competing HFT firms who are in competition against the order flow buyer(s) than it would people trading at even the upper bounds of retail frequencies. This problem is that if all of the uninformed flow is internalized then I have to quote wider on the lit exchanges because all of my fills are going to come from informed traders. This is bad for the market as a whole.
rl3 10y ago
I'm a Robinhood user and am definitely liking the experience thus far. A few things that could be better: a) The only manual order entry method is via the mobile client. There's situations where rapid order entry could definitely be a lot less painful, e.g. limit orders on high-volatility stocks. I've read that some people run multiple instances of the RH client, with one instance running on a desktop system using an android emulator. Not exactly ideal, though supposedly there's an actual web/desktop client in the works. I'd gladly make my own if there was a public API. b) Robinhood Gold is nice—its simplified presentation is very elegant. However, if they're going to aggressively market relabeled margin accounts to often-clueless retail traders, they need to explain things better. Preferably an entire page with visual explanations and examples of what can happen in different scenarios; stupid-simple stuff that's unambiguous. I can see a lot of people not fully understanding the FAQ on their site, and just thinking "Oh, more buying power!". The current explanations are decent, but it could be a lot better given their target audience. c) No public API. It's a planned feature that hasn't arrived yet. While Quantopian[0] integration is nice—and definitely better than nothing—it isn't for everyone. I've seen unofficial APIs that send HTTP requests to their private API based off of sniffed traffic from the mobile client (no thanks). d) No short selling. There's no way to hedge your downside risk or otherwise trade a beta-neutral system on Robinhood currently without using another broker. If the market tanks, most RH users will get wrecked. Especially if it happens fast and they sit there fumbling with order entry. Overall I love Robinhood, I just wish they'd roll out essential features faster, or at least provide better estimates than "the near future". - As an aside, if there's any algo traders here that use Robinhood and Quantopian together, I'd love to hear your experiences. From what I've seen, Quantopian doesn't seem to be suitable for trading at a frequency below minute bars, so I figured it might be possible to use Quantopian as an order conduit for an external system—allowing that external system to in effect place orders on Robinhood as a stop-gap until Robinhood has a public API. It's a side project and I'm not a Quantopian user, so I haven't yet evaluated the technical feasibility of such a setup. Obviously I could just move to IB, but I really appreciate Robinhood's engineering ethos. While I'm sure IB's APIs are solid (and they're far more fully-featured), their platform does have a lot of legacy cruft[1] that gives me pause. [0] https://www.quantopian.com/ https://www.quantopian.com/ [1] https://news.ycombinator.com/item?id=14009778 https://news.ycombinator.com/item?id=14009778
dharma1 10y ago
Any UK/EU equivalent of Robinhood (free trading, ISA support)?
- bartread 10y ago
  I was wondering the same thing. It's a shame Robinhood appears to be US only or I'd have signed up for it off the back of this discussion.
- samsonradu 10y ago
  I'm also looking for something like that. I have used Plus500 for a few months and didn't really enjoy it. I cannot lower the leverage (or that's what support says) and the overnight fees were eating up my profits.
- sah2ed 10y ago
  There's an Indian equivalent called Zerodha [0]. They also offer an API they call Kite Connect [1]. [0] https://zerodha.com/ https://zerodha.com/ [1] https://kite.trade/ https://kite.trade/
- walshemj 10y ago
  Most Investment trusts have low cost saving schemes which is a good way to start investing which is how I did it £50 p month in 3 big IT's
- user5994461 10y ago
  Barclays, Lloyds and probably HSBC. They have trading accounts with ISA. It's not free but the fees for mutual funds, ETFs and most products are fairly reasonable. However if you intend to do daily trading, I suggest you reconsider before you loose a lot of money. It's not that the fees are higher than the gains (they are), it's that it's very risky and good way to lose a lot of money.
- benashford 10y ago
  There's a few in the works, but none live yet that I know of. Also, since they're not yet live I can't vouch for them, but here's an example: https://freetrade.io/ https://freetrade.io/
adambratt 10y ago
