4 ms·

This is going to end badly for a lot of people at some point. It’s all fun and games until the market tanks for an extended period of time and people that cann

This is going to end badly for a lot of people at some point. It’s all fun and games until the market tanks for an extended period of time and people that cannot afford to be are over leveraged in stock.

javitury 6y ago
Fees and spreads from overtrading will eat up that money first. If the market tanks for a long time, that's a big problem for everyone (directly or indirectly).
- mrslave 6y ago
  Exactly the thinking that causes policy makers to keep the cost of borrowing cheap, thus exacerbating the precise vulnerability.
- sbierwagen 6y ago
  Robinhood doesn't charge commissions. People on WSB lose money the old-fashioned way: by making stupid trades.
  - Blammar 6y ago
    You'd figure they and a broken clock would be right twice a day (unless it's an electronic clock so broken means it's not showing anything...) Also, read this about Robinhood: https://news.ycombinator.com/item?id=23894228 https://news.ycombinator.com/item?id=23894228
    - dehrmann 6y ago
      A clock 1 second fast is never right.
  - qeternity 6y ago
    Robinhood don't charge direct commission, but they do charge commission. It's a bit like traveling and seeing the "no fee" cash exchanges...they don't charge outright fees, they just make their money in the spread. Every market has what's called a bid/offer spread. That's the difference between the price the next buyer will pay, and what the next seller will accept (if the prices were the same, it would result in a trade, and thus back to having different prices). Market makers earn this spread by always being willing to buy low and sell slightly higher. Robinhood traders are largely unsophisticated and place market orders that cross this spread and thus incur the implicit cost. Market making has become to automated that these small spreads (pennies in many cases) are actually extremely lucrative. So, Robinhood goes out to a market maker and says "you can execute all my trades for me, but you'll have to pay me for the privilege because I know you'll make a lot of money off my trades". This is called payment for order flow, and Robinhood makes a lot of money this way.
    - SifJar 6y ago
      This is true, but not overly relevant in this context - the reason lack of commission was mentioned was because someone said that fees will eat away at a day trader's profits before a down market will affect them; with Robinhood or other commission-free brokers, that will not be the case (regardless of how the broker is profiting off the trades - the trader is still going to be getting the best price available on the market, as required by law)
    - ac29 6y ago
      The bid-ask spread on most stocks is 0.01. You'd need to trade a LOT for this to actually make any real difference in your returns. Given that the average size of account at Robinhood is something like $5000, I dont think the average trader there is really getting fleeced by market makers. The bid-ask spread on some of the questionable options Robinhood traders are transacting in is quite a bit higher, though.
      - qeternity 6y ago
        You fail to grasp the size of the equities market, as well as tangential trading opportunities. Also options market making against retail is absurdly profitable. There’s a reason Citadel is paying tens of millions of the privilege of executing these trades. Source: former head of quant trading for multi billion dollar hedge fund
- cactus2093 6y ago
  Exactly, a down market is a problem for anyone with a 401k or savings in etfs. People day trading options may be just as well off in a down market, since they can buy puts or volatility indexes to make money on any direction of market movement.
  - meddlepal 6y ago
    A down market is a problem for people with 401ks or etf only if they’re close to or in retirement. It’s not an issue for most people between 20 and 60.
    - imtringued 6y ago
      Correction, it's an issue for people who need to cash out their stocks. If you lost your job during the pandemic you might need money more than you need well performing stocks so you are forced to sell at a loss.
      - stepstop 6y ago
        It’s only a loss if you’ve been invested for a short time. The market is up a ridiculous amount. It would need to drop close to 40% to be back around 2014 levels. You could still sell shares from 2010 that would be sold at a profit, if you’ve been investing for a decade
runawaybottle 6y ago
Isn’t an uptick in retail trading a sign it’s already too late for whatever bubble we’re in now? Or is that adage bullshit like everything else related to the economy too?
- rootsudo 6y ago
  I wonder how the 1920's were like.
  - 082349872349872 6y ago
    Zweig on 1920's hyperinflationary germany (he covers the austrian experience in a different chapter): https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.176552/2015.176552.The-World-Of-Yesterday_text.pdf https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.1... p.238 "Messenger boys established foreign exchange businesses and speculated in currencies of all lands. Towering over all of them was the gigantic figure of the super-profiteer Stinnes. Expanding his credit and exploiting the mark, he bought whatever was for sale, coal mines and ships, factories and stocks, castles and country estates, actually for nothing because every payment, every promise became equal to naught. Soon a quarter of Germany was in his hands and, perversely, the masses, who in Germany always become intoxicated at a success that they can see with their eyes, cheered him as a genius. The unemployed stood around by the thousands and shook their fists at the profiteers and foreigners in their luxurious cars who bought whole rows of streets like a box of matches ; everyone who could read and write traded, speculated and profited and had a secret sense that they were deceiving themselves and were being deceived by a hidden force which brought about this chaos deliberately in order to liberate the State from its debts and obligations." FWIW the guy who brings and empties my skips was giving me tips on Covid medication stocks last week...
    - dehrmann 6y ago
      Inflation in the Weimar Republic was specifically to pay down dept with devalued currency. What we're seeing now is an attempt to fill in a hole left by parts of the economy being shut down. Besides the motivation, a big difference is we don't know if this will be net inflationary or deflationary with the slower velocity of money, bad debt, etc.
pcr0 6y ago
Change that to over leveraged in options. I think that's where the real pain is.
- boromi 6y ago
  Right, most of this is from options trading.
pearjuice 6y ago
End badly? The stock market will never see crash in our lifetime again. Since Jerome Powell nationalized the stock market, it's basically Federal Reserve policy to just keep printing money to inflate it. It's all priced in.
- zadler 6y ago
  The dollar is already losing value.
- bawana 6y ago
  Exactly. There will never be a crash as all the world just prints money that seeks the highest ROI, and this is only found in financial markets. Witness a booming stock market that is decoupled from record unemployment. Witness the lowest mortgage rates and house sales are booming. People will starve and die before the S&P will. Ultimately our machines and trading algorithms will be churning along as we die of disease, famine, and natural catastrophes.
chii 6y ago
> people that cannot afford to be are over leveraged in stock why are they doing it if they cannot afford to do it? If someone made a conscious decision to day trade with money they cannot afford to risk, they have to accept responsibility for losing it when the markets turn sour.
- loopz 6y ago
  Because they are new and started in propped up markets. They've not seen real volatility yet, and catastrophic damage can happen anytime as Black Swan Event. Besides, the downside to most Options is unlimited.
  - qeternity 6y ago
    The comment was rhetorical. We all know why they are doing it and why they probably shouldn't. I think OP's point was the last bit of the comment: > they have to accept responsibility for losing it when the markets turn sour
    - loopz 6y ago
      No harm to repeat it, especially since the temptation might beat the rational mind.

