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Unless I misunderstood him, he's not complaining that people can make their own decisions with their money, aka that anyone can use this service even if they're
by nolok 10y ago
Unless I misunderstood him, he's not complaining that people can make their own decisions with their money, aka that anyone can use this service even if they're not well versed in that field, he's complaining that Robinhood entire business model is based on pushing the very users who don't know how to use it in a sane way, to do it anyway. That will be the company's lifeline, as its way to make money.
I can see the benefit in making it easier for people to get access to things that are often hidden behind layer of complexity and "need an in", but I can also see the perversity of building a business where your money making system is "put debt on people who don't quite know what they're getting into". The point is not that they allow it, it's that they have a direct incentive to make it happen as much as possible.
- dnautics 10y ago100% agree that depending on people going into margin for monetization is a poor alignment of incentives. The humorous thing to me, is that being aligned with forcing people into leverage is an apt description of the economy at large.
- rtx 10y agoMost lifestyle business have similar revenue models. We shouldn't just object against one company.
- icedchai 10y agoLifestyle businesses, by definition, turn a profit. I doubt the same can be said for Robinhood.
- Steeeve 10y agoThe difference being that margin investing by novice investors has already led to the worst economic collapse in history.
- tanderson92 10y agoMany home buyers are novice investors. There was more to it than novice investors blowing up the real estate market due to misunderstanding margin.
- GenWintergreen 10y agoBelieve it or not, buying a very expensive home with poor understanding of the market and finance mostly through debt can be seen as analogous to un-collateralized leveraged investing....
- SEJeff 10y agoHowever, they still sell their client order flow to the bank that pays them the most to execute their trades. This isn't illegal and was a HUGE point of Michael Lewis's hack-n-slash book on electronic trading "Flash Boys". If my Robinhood trades of 100 lots or more execute at a few pennies higher than the price when I place the order, I think that is entirely fine. Why? Because it costs 5-10 to trade from Etrade or most other normal brokerage accounts. From what I've seen thusfar (I've got maybe 20k invested with RH), all of the trades have executed at the price I expected them to, or 1 cent higher on very volatile stocks (TSLA in specific). I'm still paying massively less than if I used a traditional broker and RH is making a bit of money by selling my order flow. Win/win really.
- nayefc 10y agoYou think Etrade doesn't sell order flow?
- SEJeff 10y agoThey do, and they still charge you fees to trade, unlike Robinhood!
- minimax 10y agoIf my Robinhood trades of 100 lots of more execute at a few pennies higher than the price when I place the order They're not really allowed to do that and I don't think they are doing that. Robinhood (or whatever wholesaler they route your order too) is required to execute your order within the nbbo. They can't just e.g. fill your buy orders a few cents above the national best offer because they want to make some extra money. The regulations don't work that way...
- SEJeff 10y agoI'm familar with NBBO, my previous employer (Virtu Financial) and current employer (another large electronic trading firm) are very well known HFT firms but I'm in tech, not the trading side. That doesn't mean the NBBO doesn't change before your order can fully execute? Is it fair to assume you've never heard of RBC's Thor[1] and aren't super familar with maker-taker rebates and the scandal behind them? The NBBO and the proliferation of trading exchanges is in fact what allows this to be possible legally. Like many regulations, it became a tool to perform the types of things it was designed to prevent. This article[2] has an interesting take on the NBBO wrt the SIP that is used. Many firms can calculate their own information faster than the NBBO updates. Note that this isn't the kind of trading (speed only) that my current employer does at all, which is why I sleep well at night. [1] https://en.wikipedia.org/wiki/THOR_(trading_platform) https://en.wikipedia.org/wiki/THOR_(trading_platform) [2] http://www.nanex.net/aqck2/HowSlowIsTheNBBO_%20A_Comparison_with_DirectExchangeFeeds.html http://www.nanex.net/aqck2/HowSlowIsTheNBBO_%20A_Comparison_...