Robinhood is just a marketing play. Anything about them selling flow or using margin offerings to become profitable is not realistic. Traditional brokerages have a customer acquisition cost of around $400 to get someone to deposit at least $100 in an account. They've got a million users and continue to grow quicker and quicker. For a small multiple of traditional CAC they are already close to their >$1B valuation just in terms of user acquisition. It's not easy to get funded brokerage accounts, especially funded accounts by millennials. Their current user base might not be worth much, but the average age of a brokerage account in the US is over 20 years. That means that Robinhood's AUM is only going to grow as their user base gets older and has more money. Frankly, the current brokerage houses have been dumping hundreds of millions into marketing to try to acquire millennial users without a ton of success. TD Ameritrade alone spent $300 million last year in ads, a lot of that targeted at the millennial market. Robinhood is a user acquisition strategy for the millennial market and they'll get bought for $2-3 billion within a couple years by one of the existing brokerage houses.
- dublidu 10y ago
  Robinhood's average account size is much smaller than the traditional brokerages, so they're not making much (if any) per client. I don't know if waiting for your clients to get rich is a viable strategy these days because these clients might jump to better options in the future.
  - adambratt 10y ago
    They don't need to wait for the clients to get rich. Fidelity or Schwabb will buy them and then start to upsell the Robinhood users into other financial programs.
- sebleon 10y ago
  Very interesting breakdown, makes a lot of sense... thanks for sharing!
- arcticfox 10y ago
  What do they do to make money once they have their users on board?
deleted 10y ago
[deleted]
SirLJ 10y ago
Here are my 2cents: Robinhood is irrelevant and border line dangerous. Irrelevant, because for someone who knows what they are doing in the stock market paying $10 or $0 per trade is not going to save them any money. Dangerous, because it promotes more trades for the “unsophisticated” investor and encourages leverage = very dangerous situation. Bottom line, if you do not know what you are doing, don’t do it, buy and hold is not a strategy and sooner or later will leave you very disappointed, especially if you are leveraged on top of that. Just ask the investors in the Japan asset price bubble when they’ll see the top again – looks like never in their life time... To be able to invest successfully you need to spend the time and educate yourself like in any other profession or hobby and the first step is to go to eBay and search for historical stock market data, you can buy 20 years of data for less than $100 and you can test all your ideas for free and without losing a single penny... Good luck!
- yequalsx 10y ago
  Your 4th paragraph contains a rather bold claim. You give one counter example to buy and hold strategy being good. I imagine no one really thinks buy and hold means to never sell under any circumstance. It seems to me to be more of a philosophy that buying/selling on emotion can be dangerous. The second to last paragraph seems to me to be quite dangerous. I'd wager it is quite likely a person would see a pattern that really isn't there.
  - SirLJ 10y ago
    As in anything in life you need to have a strategy, even if you invest only in SPY ETF you still have to have a plan when to buy and when to sell. One interesting idea to start is to look into different trend following strategies. Get the data and back test different scenarios and see what is going to work for you according to your risk management, what draw downs you can tolerate, etc...
    - matt_wulfeck 10y ago
      Buy and hold indefinitely is a completely valid strategy, and outperforms almost all active investment strategies in the long term.
SomewhatLikely 10y ago
This has been done before, perhaps most successfully by Zecco, who eventually had to initiate a commission, and then were bought by Tradeking. Zecco started in 2006. http://www.internetnews.com/ec-news/article.php/3635496/Zeccocom+To+Offer+Free+Stock+Trading.htm http://www.internetnews.com/ec-news/article.php/3635496/Zecc... I vaguely recall an even earlier broker doing the same, I forget their name, but it had something to do with a cactus, or a cafe in the name.
anjc 10y ago
ITT: people who've increased their wealth through ownership of shares telling other people not to increase their wealth through ownership of shares.
deepGem 10y ago
Robinhood could technically use the zero $ commission gambit to get people on board a Systematic investment plan for buying individual stocks. Since you are buying small amounts of stock every month, zero or very low commission is a huge draw. This ploy might reduce their customer acquisition costs as well.

