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Robinhood Is Set to Raise at Least $200 Million in New Funding
- whalesalad 7y agoI know a few guys on the team there at Robinhood... don't forget your old bud whalesalad when you go public and become bazillionaires.
- seizethecheese 7y agoI’m puzzled why you thought this comment would be interesting for the general reader.
- nawtacawp 7y agoThe no commission model RH is providing is awesome and if they found a way to sustain that business model, great. The amount they have saved me (an avg trader with 25-50K) is well worth them selling my trade data to other firms. Sometimes their system is a bit glitchy. I'm sure as time goes by things will get tightened up. I mostly trade derivatives. If I open a 4 legged trade with 400 contracts that would cost me $300 in commissions on my old broker (TD Ameritrade) to open and an additional $300 to close it. Totally free with RH.
- cwkoss 7y agoBe sure to use limit orders! It feels like the execution price of their market orders can be looser than expected at times.
- yding 7y agoDoubly true if it's outside market hours. Unlike every other broker Robinhood doesn't (always) warn you when the markets are closed. I've had fills come in dollars off the last trade simply because the market order was placed before or after hours.
- remote_phone 7y agoMost places I’ve seen won’t allow you to place market orders after hours, only limit orders.
- astura 7y agoFidelity let's you do it, they just warn you.
- TaupeRanger 7y agoYes. It's amazing how many people don't know how to use limit orders, though entirely unsurprising since RH is a very beginner friendly platform.
- arcticbull 7y agoThey're selling your trades not your trade data. They sell the orders you place to HFT firms which arbitrage them and kick back a commission to Robinhood to fund their business. It kinda costs you, actually, you just don't see it. [1] With low trade volumes/order sizes you may end up ahead but I don't have data to back that up. [1] https://seekingalpha.com/article/4205379-robinhood-making-millions-selling-millennial-customers-high-frequency-traders https://seekingalpha.com/article/4205379-robinhood-making-mi...
- tylerhou 7y ago> It kinda costs you, actually, you just don't see it. Except not: see Matt Levine's explanation: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-icahn-wants-to-fight-dell-again https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i... The conclusion: > So by selling its customers’ orders to market makers, Robinhood is actually stealing from two sets of “the rich”: Rich market makers like Citadel are paying it directly for the orders, while rich hedge-fund managers are getting worse execution on public stock exchanges so that Robinhood customers can get better executions off those exchanges. Big institutions are paying to subsidize free trades for Robinhood’s customers. It feels pretty Robin-Hood-y! If I were Robinhood I would advertise that!
- manigandham 7y agoA market maker will never buy orders without making a profit. What they pay RH is nothing compared to what they make on the spreads.
- tptacek 7y agoThe profits MMs take here aren't zero sum between you and the MM, because there are other participants in the market. An MM can profitably quote a more generous spread to a retail trader, because retail order flow isn't going to wipe out their book and expose them to inventory risk. Essentially: you are cheaper to make a market for than a giant fund is, and you, Citadel, and Robinhood can split the savings.
- manigandham 7y agoNothing is ever free. Robinhood sells order flow, meaning your trades are executed by a real market maker but with slower fills, larger spreads and more restrictions on trades.
- tptacek 7y agoMost retail brokerages sell order flow to internalizers, so if you're paying fees to trade, you're probably not getting anything back for that money.
- manigandham 7y agoSure, there's only a few companies that control all the flow but paying fees usually results in smaller spreads and faster execution. It also seems to result in better software and support. Maybe not everyone needs it, RH is good if you just buy and hold, but I wouldn't say fees are for nothing.
- tptacek 7y agoI don't understand why you believe paying fees "usually" results in smaller spreads. Most of the brokerages you pay trading fees to are doing what Robinhood does, because retail order flow is made to be internalized, and firms like Citadel do a better job of it --- for customers --- than the firms that run the brokerages do; the job of a typical brokerage is to make a pretty web UI, keep some servers running, staff a bunch of brick-and-mortar locations, and answer the phones, and the job of actually executing trades is specialized in a different direction. More likely, the firm you're paying trading fees to is handing your order off to an internalizer, getting rebated for it, and pocketing both the rebate and the trade fee.
- manigandham 7y agoIt's from my experience and I've heard the same from many others. Maybe better spread is from better speed, and maybe the speed is a result of better software platform. The fees are also negotiable though, and responsive support is good to have and helped when I needed it. If it was that simple then I find it strange that these brokers don't offer free starter accounts to new users to compete against Robinhood. They must know something we don't about the real value of the company and how much competition they're adding.
- vessenes 7y agoThis was such a good investment by Mickey and the Ribbit team: in 2013 Mickey told me that the history of retail brokerages points to fee revenue going to zero. That the team went out and built a company for that reality is just stellar, and it’s fun to see insights like that turned into something real. Congratulations.
