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Robinhood is "easy" and mobile first. It wins because of UX. A conversation I had with a person yesterday. Him: My older coworkers asked me if I use all the

by basch 6y ago

Robinhood is "easy" and mobile first. It wins because of UX. A conversation I had with a person yesterday. Him: My older coworkers asked me if I use all the new apps like Tik-Tok and Robinhood. Me: With everybody being free now, theres no real reason to start with robinhood. Him: "But is it as easy. If not, dont care." My counterargument was customer service, but was not persuasive. He has no intention of ever picking up a phone or asking for help. He wants a toy to play with, while he and his friends cant be at the casino. The majority of his money is at Vanguard, hes not moving it to robinhood. It's just something to look at everyday for some entertainment value. Its the same mindset where "I made x today (or at the casino)" but ignore the losses or how much they put in. This is the same group of friends that are excited their $75 in dogecoin is up 50% today, or who are playing with options against Draftkings for the thrill of it. Gambling on gambling. Fun. Games. Thrill. I can't say with a straight face that the Schwab or Fidelity have mobile apps that are as simple to pick up or navigate. They involve more clicks, and buried options. Free gave robinhood publicity and got people to give it a try. UX keeps them around. If Schwab, Fidelity, Merril, Goldman Sachs/Marcus want to compete in this space, they need lite versions of their platforms that are true mobile first apps AND some kind of value add above Robinhood to lure people to try it and convert. Maybe these arent the customers they are looking for, some of them at least.

TedDoesntTalk 6y ago
RobinHood is NOT free: https://www.wsj.com/articles/why-free-trading-on-robinhood-isnt-really-free-1541772001 https://www.wsj.com/articles/why-free-trading-on-robinhood-i...
- basch 6y ago
  Commission free. Every broker takes something for order flow, some more than others.
- pathseeker 6y ago
  Companies pay for retail order flow because retail is dumb; and, on average, is not going to have trades better than random noise. This is ideal for market makers so market makers pay for it and even offer better spreads to retail. Market makers don't want to be on the other side of "smart money" trades. tl;dr you're not getting screwed by Robinhood selling your order flow, you're getting a benefit.
- usmannk 6y ago
  I recommend ignoring this misinformed WSJ article and reading this: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone... After that come back and see how the WSJ article is just a poorly written hit piece on RH.
  - KKKKkkkk1 6y ago
    > After that come back and see how the WSJ article is just a poorly written hit piece on RH. So I read Patrick's article and now I'm back. You're wrong. Both articles are saying that Robinhood makes much more money from order flow than other brokerages. The WSJ is saying that this is because Robinhood takes the market makers' price improvements to itself instead of passing it on to their clients. Patrick is saying that Robinhood makes more money off of order flow because options trading (which Robinhood does a lot of) is much more profitable for the market makers. Now both hypotheses might be true. Robinhood could be offering their clients worse prices and at the same time get paid more by the market makers because of lots of options trading. I don't see anything in Patrick's article that contradicts the WSJ's explanation. And given the following quote, I think the WSJ's analysis is pretty convincing: One executive with a high-speed trading firm that executes orders for Robinhood said its price improvement is much worse than that of competing brokers.
- belltaco 6y ago
  Is there a way to monetize your order flow?
cameronperot 6y ago
That's a tough one. On one hand it should be easy because who wants to perform more clicks to get the same end result. On the other hand it shouldn't because it attracts people without proper knowledge who could possibly end up making a life altering mistake. I'm not really sure what a good compromise is here.
pathseeker 6y ago
To expand on this, Robinhood offers instant gratification as well without requiring a wire transfer. They have "instant deposit" limits that allow you to start an ACH xfer and use the money to buy options/stock within a few seconds. Most brokerages require the multi-day ACH settling period before you can trade.
filoleg 6y ago
I tried using other platforms, but it is just annoying to use in one aspect or another. Not even talking about mobile apps (which are pretty important these days). I tried placing an option trade on Fidelity web version on desktop. It took me forever to figure out how, and even if I memorized the flow, it would still be much much slower and annoying than on RH. And that's on web, I don't even want to mention how bad it is on their mobile app. I get that Fidelity operates on "if it ain't broken, don't fix it" principle, but sorry, UX matters a lot to users. And when a vastly superior in UX alternative appears, you cannot just sit and do nothing. Due to all of that, Fidelity has been designated to be used solely for 401k management for me (which is almost automatic anyway).
- lbwtaylor 6y ago
  I don't option trade, but I don't think Fidelity is really that fair of a comparison for option trading, they don't market themselves as an active trading platform the way Ameritrade, Etrade or IB do. After the outages, I don't see why a sophisticated trader who's doing option trading would trust Robinhood. I trade at IB and am very happy there. Just my 2 cents.
  - filoleg 6y ago
    I don't have the exact numbers for outages for every platform, but it seems like during the most recent RH outage in March, Ameritrade and Vanguard were down as well[0]. Which only fuels my initial suspicion that the rest aren't any better when it comes to outages. Why do you like IB? Genuine question, because that's the one I've never tried, but now I am curious to try it out, so I want to know what the major things that drew you to it are. 0. https://www.barrons.com/articles/robinhood-trading-app-has-outage-amid-heavy-volume-51583165342 https://www.barrons.com/articles/robinhood-trading-app-has-o...
    - lbwtaylor 6y ago
      Their margin rates. I'm not interested in derivatives (don't trust myself not to flub it), I prefer old fashioned margin. I understand it better and it works for me. IB prices their rates with a spread based on the fed funds rate (I think), rather than just grabbing some random number out of the sky. This stock market upheaval some other brokers are trying to have competitive margin rates, but in the past downturn when I was broker shopping, IB was blowing others away with ~2% rates while everyone was at ~7%. IB is very much targeting advanced consumers all the way up to small funds and trading shops, so you can do a lot on their platform if you're interested.
asdff 6y ago
UX is good in some ways, but bad in others. Once you learn more about investing, you realize how much power robin hood just omits for the sake of a clean interface. I don't mind having things hidden out of the way, if you let me put things back. Their UX has also been prone to lag, can have problems with clearing funds, among other issues in recent months/years, which is exactly what you don't want from a brokerage.
bobthepanda 6y ago
A good deal of post-Depression financial regulation was about making it harder for laypeople to invest, because the layperson is not really a "rational" investor and because there was a decade of real economic harm from letting people treat the stock market as a casino. People in the '20s were going in debt to buy stocks and then when the bubble finally popped it was ugly. I don't know that good UX is a positive for society in this scenario.
- throaway1990 6y ago
  Who decides that I am too stupid to invest? I should be the only person to decide that, already there are strict regulations about day trading, volume of trades on a mobile platform, access to margins and access to after hours trading. Robinhood adheres to all these regulations and doesn't easily dole out features to anyone.
  - godelski 6y ago
    This is a perfectly sane position if your actions only affect yourself. The issue is that your actions affect others.
    - throaway1990 6y ago
      How? In your world there is no concept of personal responsibilty? If I lose ALL my investments, it doesn't change my way of life or status in society. I have no dependents or collateral. On the other hand, if my investments pay off, I have a real shot of upward social mobility within 5 years, instead of 5 decades.
  - bobthepanda 6y ago
    The reason this regulation exists is because enough people doing it is systemic risk. You losing all your money impacts you. You and millions of other people losing all their money at the same time impacts society; they can't pay bills to their creditors, then those creditors can't pay, and soon enough we're talking bank runs and financial collapse.