141 points by taylorbuley 10y ago

That's cool and all, but I trade so rarely that $10 a month would cost me more than my current brokerage (TD Ameritrade). If you re-balance anually, and only hold a handful of different stocks, it's easy to keep trading costs below $120/year. But, I guess one of the reasons I never tinkered with algorithmic trading was the cost per-transaction. So, maybe it's a good thing this didn't exist when I first read about algorithmic trading, as I might have actually tried it.

thrill 10y ago
The $10 per month is only if you need some additional ability beyond basic trading. If you can live with three day clearing time (i.e. trading in a cash account) then the trades are free.
rdschouw 10y ago
It's free actually. The $10 / month subscription is for their Gold service which gives limited credit and removes the 3 day wait for transactions to settle.

kevinmannix 10y ago

I laughed at the article's url slug playing on the company's name - now-whos-the-rich. I haven't used Robinhood, but welcome new fintech companies who lower the barrier of entry toward financial health for the average consumer. Good for them, and I hope they use this money well.

Boxbot 10y ago
I have my doubts that playing with the stock market is in any way conducive to "financial health" for the average consumer.
- astrange 10y ago
  Traditionally (or when I started looking), a single stock trade was $6 so you'd have to be moving 4 digits at a time to avoid losing everything to fees. But Robinhood's free. You can do $6 of trades in a year, still learn about stocks and not necessarily lose anything. Very hard to complain about that. I think a little literacy is needed, since if you're lucky enough to have savings buying CMF+VXF is a much better deal than keeping it in a bank account.
  - dharma1 10y ago
    Depends on what stage of the cycle you buy in at and what stage of the cycle you sell. Right now equities are priced very highly
    - walshemj 10y ago
      Especially the USA its looking quite expensive atm an index fund targeting the USA might not be the best bet right now
  - matwood 10y ago
    > But Robinhood's free. Most of the traditional brokers also offer commission free ETFs like VTI and VOO. I would argue it is much better for new investors to be buying VTI over thinking about getting rich buying penny stocks.
- jmathai 10y ago
  You can use Robinhood to purchase index funds. I know many of the Vanguard funds including VOO are on there.
- md2be 10y ago
  I'm not sure what you mean by "playing" the market but there has been no better creator of wealth for the working professional than owning, (yes that what you are doing when you "play") the total stock maket index. conpanies
greenyoda 10y ago
"who lower the barrier of entry toward financial health for the average consumer..." The barrier is already pretty low: - Max out your 401-K (and collect your company match, if any). - Invest in low-cost index funds from Vanguard. - Pay off your credit card debt, if any (since you probably won't make 20+% a year on your other investments). - Don't buy lots of stuff you don't need. On average, you'll get much better results this way than by trading stocks.
- mtbcoder 10y ago
  Is it low though? You read all the time that your average American barely has any money set aside for retirement or that they often need to leverage credit cards for emergencies. Even those that can put money aside, how feasible is it for them to max out a 401K? The barrier to entry into the stock market is incredibly high when you've only got at best $25 at the end of the month in your pocket.
  - greenyoda 10y ago
    1. People who are using Robinhood for trading stocks are probably people with stable jobs and disposable income, not people who are struggling to get by. If you have enough extra money to trade stocks, you probably have enough to max out your 401-K. 2. If you only have $25 left at the end of the month, you shouldn't be investing in stocks at all. You should be putting your $25 in a savings account for emergency expenses.
  - lotsofpulp 10y ago
    Exactly, I would even say the situation is so bleak for some Americans (and even people all around the world) that they might as well enjoy themselves in the short term, especially when they're young, while they can, as opposed to risking it on the uncertain future. Edit: Also, as the tax base gets smaller, I can see some of the tax advantaged accounts people have money in become not so tax advantaged. The money to replay all this debt (including infrastructure, environmental, and policy debt) has to come from somewhere, and I'd bet it's both from inflation and savings. Or someone hits the reset button with a revolution or war.
  - 10y ago

hienyimba 10y ago

I don't know if I might be a little less smarter than average but could someone please enlighten. e on why RobinHood is valued at such an amount? What special purpose do they solve that C.S wouldn't copy as a feature or own in the nearest future?