- yding 7y agoI'm still not completely convinced that a zero commission brokerage can be run profitably, although mad props to the team for executing. People often focus on the HFT payments for order flow, but another important leg of the stool (along with stock lending, and the premium tier/margin lending) is the interest rate differential. If rates were going to 5%, that'd be one thing, but with rates at 2-2.5 and a couple of cuts being priced in, that's going to decrease profits there. Also it's kind of hard to launch a 3% cash management account when the ten year is yielding 2.3%.
- cheriot 7y agowoohoo, leveraged derivative trading democratized! /s More seriously, I love the price pressure on brokerages, but I shudder to think what will happen to its users in the next recession.
- thepangolino 7y agoRecession would be alright. What would cause trouble would be a market crash.
- deleted 7y ago[deleted]
- TaupeRanger 7y agoMaybe nothing. The next recession might be over 5 years away. Who knows if RH will even exist then.
- rhegart 7y agoRevolutionary to young retail investors in getting them to save. Now someone do real estate lower commissions
- bobthepanda 7y agoIsn't that just Redfin?
- gowld 7y agoIt was, until Redfin realized their customers like them better because they don't like talking to a human agent, so they raised their prices to be almost the same price as everyone else.
- scrumbledober 7y agosounds like the perfect time for a new redfin to bring in some competition.
- V99 7y agoOn the sell-side, our family has used revinre.com for several recent houses and paid 0% to a "seller's" agent, plus a few hundred dollars for them to send someone out and take better pictures than you're going to. I think they're just in Phoenix but presumably others will pop up.
- throwaway5752 7y agoRedfin probably raised their rates because they're operating at negative cash flow on both levered and unlevered basis.
- RIMR 7y agoIt's marketed as "the way young people get rich", and it's got a heavy focus on cryptocurrency. I don't know if I would call it revolutionary so much as potentially exploitive.
- phil248 7y agoIn recently started using Robinhood as an alternative to Ally (formerly TradeKing). Ally provided very little extra value to me in exchange for their transaction fees. And as a buy-and-hold investor, I don't really need much more than limit orders anyway. What I do still need are better research tools, but my impression is that none of the consumer trading platforms provide anything very impressive on that front.
- geekone 7y agothinkorswim might be worth checking out for research/tools/charting/news. I believe it is free without a TD Ameritrade account if you do a "paper money" account. I think the only negative of that is the paper trading account is delayed a bit.
- nyrulez 7y agoI am trying to make a difference in the problem area you mention. Would something like https://CoinQuanta.com https://CoinQuanta.com (Alpha version) / https://StockQuanta.com https://StockQuanta.com (unreleased) be helpful towards your research needs? Very curious to know what you're thinking when you think of better research tools
- countryqt30 7y agoI'm just starting on Youtube for that exact matter! 99% of American's don't understand the stock market. So I made a video with McKinsey and UBS to explain it in 10 minutes: https://www.youtube.com/watch?v=G6EoPlaPO5c&t=20s https://www.youtube.com/watch?v=G6EoPlaPO5c&t=20s
- cheerlessbog 7y agoIf you're a buy and hold investor why does it matter if your occasional transaction costs $10?
- jldugger 7y agoCuz that's all that's left to optimize. If you've got a spare thousand to shift into brokerage, 10 bucks is a hefty 1 percent fee.
- Kyragem 7y agoThey sell your trading data to large high speed trading banks in real time, so stock price movements are much more volatile than when you trade through other platforms.
- manigandham 7y agoThey sell order flow itself, not data. The data is already public.
- atomical 7y agoSo HFT's can see my limit orders that haven't completed?
- toast0 7y agoIn theory, your non-marketable limit orders show up in the order book at whatever exchange they got routed to.
- patio11 7y agoIf you have an unfilled limit order which is resting on the book at a stock exchange, anyone with L2 data (available for single-digit dollars per month from InteractiveBrokers, among others) will be able to see it, though it won't be linked to you. This is how order books work. If you don't want counterparties to see the fact that you want to buy or sell stock, your options include a) not telling a stock exchange to advertise your willingness to buy or sell stock by putting in limit orders, b) using a dark pool, or c) become more sophisticated with respect to your execution strategy, such as e.g. using repeated Immediate-or-Cancel orders, etc.
- manigandham 7y agoYes, limit orders aren't local but sent to the exchanges like market orders except with an advertised price that they will accept. This is called Level II data and goes beyond the simple bid, ask spread of Level I. The feeds are cheap and usually free if you have enough money in your account at any traditional brokerage.
- algaeontoast 7y agoThe more users they have the easier it is to incentivize actual " accredited investors" to screw them in the market long term lmao. Unless of course they get users to sell more reflexively and schizophrenically...
