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Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. Even if they just weren’t prepared and everything they did was legitimatel
by ericmay 6y ago
Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users.
Even if they just weren’t prepared and everything they did was legitimately the right thing to do, that ship has sailed. I know people I didn’t even know had a Robinhood account ask me if I was shutting my account down too.
This will be fascinating to watch. Can the repair the brand damage? I’m skeptical.
Is there any similar scenario that has occurred at another brokerage firm in the past that might leave clues to examine to understand potential user actions here?
- kleton 6y agoEach FINRA arbitration case would be expected to cost the company up to 10,000 in fees. If anywhere near the 100,000 users who left negative reviews on the Google Play store for the app file an arbitration and pay the filing fee, Robinhood will absolutely go bankrupt. If you are/were a Robinhood user: https://www.finra.org/arbitration-mediation/initiate-arbitration-or-mediation https://www.finra.org/arbitration-mediation/initiate-arbitra...
- notyourwork 6y agoSubmitting a negative review is a lot less effort than dealing with a court case. I think it’s unlikely a small percentage of 100,000 will pursue.
- User23 6y agoYou’re talking about people who banded together to drive up share prices. They’ve already demonstrated an ability and willingness to coordinate.
- hutzlibu 6y agoBut they are probably still not the majority of its users. Anyway, Robinhood is likely dead in the long run.
- m463 6y agoBut remember the arbitration problem that doordash faced when a law firm created an easy-to-arbitrate system for workers? just do a web search for "arbitration backfired" you'll find this and other interesting cases :)
- katbyte 6y agoIf 1% do that’s 1,000,000...
- TylerE 6y agoThat’s a whole 6 hours of profit. They’re at almost $1 bill in annual revenue for 2020.
- o-__-o 6y ago>court case I thought it is arbitration (which is less effort than a court case)
- User23 6y agoAnd under California law consumers cannot be forced to bear those costs.
- Mountain_Skies 6y agoIIRC, customers still have to pay the filing fee, but beyond that, the costs are on the company.
- adolph 6y agoSome previous (flagged) discussion about the Patreon mass arbitration story. https://news.ycombinator.com/item?id=24016732 https://news.ycombinator.com/item?id=24016732
- malwarebytess 6y agoI think there's a very good chance the reviews were not organic, but instead automated.
- midasz 6y agoHighly doubt that, and wonder why you'd even think that - it's a pretty big movement with vocal users, submitting a review because you got scammed (which is what happened) is a very low threshold.
- toomuchtodo 6y agoYou can automate arbitration filings for users just as easily. Can’t wipe away 100k arbitration requests as easily as the same amount of negative reviews. I’d even contribute financially to have such an app built, because if FINRA and the SEC won't act (no surprise!), citizens can and should.
- mdoms 6y agoGot any evidence for that?
- alasdair_ 6y agoSome circumstantial evidence would be the apple app scores not having the same magnitude of response.
- mrep 6y agoI highly doubt that. I filed a 1 star review and it literally only took like 30 seconds as you don't have to write anything to rate it.
- btown 6y agoFor what it's worth, arbitration filing fees can be calculated at https://tools.finra.org/arbitration_calculator/ https://tools.finra.org/arbitration_calculator/ - they seem to start at $50 for specified damages, and $1575 for unspecified damages. (Obligatory: not a lawyer, not at all recommending that anyone do this without consulting one.)
- boatsie 6y agoI seriously doubt it will be even a blip on their radar. In fact, I think this will be their “no such thing as bad publicity” moment and they will have massive growth. People have short memories (no pun intended) and the switching costs are also nontrivial.
- csmiller 6y agoWhat are the switching costs? Seems fairly trivial to move assets between brokerages.
- elliekelly 6y agoRH charges $75 to transfer holdings to a different broker. If you have a big account that's probably worthwhile but I get the impression a lot of RH customers are small-time people who are just dabbling in the stock market for fun. If your account only holds $500-1000 of securities a $75 fee is pretty steep.
- mrep 6y agoOr you know, just don't open any new positions there and transfer your funds back to your account once you have closed the rest like I did. Then you have nothing there, can deactivate your account and just open an account at another place.
- franklampard 6y agoEffectively $0. Outbound costs $75 at Robinhood. If you are moving more than a few hundred dollars, the new broker will reimburse the it.
- deleted 6y ago[deleted]
- hehehaha 6y agoTo be honest, people will eventually return. RH is the cost leader by a wide margin and its very unique to its business model via data arrangement with Citadel. In aggregate, total savings they pass down to retail traders is in the billions. With options trading at all time high, savings for 2020 was likely in tens of billions. Edit: upon looking at some aggregate data via OCC, appears I overestimated savings.