by basch 6y ago

TedDoesntTalk 6y ago

RobinHood is NOT free: https://www.wsj.com/articles/why-free-trading-on-robinhood-isnt-really-free-1541772001 https://www.wsj.com/articles/why-free-trading-on-robinhood-i...

basch 6y ago
Commission free. Every broker takes something for order flow, some more than others.
pathseeker 6y ago
Companies pay for retail order flow because retail is dumb; and, on average, is not going to have trades better than random noise. This is ideal for market makers so market makers pay for it and even offer better spreads to retail. Market makers don't want to be on the other side of "smart money" trades. tl;dr you're not getting screwed by Robinhood selling your order flow, you're getting a benefit.
usmannk 6y ago
I recommend ignoring this misinformed WSJ article and reading this: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone... After that come back and see how the WSJ article is just a poorly written hit piece on RH.
- KKKKkkkk1 6y ago
  > After that come back and see how the WSJ article is just a poorly written hit piece on RH. So I read Patrick's article and now I'm back. You're wrong. Both articles are saying that Robinhood makes much more money from order flow than other brokerages. The WSJ is saying that this is because Robinhood takes the market makers' price improvements to itself instead of passing it on to their clients. Patrick is saying that Robinhood makes more money off of order flow because options trading (which Robinhood does a lot of) is much more profitable for the market makers. Now both hypotheses might be true. Robinhood could be offering their clients worse prices and at the same time get paid more by the market makers because of lots of options trading. I don't see anything in Patrick's article that contradicts the WSJ's explanation. And given the following quote, I think the WSJ's analysis is pretty convincing: One executive with a high-speed trading firm that executes orders for Robinhood said its price improvement is much worse than that of competing brokers.
belltaco 6y ago
Is there a way to monetize your order flow?

