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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)

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

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