- koolba 6y agoDon’t Fidelity, E*TRADE, Ameritrade, and just about it everyone else have zero commission trades now?
- TuringNYC 6y agoNot on options
- alasdair_ 6y agoWhile technically true, I wonder if people care much about a $1 fee on an entire contract (100 shares).
- koolba 6y agoI guess if you’re buying lottery tickets at $.01-$.02 per contract it’s be a 50-100% change in costs.
- jb1991 6y agoMost of the time you'd be trading more than one contract, though. Say you want bet on cheap out of the money options, you could easily see a commission of $10 - $50 on a single trade if you buy up a bunch of them.
- ll931110 6y agoThe fee can still be very significant, especially once you engage into complex options strategy (e.g. call spread / put spread / iron condor). That tends to trade in significantly larger quantity (e.g. you can have a 50x call spread), in which the fee is now $100 ($50 for buying a call and $50 for selling another call).
- skizm 6y agoThey would have gone out of business if they did not restrict trading and GME went back down to the 20-40 USD range though.
- oneeyedpigeon 6y agoWould they have gone out of business if they had suspended trading as opposed to suspending just buying?
- skizm 6y agoSelling helps them cover all the loans they gave out to pretend that buying / selling stocks is instant (and depositing money). The clearing house they use dramatically increased the collateral needed due to market volatility and they basically did not have the cash. They literally had to go raise another billion dollars in funding over night to cover costs.
- vertis 6y agoI don't have a Robinhood account, and I'm not involved in the GME/WSB stuff, but I would think twice about opening a Robinhood account now. Indeed, it's been educational about which brokers are using other clearing houses (sorry if I get the terminology wrong), and which are direct. But then badly behaved businesses like Godaddy don't seem to suffer or go out of business, so I suspect Robinhood won't have too many long term problems.
- maest 6y agoThis is not the first time RH has gone down during critical moments in the market. Yet their userbase grows and their users come back. They'll be fine.
- teddyfrozevelt 6y agoMaybe it's stupid, but I could forgive the outages, maybe because I wasn't doing any time critical trades when they happened. But deliberately limiting trades on dozens of stocks is so far past the line for me that I'm leaving Robinhood as soon as I find another brokerage I like.
- wutbrodo 6y agoDuring the other times, was their the perception that they were screwing their users over due to pressure by large financial institutions? That's a pretty salient difference for their brand.
- codesternews 6y agoThis time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose. Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.
- ditonal 6y agoTotally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly dubious, and is self-contradicting because they are blaming it on a liquidity issue while saying it's not a liquidity issue. But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process. Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.
- ummonk 6y agoTheir messaging around this has been a total self-own. I don't know whether they're trying to protect their relationship with the DTCC or something else, but Vlad's lack of clarity understandably makes most people blame RobinHood.
- ffggvv 6y agothere isn't going to be an exodus.. just a whiny minority complaining they cant bankrupt themselves
- dang 6y agoPlease stop posting flamebait and/or unsubstantive comments to HN. You've done it repeatedly and we ban that sort of account. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- PeterStuer 6y agoSo where do those friends plan to migrate to?
- llcoolv 6y agoThis is a very good point, the question is where to go? I am European, we don't even have Robinhood here, so I had a dead eToro account with 140 EUR on it and Interactive Brokers, which we all thought was synonymous with quality and respect. However, they folded first, along with Degiro, which was the other "well-reputed" option available to us. Everyone started running to XTB, which limited trading on Friday afternoon/night. In the US there is Webull, which went against their clients initially and then reversed. As an European - where should I go to? Binance/Kraken seems the only reasonable option at this point, however crypto has ties to the real world only on macro-economic scale (although very relevant) and you cannot use your "capital" to influence the world around you in a good way. P.S. I know that Fidelity and other well-reputed vendors didn't turn coats, but I am not sure it is an option here. P.P.S. This reminded me of https://www.investopedia.com/terms/t/tina-there-no-alternative.asp#:~:text=TINA%20is%20an%20acronym%20for,%22there%20is%20no%20alternative%22.&text=The%20%22TINA%20effect%22%20can%20be,investment%20dollars%20to%20work%20elsewhere https://www.investopedia.com/terms/t/tina-there-no-alternati....
- rapnie 6y ago> This is a very good point, the question is where to go? There's Bux in The Netherlands. Haven't used them, though. https://getbux.com/ https://getbux.com/
- deleted 6y ago[deleted]
- thinkingemote 6y agoI don't know but it seems like the more reliable businesses in Europe to use have higher fees or monthly charges...