cameronperot 6y ago

That's a tough one. On one hand it should be easy because who wants to perform more clicks to get the same end result. On the other hand it shouldn't because it attracts people without proper knowledge who could possibly end up making a life altering mistake. I'm not really sure what a good compromise is here.

pathseeker 6y ago

To expand on this, Robinhood offers instant gratification as well without requiring a wire transfer. They have "instant deposit" limits that allow you to start an ACH xfer and use the money to buy options/stock within a few seconds. Most brokerages require the multi-day ACH settling period before you can trade.

filoleg 6y ago

I tried using other platforms, but it is just annoying to use in one aspect or another. Not even talking about mobile apps (which are pretty important these days). I tried placing an option trade on Fidelity web version on desktop. It took me forever to figure out how, and even if I memorized the flow, it would still be much much slower and annoying than on RH. And that's on web, I don't even want to mention how bad it is on their mobile app. I get that Fidelity operates on "if it ain't broken, don't fix it" principle, but sorry, UX matters a lot to users. And when a vastly superior in UX alternative appears, you cannot just sit and do nothing. Due to all of that, Fidelity has been designated to be used solely for 401k management for me (which is almost automatic anyway).

lbwtaylor 6y ago
I don't option trade, but I don't think Fidelity is really that fair of a comparison for option trading, they don't market themselves as an active trading platform the way Ameritrade, Etrade or IB do. After the outages, I don't see why a sophisticated trader who's doing option trading would trust Robinhood. I trade at IB and am very happy there. Just my 2 cents.
- filoleg 6y ago
  I don't have the exact numbers for outages for every platform, but it seems like during the most recent RH outage in March, Ameritrade and Vanguard were down as well[0]. Which only fuels my initial suspicion that the rest aren't any better when it comes to outages. Why do you like IB? Genuine question, because that's the one I've never tried, but now I am curious to try it out, so I want to know what the major things that drew you to it are. 0. https://www.barrons.com/articles/robinhood-trading-app-has-outage-amid-heavy-volume-51583165342 https://www.barrons.com/articles/robinhood-trading-app-has-o...
  - lbwtaylor 6y ago
    Their margin rates. I'm not interested in derivatives (don't trust myself not to flub it), I prefer old fashioned margin. I understand it better and it works for me. IB prices their rates with a spread based on the fed funds rate (I think), rather than just grabbing some random number out of the sky. This stock market upheaval some other brokers are trying to have competitive margin rates, but in the past downturn when I was broker shopping, IB was blowing others away with ~2% rates while everyone was at ~7%. IB is very much targeting advanced consumers all the way up to small funds and trading shops, so you can do a lot on their platform if you're interested.

asdff 6y ago

UX is good in some ways, but bad in others. Once you learn more about investing, you realize how much power robin hood just omits for the sake of a clean interface. I don't mind having things hidden out of the way, if you let me put things back. Their UX has also been prone to lag, can have problems with clearing funds, among other issues in recent months/years, which is exactly what you don't want from a brokerage.

bobthepanda 6y ago

A good deal of post-Depression financial regulation was about making it harder for laypeople to invest, because the layperson is not really a "rational" investor and because there was a decade of real economic harm from letting people treat the stock market as a casino. People in the '20s were going in debt to buy stocks and then when the bubble finally popped it was ugly. I don't know that good UX is a positive for society in this scenario.

throaway1990 6y ago
Who decides that I am too stupid to invest? I should be the only person to decide that, already there are strict regulations about day trading, volume of trades on a mobile platform, access to margins and access to after hours trading. Robinhood adheres to all these regulations and doesn't easily dole out features to anyone.
- godelski 6y ago
  This is a perfectly sane position if your actions only affect yourself. The issue is that your actions affect others.
  - throaway1990 6y ago
    How? In your world there is no concept of personal responsibilty? If I lose ALL my investments, it doesn't change my way of life or status in society. I have no dependents or collateral. On the other hand, if my investments pay off, I have a real shot of upward social mobility within 5 years, instead of 5 decades.
- bobthepanda 6y ago
  The reason this regulation exists is because enough people doing it is systemic risk. You losing all your money impacts you. You and millions of other people losing all their money at the same time impacts society; they can't pay bills to their creditors, then those creditors can't pay, and soon enough we're talking bank runs and financial collapse.