whitepoplar 10y ago
1) Robinhood Gold is margin lending i.e. lending money to customers who want leverage. The monthly fee is effectively the loan's interest rate, rebranded in less shady terms. 2) They have very valuable order flow, which they sell. Almost all of Robinhood's customers are unsophisticated investors. Trading firms pay a lot of money for unsophisticated trading flow as there's room to "skim off the top". 3) Add in the typical "successful VC-backed startup" premium.
- mcguire 10y ago
  "...less shady terms"? I'd say more shady. If you use less than the margin amount that they allow you, that fee looked at as an interest rate can be rather usurious.
  - whitepoplar 10y ago
    Sorry, what I mean to say is that it's very shady, but they try to mask it in innocuous terms.
clock_tower 10y ago
I understand that their advantage is the $0 trading commission. From what I've heard, they have a minimal feature set in order to support commissionless trading, and most of their funding comes from 'float' (interest on unspent money in their members' accounts) -- although, from other comments here, it sounds like this might be changing. Schwab can't copy $0 commissions without removing their reporting tools; I expect the companies will be comfortably able to coexist.
sebleon 10y ago
It's the millennial user base that none of the older brokerages have been able to capture. If Robinhood holds most brokerage accounts of people born after 1980, CS will pay billions to acquire these accounts. While these accounts are small today, the idea is that total AUM will increase significantly as this user base matures and earns more $$$

whitepoplar 10y ago

I think what Robinhood is doing with Gold accounts is pretty shady. I'm guessing that the vast majority of people who trade on margin don't fully comprehend the risks in doing so.

benbowdene 10y ago
I agree. Especially when most of their user base is probably millennials who are < 2 years into trading. A bit scary.
- whitepoplar 10y ago
  It's so bad. If you offered the same people a loan at x% annual interest rate, I bet far fewer of them would bite, but that's exactly what the Gold monthly fee is.
  - charlesdm 10y ago
    At $10/mo (=$120 year), assuming a 1.5% interest rate, you're actually saving money on interest expenses if you invest more than $10k on margin for > 1 year. Doesn't sounds that bad to me?
    - marcell 10y ago
      It's $10/mo to borrow up to $2k. The cost to borrow more goes up.
      - webaholic 10y ago
        It's 100$ pm to borrow 24K$. It is not bad overall.
        mcguire 10y ago
        At least 6% and 5%? Not bad. If you use all of it. Still, I'm predicting margin calls in someone's future.

masonhensley 10y ago

FYI - you will not have a good time buying and selling stocks onesie-twosie when it comes time to filling out your tax return. If you want to avoid commissions, Schwab & Fidelity have commission free ETF's - just buy and hold.

sushid 10y ago
True, but only if you don't use Turbo Tax. My first year after graduating (and dabbling in stocks/ETFs) I had a painful time filling it out manually on H&R Block. Last year, Robinhood's integration made it so easy that I was both simultaneously pissed that I'm pretty much locked into Turbo Tax and amazed that it's so nice with all its integrations (e.g. also works on Lending Club, Wealthfront, etc).
- prostoalex 10y ago
  Did H&R Block software not support your specific brokerage? Pulling in consolidated 1099s from major brokerage houses seems to be a relatively well-solved problem in tax prep world.
  - Jach 10y ago
    I had an inherited Edward Jones account and brought my many paged paper copy to a local H&R block, it baffled the employee for a bit but he eventually figured it out and did a lot of manual things. Used Turbotax this year and it slurped my Vanguard data without issue. They also support EJ so I bet if I still had that it would be much more straightforward.
  - sushid 10y ago
    A bit late, but no. I don't recall if I had Interactive Brokers at the time, but it didn't support Wealthfront or Robinhood.
deleted 10y ago
[deleted]
- 10y ago

nodesocket 10y ago

I use Robinhood in tandem with my traditional online brokerage and love it. The Robinhood iOS interface is really excellent, though they provide way less technical tools and analysis than my traditional online brokerage. However this is to be expected since Robinhood is targeting non-pro/power users. Trade execution time and preference has actually been solid on Robinhood, though untested in a highly volatile situation where liquidity could be an issue for non-institutions and professionals. Shameless plug (I've posted it before), but here is a blog post I wrote on leveraging capital using Robinhood Gold (margin) for those who are interested: https://justink.svbtle.com/leveraging-capital-using-robinhood-gold https://justink.svbtle.com/leveraging-capital-using-robinhoo...