- almost_usual 6y ago> Robinhood won’t go out of business because of lawsuits, it’ll be an exodus of users. I would imagine most users care more about money and convenience than principles. I doubt they lose many users in the long run. If the bubble or market crashes though they will lose a large user base for a long period of time.
- matttb 6y agoI think many users feel that RH affected both their money and convenience
- lettergram 6y agoWithin 2 hours of this happening I personally know of at least $2m leaving robinhood accounts. Everyone (and I mean literally everyone) I know that used robinhood are closing their accounts.
- drexlspivey 6y agoWhere are they moving to?
- belorn 6y agoMy bet is that this will be lasting to the point where Robinhood will need to change name. Out of the things people are a bit careful with and want full control of, their own money is distinctly one of those. The Robinhood story as it being describe include both forced sales, as well as not being allowed to user their money to buy stocks. Both seems pretty scary to would be new customers as well as existing ones.
- jsonne 6y agoRobinhood canceled my GME calls orders at 1am and sent a message confirming that I canceled them (I didn't). Doesn't matter if they're technically in their rights or not the trust is shattered and I'm closing my account. Everyone else even in IRL spaces agrees with the sentiment. Anecdotally my barista at my local coffee spot told me to move to Webull or another platform so the sentiment seems to be widespread.
- the-dude 6y agoIsn't the saying that if your taxidriver or shoeshiner starts talking about the stock market, it is time to get out? Do we need to add barista's to the list?
- headmelted 6y agoEven without the user exodus I’d think there’s cause for concern regardless. They’ve said their financial position is stable, yet they’re stopping trades because of the volume moving through their clearance system (if I’ve understood what Vlad was saying to Bloomberg correctly, they no longer use an external clearing house). If it walks like a duck, and it quacks like a duck, then it’s probably a duck. And it’s probably good that it’s walking as it doesn’t sound like there’s a whole lot of liquidity left to swim in. I worry about this for other massive firms, even leaving the current circus aside. As unlikely as it might seem, what happens if a Schwab or a Fidelity or a Vanguard gets into trouble from some as-yet-unseen event?
- throwaheyy 6y agoI don’t think so. Their settlement collateral deposited with the clearing house is unrelated to their own profit, loss or debt. It’s to cover customer trades in the event of a customer defaulting on settlement. The collateral can be thought of as more like “server capacity”. Their customers’ demand for usage of the collateral exceeded what was available and they had to reject new trades with, continuing the analogy, an HTTP 429. That doesn’t mean that they’re suddenly insolvent.
- headmelted 6y agoI agree this isn’t about Robinhood’s solvency, but it also means they’re essentially unable to execute trades in a way that’s consistent with a free market. Their business requires them to perform this function, and if they can’t do that because they’ve run out of their own money with which to underwrite these trades until settlement, then that’s very much a crisis of liquidity however you slice it (which you can’t because, you know, liquid. Badum-tisch).
- ll931110 6y agoAs long as Robinhood offers excellent UX, people will return. Look how many claims over Facebook's digital privacy, including companies boycotting Facebook, and yet people still use it now. Good UX is hard to beat.
- trident5000 6y agoThey are the number 1 app in app stores right now. People are morons. They're not going out of business anytime soon.
- indecisive_user 6y agoThey are the #1 app because people were interested in trading GME, and the network effect led to lots of recommendations to download robinhood. Now there is a very negative sentiment towards robinhood. Very few people online will recommend it. Worth noting that Webull, a robinhood competitor, is the #2 app in the play store. They initially restricted stocks but later allowed people to freely buy and sell.
- matttb 6y agoAnd I think more importantly, Webull said from the beginning what the issue was and communicated their efforts to fix it. Robinhood put up a blogpost that made it sound like everything was their choice and then went completely silent the entire day.
- chrischen 6y agoThey did shoot up in the app store during this negative publicity. It could be that a vocal minority just don’t matter.
- thinkingemote 6y agoThey shot up earlier in the week of the publicity because it wasn't negative right then and they were the business of choice for the user of wsb. All meme stocks were being bought using this. On Thursday and Friday was when the publicity turned negative.
- kilroy123 6y agoI agree. They're in big trouble after this. I think a lot of people actually will switch. If they really have an IPO after this, expect a lot of madness.
- thinkingemote 6y agofreetrade in the UK might be worth looking at for an example of a business trying to repair their brand. They basically said they were deeply sorry, didn't try to cover up and blamed their bank and clearinghouse.