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> so your naiive "how people spend their money has no consequences" attitude Who said it has no consequences? People make bad decisions with money their all th

by lend000 10y ago

> so your naiive "how people spend their money has no consequences" attitude Who said it has no consequences? People make bad decisions with money their all the time. In fact, many of the working class get their fix in real casinos, where there's no real chance of winning, even if you know what you're doing. But the parent argument is going in the direction of "people shouldn't have the freedom to use this type of product." Instead of allowing normal people (some of whom know what they are doing) to freely engage in leveraged -- or just free -- trading, would you rather people with small portfolios get their already modest earning potential chewed away by large trading fees that make short term investing impractical? The difference is that I don't think we should be protecting people from themselves.

AndrewKemendo 10y ago
But the parent argument is going in the direction of "people shouldn't have the freedom to use this type of product." No, my comment was in the direction of: "It's bad if your core business is getting unsophisticated people making trades (bets) with credit." It's the same reason we all know it's a bad idea to give someone a 400k mortgage on an ARM when we don't know if they can pay it back or not. Great way to find yourself in a recession.
- lend000 10y ago
  > It's bad if your core business is getting unsophisticated people making trades (bets) with credit I would agree, if there were evidence to support that primarily unsophisticated people are buying premium. However, I doubt this is the case (I'm sure someone will put together numbers on this eventually). I'm a competent trader who avoids leverage, simply because I don't want to pay for a membership (it's not just a loan; you need a gold membership, too, which is an added barrier to entry).
  - AndrewKemendo 10y ago
    Which is exactly my point. Based on what the stated publicly, it's in Robinhood's interest as a company to push everyone into Margin deals. Their core stated benefit of using Robinhood over other brokers is opening trading up to everyone, through ease and low carry to make it easy. Ipso Facto that means their goal will be pushing new unsophisticated traders into leveraged deals. That is 100% implicit in this whole thing. I'm not arguing that there is evidence that "primarily unsophisticated people are buying premium." I'm arguing that this is their plan going forward and it could be really really harmful to markets if they get to the scale they want to. Best case, Robinhood can cover every margin call themselves, in which case they are effectively doing what Uber does which is unsustainably subsidizing investing on credit. Worst case, they can't cover margin calls and neither can their users and they roll up. I'm just waiting for them to allow leveraged shorts...
- deleted 10y ago
  [deleted]
jbooth 10y ago
If you gave me a choice between running $1k through a blackjack table, or backing $1k of an unsecured loan for margin trading by a random Robinhood user, I might go for the blackjack.
- ThrustVectoring 10y ago
  The loan is secured by the assets purchased, it's not unsecured.
  - jbooth 10y ago
    They're offering 2x margin, if I read the article correctly. So it's at best 1/3 secured, and probably a lot less than that if you need to make a margin call and try to collect. The gigantic risk to Robin Hood isn't that they'll have problems collecting occasionally. They can make up for that by fiddling with their fees to come ahead in the average case. It's that some big market move busts everyone at once and they go bankrupt overnight.
    - wfunction 10y ago
      Question: if they do go bankrupt then you still own your stocks, right? Do customers lose anything?
      - omarchowdhury 10y ago
        Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash).
        wfunction 10y ago
        Thanks!
      - sobani 10y ago

by lend000 10y ago

AndrewKemendo 10y ago

But the parent argument is going in the direction of "people shouldn't have the freedom to use this type of product." No, my comment was in the direction of: "It's bad if your core business is getting unsophisticated people making trades (bets) with credit." It's the same reason we all know it's a bad idea to give someone a 400k mortgage on an ARM when we don't know if they can pay it back or not. Great way to find yourself in a recession.

lend000 10y ago
> It's bad if your core business is getting unsophisticated people making trades (bets) with credit I would agree, if there were evidence to support that primarily unsophisticated people are buying premium. However, I doubt this is the case (I'm sure someone will put together numbers on this eventually). I'm a competent trader who avoids leverage, simply because I don't want to pay for a membership (it's not just a loan; you need a gold membership, too, which is an added barrier to entry).
- AndrewKemendo 10y ago
  Which is exactly my point. Based on what the stated publicly, it's in Robinhood's interest as a company to push everyone into Margin deals. Their core stated benefit of using Robinhood over other brokers is opening trading up to everyone, through ease and low carry to make it easy. Ipso Facto that means their goal will be pushing new unsophisticated traders into leveraged deals. That is 100% implicit in this whole thing. I'm not arguing that there is evidence that "primarily unsophisticated people are buying premium." I'm arguing that this is their plan going forward and it could be really really harmful to markets if they get to the scale they want to. Best case, Robinhood can cover every margin call themselves, in which case they are effectively doing what Uber does which is unsustainably subsidizing investing on credit. Worst case, they can't cover margin calls and neither can their users and they roll up. I'm just waiting for them to allow leveraged shorts...
deleted 10y ago
[deleted]

jbooth 10y ago

If you gave me a choice between running $1k through a blackjack table, or backing $1k of an unsecured loan for margin trading by a random Robinhood user, I might go for the blackjack.

ThrustVectoring 10y ago
The loan is secured by the assets purchased, it's not unsecured.
- jbooth 10y ago
  They're offering 2x margin, if I read the article correctly. So it's at best 1/3 secured, and probably a lot less than that if you need to make a margin call and try to collect. The gigantic risk to Robin Hood isn't that they'll have problems collecting occasionally. They can make up for that by fiddling with their fees to come ahead in the average case. It's that some big market move busts everyone at once and they go bankrupt overnight.
  - wfunction 10y ago
    Question: if they do go bankrupt then you still own your stocks, right? Do customers lose anything?
    - omarchowdhury 10y ago
      Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash).
      - wfunction 10y ago
        Thanks!
    - sobani 10y ago