state_less 10y ago
Well if a humdrum ~%25 correction wipes out half your capital. Then you'll be hoping for a massive 50% run in the market to get back to where you started. I'd want to get paid more than 9.74 - 6 = 3.74 percent to ride that rollercoaster.
jzwinck 10y ago
I read your post and am left with two questions. 1. Robinhood Gold interest is 6%. Interactive Brokers is 2.4% [1]. Why do you think there is such a massive difference, and would anyone benefit from paying it? 2. Your analysis works on ten years of data from 2007 to 2017. Did you know that is a very positive period and that shifting it by a few years would completely change the analysis? [2] I'm not surprised you stopped using it. I am surprised you would encourage us to use it. [1] https://www.interactivebrokers.com/en/index.php?f=interest&p=schedule2 https://www.interactivebrokers.com/en/index.php?f=interest&p... [2] http://www.1stock1.com/1stock1_2312.htm http://www.1stock1.com/1stock1_2312.htm
- RickS 10y ago
  > 1. Robinhood Gold interest is 6%. Interactive Brokers is 2.4% [1]. Why do you think there is such a massive difference, and would anyone benefit from paying it? I've used IB (and don't use robinhood). The IB GUI is a fucking trainwreck. If design had ethical obligations the way bridge engineering does, IB's designers would be in prison. It is bad. And it's still one of the better trading interfaces. Ever seen a bloomberg terminal? That jump from 2.4 to 6% is effectively a "regular people can make sense of this without wanting to kill themselves" markup. No different from the markup any other SaaS company puts on "run this 10 line script periodically". One can sell convenience.

ryankennedyio 10y ago

Does Robinhood sell retail order flow on? I've read conflicting views both ways, but can't really see how they'd make any money if they didn't. I think the way it's being promoted is a bit dangerous though. It seems like they're promoting to the exact market that really, really shouldn't be flipping stocks (and promoting use of margin to do so). Interactive brokers is what, a few bucks a trade anyway? Something aimed at a similar market that I like a lot more is 'acorns'. It just rounds up any transaction you make to some number, and invests the difference in one of a few ETFs. I think it promotes a much healthier view of investing for the average young joe/jill.

Veratyr 10y ago
> Interactive brokers is what, a few bucks a trade anyway? IB Commission is $0.005 per share, with a minimum of $1 total. The problem with IB for regular folks is a bunch of monthly fees if you don't have enough activity each month. https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks1 https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...
- ryankennedyio 10y ago
  True, I forgot about the extra monthly fees -- though you can just use free, 20 minute delayed data. I also forgot that the US is so cheap -- I pay $6 each way with IB on the ASX.
  - Veratyr 10y ago
    Is there a particular reason you trade the ASX? It isn't too hard to get a US brokerage account in Australia.
    - ryankennedyio 10y ago
      Smallcap market here is fun (read: it's pretty stupid). Otherwise, I'm just more used to reading Australian news, more local people on twitter, etc. It's just more in my 'sphere', and I know a lot more about the local companies than I do about the U.S. counterparts. I have an IB account, but even setting that up to trade properly requires owning a company. I did wake up early and trade the US options market a little while ago & that was pretty great. Might play with some algorithmic stuff I have that works on the ASX, but on the US, just need a load more data.

potatote 10y ago

I tried opening an account on Robinhood. But they wouldn't approve my application because I am a citizen of Myanmar (Burma) and the country was under economic sanctions. But those sanctions were cleared a bit over a year ago and when I reached out to Robinhood support again (with the proof detailing there is no more sanctions), they ignored my contact. So I decided to stick to Vanguard and TD for index fund buying and stock trading respectively (both of which accept Myanmar citizens as account holders). I think Robinhood's support team is fairly small and they don't have the capability to support a bit more unusual cases like mine.