javitury 6y ago

Fees and spreads from overtrading will eat up that money first. If the market tanks for a long time, that's a big problem for everyone (directly or indirectly).

mrslave 6y ago
Exactly the thinking that causes policy makers to keep the cost of borrowing cheap, thus exacerbating the precise vulnerability.
sbierwagen 6y ago
Robinhood doesn't charge commissions. People on WSB lose money the old-fashioned way: by making stupid trades.
- Blammar 6y ago
  You'd figure they and a broken clock would be right twice a day (unless it's an electronic clock so broken means it's not showing anything...) Also, read this about Robinhood: https://news.ycombinator.com/item?id=23894228 https://news.ycombinator.com/item?id=23894228
  - dehrmann 6y ago
    A clock 1 second fast is never right.
- qeternity 6y ago
  Robinhood don't charge direct commission, but they do charge commission. It's a bit like traveling and seeing the "no fee" cash exchanges...they don't charge outright fees, they just make their money in the spread. Every market has what's called a bid/offer spread. That's the difference between the price the next buyer will pay, and what the next seller will accept (if the prices were the same, it would result in a trade, and thus back to having different prices). Market makers earn this spread by always being willing to buy low and sell slightly higher. Robinhood traders are largely unsophisticated and place market orders that cross this spread and thus incur the implicit cost. Market making has become to automated that these small spreads (pennies in many cases) are actually extremely lucrative. So, Robinhood goes out to a market maker and says "you can execute all my trades for me, but you'll have to pay me for the privilege because I know you'll make a lot of money off my trades". This is called payment for order flow, and Robinhood makes a lot of money this way.
  - SifJar 6y ago
    This is true, but not overly relevant in this context - the reason lack of commission was mentioned was because someone said that fees will eat away at a day trader's profits before a down market will affect them; with Robinhood or other commission-free brokers, that will not be the case (regardless of how the broker is profiting off the trades - the trader is still going to be getting the best price available on the market, as required by law)
  - ac29 6y ago
    The bid-ask spread on most stocks is 0.01. You'd need to trade a LOT for this to actually make any real difference in your returns. Given that the average size of account at Robinhood is something like $5000, I dont think the average trader there is really getting fleeced by market makers. The bid-ask spread on some of the questionable options Robinhood traders are transacting in is quite a bit higher, though.
    - qeternity 6y ago
      You fail to grasp the size of the equities market, as well as tangential trading opportunities. Also options market making against retail is absurdly profitable. There’s a reason Citadel is paying tens of millions of the privilege of executing these trades. Source: former head of quant trading for multi billion dollar hedge fund
cactus2093 6y ago
Exactly, a down market is a problem for anyone with a 401k or savings in etfs. People day trading options may be just as well off in a down market, since they can buy puts or volatility indexes to make money on any direction of market movement.
- meddlepal 6y ago
  A down market is a problem for people with 401ks or etf only if they’re close to or in retirement. It’s not an issue for most people between 20 and 60.
  - imtringued 6y ago
    Correction, it's an issue for people who need to cash out their stocks. If you lost your job during the pandemic you might need money more than you need well performing stocks so you are forced to sell at a loss.
    - stepstop 6y ago
      It’s only a loss if you’ve been invested for a short time. The market is up a ridiculous amount. It would need to drop close to 40% to be back around 2014 levels. You could still sell shares from 2010 that would be sold at a profit, if you’ve been investing for a decade

