6 ms·

Robinhood is a shady company preying on the uninformed and as such deserves every punishment it gets. However, Robinhood clients do not get to wash their hands

Robinhood is a shady company preying on the uninformed and as such deserves every punishment it gets. However, Robinhood clients do not get to wash their hands of responsibility, because let's be honest: what did they expect to get for a free service? Are all these people seriously so deluded that they have expected that a company will provide them free service out of the goodness of their heart? Again, Robinhood outright lied, and they must not get away with this. But we have to educate people that there are very few (if any) "free" services that won't have to resort to these antics. They have to make money somehow, and if it's not obvious how, that should be an immediate red flag.

sillysaurusx 6y ago
Fortunately, there are rules that Robinhood must abide by. Perhaps in the near future, the SEC might find that Robinhood violated those rules by preventing people from buying more than one GME share. (I get that the clearinghouse was the reason, because they upped their collateral requirement from 3% to 100%, so Robinhood just couldn't cover the trades. Nor could anyone else. But that doesn't change the reality of what happened. I wonder if it's too much to hope that the SEC will aim at the clearinghouse, or congress enact legislation to prevent the clearinghouse from shutting down specific segments of the market by suddenly requiring 33.33x more collateral for certain stocks.)
- valuearb 6y ago
  Isn’t the reality that the DTCC was forced to increase collateral requirements? You understand that if GME drops to $80 today, a large number of GME trades from last week are going to refuse to settle. What is Congress going to do? Force the DTCC to eat the losses?
  - sillysaurusx 6y ago
    A simple solution would be to turn the 3-day settlement period into 1-day, or 0-day. But of course, DTCC has all the incentive in the world not to go along with that. The trouble is that the 3-day period is a "leaky abstraction." It's the sole reason any of this became an issue. It's not a law of nature that "DTCC must insure 3 days of risk."
    - gruez 6y ago
      >A simple solution would be to turn the 3-day settlement period into 1-day, or 0-day. Unless you cut the settlement to 0 the issue will remain. The fundamental issue is that 1) deposit is required, 2) there's a spike in demand/deposit requirements, 3) current reserves can't pay for deposits. Going to 1 day settlement will just cause brokers to reduce their overall reserves in response (no need keeping all that money around!), so the next time a spike occurs the same issue will occur.
PascLeRasc 6y ago
I agree that they're shady, and moved my account out last week, but their pricing is exactly the same as Fidelity, Schwab, and Vanguard. Would you recommend using a broker that charges a commission to buy?
disgu 6y ago
It's well-known how Robinhood makes money. They sell data they have based on tracking their user's habits within the app. This "it's free so what do people expect" is such a ridiculously lame excuse as well. No, it's not free. The user is just not the one paying. If the app sells the data and offers a service in exchange then they better offer that service.
- short_sells_poo 6y ago
  But the user is the one paying - they get a worse execution than they could have gotten. The difference is split between RH and Citadel. The user does not have to shell out cash per transaction, but they will pay for the service one way or another.
cashewchoo 6y ago
TBF there's an enormous precedent to these kinda of financial infrastructure things being free: Retail Banking. And it's worth noting that Robinhood isn't the one who forced big brokerages to do zero-free equity trades; it was Schwab doing it purely because 1) their income streams were generally not dependent on trade commissions and 2) they were predicting that executing retail trades was going to quickly become a commodity that costs pennies or nothing, so why not get a big PR boost by just cutting straight to zero, while dealing a large blow to competitors who did rely on that (outdated) business model? So I'd argue that their service being no-charge-to-most-users (you do have to pay for "real" margin accounts, extended hours trading, etc) is actually unrelated to all the shady and, imo, negligent things they do.

sillysaurusx 6y ago

Fortunately, there are rules that Robinhood must abide by. Perhaps in the near future, the SEC might find that Robinhood violated those rules by preventing people from buying more than one GME share. (I get that the clearinghouse was the reason, because they upped their collateral requirement from 3% to 100%, so Robinhood just couldn't cover the trades. Nor could anyone else. But that doesn't change the reality of what happened. I wonder if it's too much to hope that the SEC will aim at the clearinghouse, or congress enact legislation to prevent the clearinghouse from shutting down specific segments of the market by suddenly requiring 33.33x more collateral for certain stocks.)

valuearb 6y ago
Isn’t the reality that the DTCC was forced to increase collateral requirements? You understand that if GME drops to $80 today, a large number of GME trades from last week are going to refuse to settle. What is Congress going to do? Force the DTCC to eat the losses?
- sillysaurusx 6y ago
  A simple solution would be to turn the 3-day settlement period into 1-day, or 0-day. But of course, DTCC has all the incentive in the world not to go along with that. The trouble is that the 3-day period is a "leaky abstraction." It's the sole reason any of this became an issue. It's not a law of nature that "DTCC must insure 3 days of risk."
  - gruez 6y ago
    >A simple solution would be to turn the 3-day settlement period into 1-day, or 0-day. Unless you cut the settlement to 0 the issue will remain. The fundamental issue is that 1) deposit is required, 2) there's a spike in demand/deposit requirements, 3) current reserves can't pay for deposits. Going to 1 day settlement will just cause brokers to reduce their overall reserves in response (no need keeping all that money around!), so the next time a spike occurs the same issue will occur.

PascLeRasc 6y ago

I agree that they're shady, and moved my account out last week, but their pricing is exactly the same as Fidelity, Schwab, and Vanguard. Would you recommend using a broker that charges a commission to buy?

disgu 6y ago

It's well-known how Robinhood makes money. They sell data they have based on tracking their user's habits within the app. This "it's free so what do people expect" is such a ridiculously lame excuse as well. No, it's not free. The user is just not the one paying. If the app sells the data and offers a service in exchange then they better offer that service.

short_sells_poo 6y ago
But the user is the one paying - they get a worse execution than they could have gotten. The difference is split between RH and Citadel. The user does not have to shell out cash per transaction, but they will pay for the service one way or another.

cashewchoo 6y ago

TBF there's an enormous precedent to these kinda of financial infrastructure things being free: Retail Banking. And it's worth noting that Robinhood isn't the one who forced big brokerages to do zero-free equity trades; it was Schwab doing it purely because 1) their income streams were generally not dependent on trade commissions and 2) they were predicting that executing retail trades was going to quickly become a commodity that costs pennies or nothing, so why not get a big PR boost by just cutting straight to zero, while dealing a large blow to competitors who did rely on that (outdated) business model? So I'd argue that their service being no-charge-to-most-users (you do have to pay for "real" margin accounts, extended hours trading, etc) is actually unrelated to all the shady and, imo, negligent things they do.