- docker_up 7y agoThere is no way that Robinhood is worth this much money. I admire them, but $7 billion for 2 million customers is insane. I'm assuming they are targeting being the "Financial Amazon" for millenials, I'm just not convinced even if they achieved it it's worth this much. Stock trading is a dying business, and after the next stock market crash or recession, they will lose the majority of their customers. Moving into financial services might make sense, but I don't think these founders have the acumen to do this, as exhibited by their embarrassing attempt recently with their "checking and savings" account. What Uber's IPO has shown is that VC funding is far too overly delusional. They buy their own bullshit about how growth trumps all but investors want profits and you won't see the real reaction until it starts trading for real, like Uber and Lyft. Until then, all you see is VCs talking their book and lazy tech writers repeating everything they say without actually thinking about it. So, sure some investors were stupid enough to invest $200M at $7B valuation, but I doubt Robinhood will grow into such lofty valuations that are reflected by the markets unless something drastically changes. 2M customers simply isn't enough.
- harryh 7y agoCharles Schwab is currently worth ~57 Billion TD Ameritrade: ~29 Billion E-Trade: ~11.5 Billion Fidelity Investments is privately owned, so harder to value, but is probably worth 50-75 Billion
- benburleson 7y agoI think the target market is the problem; older people have the money, and they're not moving from the places they know and trust.
- omfgwhat 7y agoHow are the unit economics in favor of Robinhood? This has been tried before and failed. What's changed? https://qz.com/330015/robinhoods-free-stock-trading-app-and-its-long-odds-of-survival/ https://qz.com/330015/robinhoods-free-stock-trading-app-and-...
- docker_up 7y agoThey have very low cost of acquisition of customers. This is opposite to some brokerages like TDAmeritrade that recently pulled their marketing budgets because they saw literally no uptick from marketing spending. But that's not enough to justify their valuations.
- GoodJokes 7y agoCompany in the business of facilitating cyclical recessions and bubbles through speculation of future fictitious values valued at fictitious value. I hope it tanks.
- yding 7y agoRobinhood has more customers than ETrade https://www.investors.com/news/robinhood-app-has-more-customers-than-online-broker-etrade/ https://www.investors.com/news/robinhood-app-has-more-custom... and I bet it's growing much faster too, so no a 7 billion dollar market cap is not insane when ETrade has a market cap of 11 billion. The problem with Robinhood, like many startups, is an issue of profitability and monetization. They've been switching up Robinhood Gold to try to get more customers to sign up. I'm sure that's where a lot of their effort is being put as they approach "have to IPO" valuations. This low dollar amount round is also an indication that while they are still burning money, they may not be burning as much as they may have in the past. If I were to guess, turning on self clearing was a big part of that.
- docker_up 7y agoRead that more carefully. 4 Million accounts, not all are funded. How much are funded? We don't know because they didn't say. I have an unfunded Robinhood account for the stock quotes. E-trade is a public company so all its numbers are GAAP. Their account numbers are funded. So it's not an apples to apples comparison. Plus they are profitable, so the valuation numbers make Robinhood look even worse.
- prklmn 7y agoGAAP is so overrated. It's 2019. The goal is to acquire users, not to make money. Unprofitability is sexy. In all seriousness this might as well be 1998 and I just hope they go public before the next big market swing down so I can short it.
- dtwest 7y agoFrom your source: "However, a Robinhood spokesperson said not all 4 million accounts are funded. The brokerage did not disclose total assets under management, average account size or typical starting balance." They did not disclose the metrics that are important. You would need AUM information to effectively support your statement.
- yding 7y ago
- rb808 7y agoPity the guys at WSB can't buy calls on this. https://www.reddit.com/r/wallstreetbets/ https://www.reddit.com/r/wallstreetbets/
- deleted 7y ago[deleted]
- AJRF 7y agoThat's an insane evaluation for 2m customers, most of which are probably playing with small "if-this-goes-im-too-scared-and-no-longer-a-customer" amounts of money. Robinhood are also hilariously inept; See the box-spread fiasco and the checkings and savings account. https://www.reddit.com/r/OutOfTheLoop/comments/ah2x2t/what_is_the_deal_with_wallstreetbets_box_spreads/ https://www.reddit.com/r/OutOfTheLoop/comments/ah2x2t/what_i...
- travisjungroth 7y agoRobinhood wasn’t legally allowed to open checking or savings accounts, but no one said anything about checking and savings accounts. I mean, until the SEC and SIPC did. They said no.
- numbers 7y agoI've learned a lot through Robinhood, trading from a couple of hundred bucks to about $15k (not all gains, a lot of it is deposited), I've gained confidence and knowledge as the platform has grown. Not sure if $7B is valid but the company is disrupting the status quo of commission based trading.
- ambicapter 7y agoWhat have you learned?