runawaybottle 6y ago

Isn’t an uptick in retail trading a sign it’s already too late for whatever bubble we’re in now? Or is that adage bullshit like everything else related to the economy too?

rootsudo 6y ago
I wonder how the 1920's were like.
- 082349872349872 6y ago
  Zweig on 1920's hyperinflationary germany (he covers the austrian experience in a different chapter): https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.176552/2015.176552.The-World-Of-Yesterday_text.pdf https://ia601609.us.archive.org/21/items/in.ernet.dli.2015.1... p.238 "Messenger boys established foreign exchange businesses and speculated in currencies of all lands. Towering over all of them was the gigantic figure of the super-profiteer Stinnes. Expanding his credit and exploiting the mark, he bought whatever was for sale, coal mines and ships, factories and stocks, castles and country estates, actually for nothing because every payment, every promise became equal to naught. Soon a quarter of Germany was in his hands and, perversely, the masses, who in Germany always become intoxicated at a success that they can see with their eyes, cheered him as a genius. The unemployed stood around by the thousands and shook their fists at the profiteers and foreigners in their luxurious cars who bought whole rows of streets like a box of matches ; everyone who could read and write traded, speculated and profited and had a secret sense that they were deceiving themselves and were being deceived by a hidden force which brought about this chaos deliberately in order to liberate the State from its debts and obligations." FWIW the guy who brings and empties my skips was giving me tips on Covid medication stocks last week...
  - dehrmann 6y ago
    Inflation in the Weimar Republic was specifically to pay down dept with devalued currency. What we're seeing now is an attempt to fill in a hole left by parts of the economy being shut down. Besides the motivation, a big difference is we don't know if this will be net inflationary or deflationary with the slower velocity of money, bad debt, etc.

pcr0 6y ago

Change that to over leveraged in options. I think that's where the real pain is.

boromi 6y ago
Right, most of this is from options trading.

pearjuice 6y ago

End badly? The stock market will never see crash in our lifetime again. Since Jerome Powell nationalized the stock market, it's basically Federal Reserve policy to just keep printing money to inflate it. It's all priced in.

zadler 6y ago
The dollar is already losing value.
bawana 6y ago
Exactly. There will never be a crash as all the world just prints money that seeks the highest ROI, and this is only found in financial markets. Witness a booming stock market that is decoupled from record unemployment. Witness the lowest mortgage rates and house sales are booming. People will starve and die before the S&P will. Ultimately our machines and trading algorithms will be churning along as we die of disease, famine, and natural catastrophes.

chii 6y ago

> people that cannot afford to be are over leveraged in stock why are they doing it if they cannot afford to do it? If someone made a conscious decision to day trade with money they cannot afford to risk, they have to accept responsibility for losing it when the markets turn sour.

loopz 6y ago
Because they are new and started in propped up markets. They've not seen real volatility yet, and catastrophic damage can happen anytime as Black Swan Event. Besides, the downside to most Options is unlimited.
- qeternity 6y ago
  The comment was rhetorical. We all know why they are doing it and why they probably shouldn't. I think OP's point was the last bit of the comment: > they have to accept responsibility for losing it when the markets turn sour
  - loopz 6y ago
    No harm to repeat it, especially since the temptation might beat the rational mind.