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As ridiculous as all of this is, there's some poetry in a company called Robinhood taking angel investment from various billionaires and using it to give millio

by jddj 7y ago

As ridiculous as all of this is, there's some poetry in a company called Robinhood taking angel investment from various billionaires and using it to give millions of dollars in (probably) free leverage to teenagers.

vkou 7y ago
But the real recipients of the money are the traders (hedge funds, market makers, etc) on the other side of the transaction. So, it's a cash flow of billionaires -> teenager margin account -> billionaires. "He stole from the rich, and he gave... Well, he airdropped the money over a gated billionaire neighbourhood." doesn't make the most catchy song for a folk hero.
- SeanAppleby 7y ago
  Eh, if I did this and I came up in the black off on a play with $1M in free leverage I would just close the position, pay off the margin and dip without posting about it. If like five people posted about it and lost money, there are probably a couple winners who are lying low, even just completely randomly assuming the traders have absolutely no signal whatsoever in their choice of play.
  - vkou 7y ago
    But in that case, since the margin was returned, RobinHood, or its investors didn't lose anything. So, the analogy still doesn't hold. :)
    - Zarel 7y ago
      You're not understanding the math here. RobinHood is essentially lending unlimited money to the teenagers in question. Assume, as an oversimplification, half of them will win big, and half of them will lose it all. For the wins, the teenagers will keep it all, and for the losses, RobinHood will have to pay for it, because the teenagers don't have the money and will declare bankruptcy if RobinHood tries to recover it. This is a net wealth transfer from RobinHood to the teenagers. The net wealth transfer looks like this: teenagers: +lots of money traders on the other side of the transactions: approximately +0 (wins and losses cancel out) RobinHood: -lots of money You can play games with which money comes from where, but you can't deny the way the money is flowing on net.
  - zelly 7y ago
    Most people would keep doing it until they lose it all. The original guy who lost $50k was at one point up net +$20k but still didn't close out.
- missedthecue 7y ago
  Market makers don't take money from people. They are on the end of literally every stock market transaction.
  - hermitdev 7y ago
    Sure they do. Not in bulk quantities, they take their profits on trading the spread. A lot of trades that they generally only make about a cent per share on each trade. Market makers have their place, and you wouldnt have the liquidity you'd like if they weren't there. Market makers face relatively low risk as they dont generally hold positions for long, but they can also face severe penalties if theyre supposed to be in the market, but are not. My first boss was fired over a potential $600K USD fine because he took us out of the Options market (as a market maker) for an hour (potential fine was $10K/minute) and refused to accept accountability for his actions. Also, trades are typically matched on a first in, first out basis with price/time priority. Market makers respond to messages that are essentially a request for liquidity if an appropriate contra order is not sitting on the exchange's order book. Who gets paid commissions depends on what type of entity is on the other side of the trade and what agreements are in place with the meriad of counterparties involved (e.g. if you want to buy 10K shares of a company, that could be broken into, say, 20 trades of various quantities and prices below a limit until the quantity is fulfilled).
- zelly 7y ago
  Only if they lost in the trades. (Most of them probably did.) If they won, then they truly robbed from the billionaires. They risked billionaire VC money (Robinhood's underwriting fund) to take money from some other billionaire investor's bad trade.
perl4ever 7y ago
"...even if you can do this, it’s not ... it’s not like it’s free money or anything. You get more leverage than you ought to, but why would you want infinite leverage? "
- buzzdenver 7y ago
  Because you either win huge, say $10M with ~ 50% chance, or go bankrupt, which is a good proposition for people who have very little to lose.
  - perl4ever 7y ago
    But have people won big, or have they just been losing their modest initial stake? If you only have a few hundred or thousand to start with, you can gloat about how you only really lost that much while theoretically owing millions, but you still gave up 100%.
    - Craighead 7y ago
      go read r/wallstreetbets
  - t0astbread 7y ago
    Do Robinhood users typically have nothing to lose?

by jddj 7y ago

vkou 7y ago

But the real recipients of the money are the traders (hedge funds, market makers, etc) on the other side of the transaction. So, it's a cash flow of billionaires -> teenager margin account -> billionaires. "He stole from the rich, and he gave... Well, he airdropped the money over a gated billionaire neighbourhood." doesn't make the most catchy song for a folk hero.

SeanAppleby 7y ago
Eh, if I did this and I came up in the black off on a play with $1M in free leverage I would just close the position, pay off the margin and dip without posting about it. If like five people posted about it and lost money, there are probably a couple winners who are lying low, even just completely randomly assuming the traders have absolutely no signal whatsoever in their choice of play.
- vkou 7y ago
  But in that case, since the margin was returned, RobinHood, or its investors didn't lose anything. So, the analogy still doesn't hold. :)
  - Zarel 7y ago
    You're not understanding the math here. RobinHood is essentially lending unlimited money to the teenagers in question. Assume, as an oversimplification, half of them will win big, and half of them will lose it all. For the wins, the teenagers will keep it all, and for the losses, RobinHood will have to pay for it, because the teenagers don't have the money and will declare bankruptcy if RobinHood tries to recover it. This is a net wealth transfer from RobinHood to the teenagers. The net wealth transfer looks like this: teenagers: +lots of money traders on the other side of the transactions: approximately +0 (wins and losses cancel out) RobinHood: -lots of money You can play games with which money comes from where, but you can't deny the way the money is flowing on net.
- zelly 7y ago
  Most people would keep doing it until they lose it all. The original guy who lost $50k was at one point up net +$20k but still didn't close out.
missedthecue 7y ago
Market makers don't take money from people. They are on the end of literally every stock market transaction.
- hermitdev 7y ago
  Sure they do. Not in bulk quantities, they take their profits on trading the spread. A lot of trades that they generally only make about a cent per share on each trade. Market makers have their place, and you wouldnt have the liquidity you'd like if they weren't there. Market makers face relatively low risk as they dont generally hold positions for long, but they can also face severe penalties if theyre supposed to be in the market, but are not. My first boss was fired over a potential $600K USD fine because he took us out of the Options market (as a market maker) for an hour (potential fine was $10K/minute) and refused to accept accountability for his actions. Also, trades are typically matched on a first in, first out basis with price/time priority. Market makers respond to messages that are essentially a request for liquidity if an appropriate contra order is not sitting on the exchange's order book. Who gets paid commissions depends on what type of entity is on the other side of the trade and what agreements are in place with the meriad of counterparties involved (e.g. if you want to buy 10K shares of a company, that could be broken into, say, 20 trades of various quantities and prices below a limit until the quantity is fulfilled).
zelly 7y ago
Only if they lost in the trades. (Most of them probably did.) If they won, then they truly robbed from the billionaires. They risked billionaire VC money (Robinhood's underwriting fund) to take money from some other billionaire investor's bad trade.

perl4ever 7y ago

"...even if you can do this, it’s not ... it’s not like it’s free money or anything. You get more leverage than you ought to, but why would you want infinite leverage? "

buzzdenver 7y ago
Because you either win huge, say $10M with ~ 50% chance, or go bankrupt, which is a good proposition for people who have very little to lose.
- perl4ever 7y ago
  But have people won big, or have they just been losing their modest initial stake? If you only have a few hundred or thousand to start with, you can gloat about how you only really lost that much while theoretically owing millions, but you still gave up 100%.
  - Craighead 7y ago
    go read r/wallstreetbets
- t0astbread 7y ago
  Do Robinhood users typically have nothing to lose?