gshakir 10y ago

If you are interested in fractional shares investing, check out loyal3 https://www.loyal3.com https://www.loyal3.com and stockpile https://www.stockpile.com https://www.stockpile.com

deleted 10y ago

[deleted]

throwayedidqo 10y ago

Robinhood's Gold tier, which is a different name for buying on margin, has potentially dire implications for the health of the economy.... The great depression was largely the result of massive numbers of everyman speculators entering the markets with reckless amounts of leverage. Robinhood vastly lowers the barrier for gambling with money you don't own. There's a reason you can't buy lottery tickets with credit cards.

lend000 10y ago
> The great depression was largely the result of massive numbers of everyman speculators entering the markets with reckless amounts of leverage. The Great Depression is a lot more complicated than Black Thursday... (inflationary monetary policy during most of the roaring 20's, contractionary policy during the market crash causing bank runs).
asddddd 10y ago
They offer 2x margin with the normal rules against pattern day trading with <25k balances, which is pretty mediocre. There are much better options for high-risk (reckless) trading, like 500x Forex accounts, "binary options", and lots of other nonsense enabled by offshore jurisdictions. For an easy example of how reckless/risky these alternatives are, look at FXCM/Alpari/etc after the 2015 EURCHF action.
- throwayedidqo 10y ago
  Holy shit you weren't kidding. A search for 500x forex brings up all sorts of day traders doing this stuff. Scary.
- rl3 10y ago
  How do sketchy offshore shops collect on negative cash balances? 500:1 leverage sounds so crazy I wouldn't be surprised if it's used as a money laundering vector.
  - nicholas73 10y ago
    They don't, or shouldn't have to. Brokers that offer generous margins do something typical brokers do not - they auto-liquidate when you fall below minimum maintenance margin. Most retail brokers would give you a friendly phone call and let you liquidate the next day or so. Next, forex markets are so heavily traded they have a virtual guaranteed stop. That is, if you set the order you will get it filled no worse than that price. The only way a broker gets hit is a sudden currency drop, like the Swiss franc did a few years back.

altern8tif 10y ago

Aren't there opportunities for arbitrage given the zero transactional costs on Robinhood? I haven't thought it through that much, but it feels like a lot of sound trading strategies (which were previously impractical due to high transactional costs) can be made to work on Robinhood. *Maybe arbitrage is the wrong term, but zero cost of trading would mean more efficient trading strategies. No?

rl3 10y ago
That's my line of thinking as well. Not arbitrage, but perhaps trading at a frequency not profitable on other retail platforms (and obviously a couple orders of magnitude slower than HFT). Some things you could perhaps do on Robinhood that aren't feasible with other retail brokers include: a) Tiny, tiny position sizes, even on small accounts. 1% position sizing? What about 0.1%? b) Not incurring a transaction fee if your system decides to immediately exit a position after entering it due to adverse movement in the time it took to fill the order. Potential concerns might be: 1. Order execution speed. Sending orders to retail brokers via the internet can only be so fast, but it'd be interesting to benchmark Robinhood vs IB for example. 2. Order execution capability. There's no public API, just Quantopian integration. My other post in this thread touches on that. 3. Order execution quality. RH sells order flow. How much this matters is probably beyond my knowledge. I'm inclined to think that it wouldn't matter too much, and is more likely to adversely affect competing HFT firms who are in competition against the order flow buyer(s) than it would people trading at even the upper bounds of retail frequencies. 4. How many trades is too many? Will Robinhood shut you off at some point? Another post suggested RH is paid a fixed amount per share in their order flow dealings, so if that's the case then maybe Robinhood wouldn't care. Certainly as soon as they have a public API there's going to be people making a lot of trades, barring any artificial limitations. Of course, if your margin account balance is below $25,000 you'll be subject to pattern day trading restrictions and unable to execute such a system since Robinhood is purely stocks. I loathe PDT rules to the core of my being and believe they actually increase risk for short-term traders, but that's a rant best saved for another time.
- vostok 10y ago
  > Order execution quality. RH sells order flow. How much this matters is probably beyond my knowledge. I'm inclined to think that it wouldn't matter too much, and is more likely to adversely affect competing HFT firms who are in competition against the order flow buyer(s) than it would people trading at even the upper bounds of retail frequencies. This problem is that if all of the uninformed flow is internalized then I have to quote wider on the lit exchanges because all of my fills are going to come from informed traders. This is bad for the market as a whole.