- drocer88 7y agoIn September 2018, Logan Kane, a contributor to Seeking Alpha, stated that Robinhood's payment for order flow generated ten times the revenue as other brokers receive from market makers for the same volume. Bloomberg has analyzed Robinhood's reports to the Securities and Exchange Commission (SEC), and calculates that Robinhood generates almost half of its income from payment for order flow. Robinhood's lack of transparency on this issue is troubling. Beyond that, payment for order flow is slowly being regulated out of existence, so a brokerage that depends on generating income by selling order flow to market makers will find itself in trouble within 5 years. https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp https://www.investopedia.com/articles/active-trading/020515/...
- maxxxxx 7y agoJust remember that you are trading in an upmarket. All your knowledge will be worth nothing in a downturn. It's a totally different game. Learned that in 2000 :-)
- rburhum 7y agoI can only speak from personal experience, but I love Robinhood. I am an amateur trader for pure hobby because of Robinhood. Many years ago, I tried to create an etrade account and it was an insanely long process (it may have changed now). I don't even remember what I did after I got an invite from a friend, but I was up and running right away. I started trading $300 just to see what it was like. The first three months, I learned a bit and lost some money. Fast forward 1 year to now, and I have around 54k in there and am up 16.05% - and that includes the crazyness of December. I have invited some friends and they all trade between $300 to 10k AFAIK. I am in no way rich, but I compare the performance of my retirement portfolio to what I do with a few ETFs, and honestly it has demystified the whole process. Before, I used to login to Clash of Clans when I had a few minutes to spare, now I spend that time browsing Robinhood. To me Robinhood was a game changer for this and many other reasons.
- codethief 7y agoAre you actively trading ETFs?
- ng12 7y ago> and that includes the crazyness of December You mean when the market dipped and completely recovered in two months? Hardly crazy.
- rburhum 7y agoWell, everyone in my family thought I was crazy for constantly looking at Robinhood during Christmas to snatch good deals.
- hn_throwaway_99 7y agoI'm trying to not be condescending, but I have a strong feeling that will change when the market eventually crashes. I say this because I honestly don't see how anyone who is serious about financial planning can use Robinhood for anything besides "play market". Case in point: the graphs in Robinhood show no y-axis values. This is insane if you actually care to see how your portfolio has been doing. Yet this is obviously intentional by Robinhood, so it must be designed to obfuscate what is really going on. When things really start to go south (which they inevitably always do) there is going to be a run on the bank at Robinhood.
- warp_factor 7y agoThey make me extremely nervous. Most people I know that use Robinhood seems to use it as they would play dices in Vegas. They have no ideas on the stock fundamentals or why and how the prices change. Most of them are playing a big amount of their savings too which is extra concerning. What makes me even more nervous is that Robinhood seems to deliberately cater to those crowds of uneducated emotional day traders. I said this before but they seem to become the "facebook of finance" with the same "break things and go fast" mission. I would never use them for any significant amount of money. That being said, I use them occasionally for options because the fees of traditional brokers are such a joke (20$ typically to sell and buy).
- cosmodisk 7y agoThe idea of beimg able to trade stocks quickly is appealing, however this is a slower version of say trading,which is as difficult as it can possibly get. Ability to buy and sell stock often is a death kiss for 99% of amateur traders.
- el_cujo 7y agoThose risks are present in the market in general, independent of robinhood. Should a platform be discouraged because its benefits don't discriminate between fools and people who know what they're doing?
- Traster 7y agoI don't know what it's like in the US, but in most countries gambling is very highly regulated for good reason. Buying stocks on the stock market with little to no information is basically gambling, the difference is that you have no idea what your odds are, often the cash out terms are unclear and the broker has no financial restrictions on letting you bet more than you can afford. In fact, I know in the US you need to be an accredited investor for some times of investment for exactly this reason - it is so easy to get ripped off.
- walrus01 7y agoThe only people I've seen who actually use robinhood are the people at reddit.com/r/wallstreetbets , who seem like a cohort of dilettantes.
- omarchowdhury 7y agoThey seem like that because none of them want to share any edge, but I might be generous in my assessment.
- lemony_fresh 7y agoMy tin foil hat theory is that this is a conspiracy to keep dumb money at the table.
- Causality1 7y agoIt seems like a predatory business model. Robinhood encourages amateurs to compete with professional stock traders and charges them a fee for the privilege. I'd like to see numbers for how much money the median Robinhood user loses.
- ericd 7y agoWhich makes their name incredibly ironic.
- dawhizkid 7y agoI have a hard time rooting for their success when their marketing/brand/aesthetic is all about encouraging high risk behavior among younger retail investors...
- atemerev 7y agoThey are the company who figured out the ways of selling their customers’ flow to hedge funds directly, so the latter could adapt their market making algorithms for guaranteed profit? Stealing from the poor and giving to the rich, genius!