rl3 10y ago

I'm a Robinhood user and am definitely liking the experience thus far. A few things that could be better: a) The only manual order entry method is via the mobile client. There's situations where rapid order entry could definitely be a lot less painful, e.g. limit orders on high-volatility stocks. I've read that some people run multiple instances of the RH client, with one instance running on a desktop system using an android emulator. Not exactly ideal, though supposedly there's an actual web/desktop client in the works. I'd gladly make my own if there was a public API. b) Robinhood Gold is nice—its simplified presentation is very elegant. However, if they're going to aggressively market relabeled margin accounts to often-clueless retail traders, they need to explain things better. Preferably an entire page with visual explanations and examples of what can happen in different scenarios; stupid-simple stuff that's unambiguous. I can see a lot of people not fully understanding the FAQ on their site, and just thinking "Oh, more buying power!". The current explanations are decent, but it could be a lot better given their target audience. c) No public API. It's a planned feature that hasn't arrived yet. While Quantopian[0] integration is nice—and definitely better than nothing—it isn't for everyone. I've seen unofficial APIs that send HTTP requests to their private API based off of sniffed traffic from the mobile client (no thanks). d) No short selling. There's no way to hedge your downside risk or otherwise trade a beta-neutral system on Robinhood currently without using another broker. If the market tanks, most RH users will get wrecked. Especially if it happens fast and they sit there fumbling with order entry. Overall I love Robinhood, I just wish they'd roll out essential features faster, or at least provide better estimates than "the near future". - As an aside, if there's any algo traders here that use Robinhood and Quantopian together, I'd love to hear your experiences. From what I've seen, Quantopian doesn't seem to be suitable for trading at a frequency below minute bars, so I figured it might be possible to use Quantopian as an order conduit for an external system—allowing that external system to in effect place orders on Robinhood as a stop-gap until Robinhood has a public API. It's a side project and I'm not a Quantopian user, so I haven't yet evaluated the technical feasibility of such a setup. Obviously I could just move to IB, but I really appreciate Robinhood's engineering ethos. While I'm sure IB's APIs are solid (and they're far more fully-featured), their platform does have a lot of legacy cruft[1] that gives me pause. [0] https://www.quantopian.com/ https://www.quantopian.com/ [1] https://news.ycombinator.com/item?id=14009778 https://news.ycombinator.com/item?id=14009778

dharma1 10y ago

Any UK/EU equivalent of Robinhood (free trading, ISA support)?

bartread 10y ago
I was wondering the same thing. It's a shame Robinhood appears to be US only or I'd have signed up for it off the back of this discussion.
samsonradu 10y ago
I'm also looking for something like that. I have used Plus500 for a few months and didn't really enjoy it. I cannot lower the leverage (or that's what support says) and the overnight fees were eating up my profits.
sah2ed 10y ago
There's an Indian equivalent called Zerodha [0]. They also offer an API they call Kite Connect [1]. [0] https://zerodha.com/ https://zerodha.com/ [1] https://kite.trade/ https://kite.trade/
walshemj 10y ago
Most Investment trusts have low cost saving schemes which is a good way to start investing which is how I did it £50 p month in 3 big IT's
user5994461 10y ago
Barclays, Lloyds and probably HSBC. They have trading accounts with ISA. It's not free but the fees for mutual funds, ETFs and most products are fairly reasonable. However if you intend to do daily trading, I suggest you reconsider before you loose a lot of money. It's not that the fees are higher than the gains (they are), it's that it's very risky and good way to lose a lot of money.
benashford 10y ago
There's a few in the works, but none live yet that I know of. Also, since they're not yet live I can't vouch for them, but here's an example: https://freetrade.io/ https://freetrade.io/

adambratt 10y ago

Robinhood is just a marketing play. Anything about them selling flow or using margin offerings to become profitable is not realistic. Traditional brokerages have a customer acquisition cost of around $400 to get someone to deposit at least $100 in an account. They've got a million users and continue to grow quicker and quicker. For a small multiple of traditional CAC they are already close to their >$1B valuation just in terms of user acquisition. It's not easy to get funded brokerage accounts, especially funded accounts by millennials. Their current user base might not be worth much, but the average age of a brokerage account in the US is over 20 years. That means that Robinhood's AUM is only going to grow as their user base gets older and has more money. Frankly, the current brokerage houses have been dumping hundreds of millions into marketing to try to acquire millennial users without a ton of success. TD Ameritrade alone spent $300 million last year in ads, a lot of that targeted at the millennial market. Robinhood is a user acquisition strategy for the millennial market and they'll get bought for $2-3 billion within a couple years by one of the existing brokerage houses.

dublidu 10y ago
Robinhood's average account size is much smaller than the traditional brokerages, so they're not making much (if any) per client. I don't know if waiting for your clients to get rich is a viable strategy these days because these clients might jump to better options in the future.
- adambratt 10y ago
  They don't need to wait for the clients to get rich. Fidelity or Schwabb will buy them and then start to upsell the Robinhood users into other financial programs.
sebleon 10y ago
Very interesting breakdown, makes a lot of sense... thanks for sharing!
arcticfox 10y ago
What do they do to make money once they have their users on board?

deleted 10y ago

[deleted]

SirLJ 10y ago

Here are my 2cents: Robinhood is irrelevant and border line dangerous. Irrelevant, because for someone who knows what they are doing in the stock market paying $10 or $0 per trade is not going to save them any money. Dangerous, because it promotes more trades for the “unsophisticated” investor and encourages leverage = very dangerous situation. Bottom line, if you do not know what you are doing, don’t do it, buy and hold is not a strategy and sooner or later will leave you very disappointed, especially if you are leveraged on top of that. Just ask the investors in the Japan asset price bubble when they’ll see the top again – looks like never in their life time... To be able to invest successfully you need to spend the time and educate yourself like in any other profession or hobby and the first step is to go to eBay and search for historical stock market data, you can buy 20 years of data for less than $100 and you can test all your ideas for free and without losing a single penny... Good luck!

yequalsx 10y ago
Your 4th paragraph contains a rather bold claim. You give one counter example to buy and hold strategy being good. I imagine no one really thinks buy and hold means to never sell under any circumstance. It seems to me to be more of a philosophy that buying/selling on emotion can be dangerous. The second to last paragraph seems to me to be quite dangerous. I'd wager it is quite likely a person would see a pattern that really isn't there.
- SirLJ 10y ago
  As in anything in life you need to have a strategy, even if you invest only in SPY ETF you still have to have a plan when to buy and when to sell. One interesting idea to start is to look into different trend following strategies. Get the data and back test different scenarios and see what is going to work for you according to your risk management, what draw downs you can tolerate, etc...
  - matt_wulfeck 10y ago
    Buy and hold indefinitely is a completely valid strategy, and outperforms almost all active investment strategies in the long term.

SomewhatLikely 10y ago

This has been done before, perhaps most successfully by Zecco, who eventually had to initiate a commission, and then were bought by Tradeking. Zecco started in 2006. http://www.internetnews.com/ec-news/article.php/3635496/Zeccocom+To+Offer+Free+Stock+Trading.htm http://www.internetnews.com/ec-news/article.php/3635496/Zecc... I vaguely recall an even earlier broker doing the same, I forget their name, but it had something to do with a cactus, or a cafe in the name.

anjc 10y ago

ITT: people who've increased their wealth through ownership of shares telling other people not to increase their wealth through ownership of shares.

deepGem 10y ago

Robinhood could technically use the zero $ commission gambit to get people on board a Systematic investment plan for buying individual stocks. Since you are buying small amounts of stock every month, zero or very low commission is a huge draw. This ploy might reduce their customer acquisition costs as well.