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I'm out of the loop on what Robinhood did, and the news articles on this fine seem to be a bit vague. What did they do that is manipulative and predatory?

nrmitchi 5y ago
I'm just going to go off the top of my head here. 1. They released a "checking account" that they claimed was FDIC and/or SPIC insured when it was not. (yes, they backed off of this one when they got caught). 2. They've gamified buying/selling stocks using addictive dark patterns (like confetti explosions). FOMO-inspiring push notifications are another example here. 3. They have such a terrible level of support for a product which involves people's real money. 4. They let people start trading options without any of the due-diligence typically performed. 5. They released an initial options product which was quite literally "Do you think this stock is going to go UP or DOWN?" 6. Their entire product is based on people having margin accounts that do not know that they have margin accounts. 7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard. Overall, their business model is taking a variety of complex financial instruments and wrapping them up in lipstick to sell to people who overwhelmingly do not understand the thing they are actually buying (or selling). I'm sure I'm forgetting a couple but I'm also multi-tasking at the moment. Edit: I forgot about the "infinite money" "glitch", which was a situation explicitly called out in regulation as prohibited (regarding counting outstanding margin credit as assets when calculating margin credit)
- dntrkv 5y ago
  Many of your points were being lauded as good things just a year ago. "Robinhood made advanced financial instruments accessible to the average Joe" now that the average joe has continuously shot himself in the foot, people are realizing it might not have been the best idea.
  - nrmitchi 5y ago
    > Many of your points were being lauded as good things just a year ago I'm sure some people did. I personally have never said these were a good thing, and am still not saying they were ever a good thing. > Robinhood made advanced financial instruments accessible to the average Joe This is definitely a very charitable interpretation of what I said.
  - dane-pgp 5y ago
    How's this for some proposed legislation/regulation: Anyone who wants to use a share trading service has to first complete a one month "training period" where they use the service with virtual money only. The UI would be exactly the same, but you couldn't top-up or cash-out your balance. The catch, though, is that you "fail" this training period if you don't make a profit (or enough trades) during that month. You are also prevented from attempting another training period with that service (or any other service) for another 11 months. This would have the dual effect of locking out the large proportion of users who don't know what they are doing, and also preventing a sudden influx of users from taking advantage of (or falling victim to) some meme scheme that generates a lot of short-term media attention.
    - dntrkv 5y ago
      Making money on trades within a month doesn't tell you whether you know what you're doing. It only tells you if you're lucky. We should not be encouraging day trading. A better test would be if you put the money in non-penny/non-meme stocks and didn't touch it for the remainder of the month.
- greenshackle2 5y ago
  > 7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard. Just to elaborate a bit, with payment for order flow the broker essentially gets a kickback for executing a trade with a particular firm. They pass on part of the kickback to the customer as a rebate, and keep some of it for themselves. Robinhood was (is?) keeping a bigger cut for themselves than other brokers who do payment for order flow (practically all retail brokers at this point, I guess), while advertising that they have the best execution. If I remember right, they didn't get dinged for keeping a bigger cut because that's not necessarily illegal, they got dinged for lying about it - you can't say you have the best execution in the industry if you're taking more hidden fees than everyone else.
- alexander-litty 5y ago
  The FDIC-insured nonsense alone perplexes me. There is no web to spin here that favors them. Did they really think they could get away with this? Or did they have a severe cascade of miscommunication? It is incredibly irresponsible and careless behavior either way.
deleted 5y ago
[deleted]
ZoomerCretin 5y ago
They are paid to route their order flow through the same firm that is heavily invested in shorting GameStop. The specific action I’m referring to is the banning of buying any more shares of $GME. Assuming everyone was playing by the rules, there should be no reason why margin requirements would increase for buyers of a stock but not for the shorts whose collective positions had recently become net-negative in the $10,000,000,000+ range. Robinhood may have simply been coerced to do this, but regardless, it eroded my trust in their ability to provide me with any share I want in any quantity I can afford. I and many other retail investors switched to bigger firms that won’t have liquidity issues, or enact arbitrary restrictions on stock purchases because of those issues or their close relationships with the billionaires on the other side of the trade.
- gruez 5y ago
  >there should be no reason why margin requirements would increase for buyers of a stock but not for the shorts source for margin requirement only increasing for longs but not shorts? Some non-nefarious explanations I can think off the top of my head: * hedge funds and their prime brokers has much easier access to credit than retail brokerages, which allow them fulfill their deposit obligations than a discount brokerage * since the hedge funds shorted GME a long time ago, the trades were already settled, so they're not subject to any deposit obligations (since deposit obligations only exist for unsettled trades)
  - nrmitchi 5y ago
    > which allow them fulfill their deposit obligations than a discount brokerage Not even just easier access to new capital, but you can be sure they are able to move money faster than someone doing an ACH transaction to Robinhood that would take multiple days to actually settle.
- nrmitchi 5y ago
  > no reason why margin requirements would increase for buyers of a stock but not for the shorts There are tons of reasons why (counter-party risk, correlated risk of brokerages with high exposure, T+2 settlement, etc). You seem particularly keen on ignoring them though. > Robinhood may have simply been coerced to do this, but regardless Please stop ignoring known facts in favor of your conspiracy theory. > I and many other retail investors switched to bigger firms that won’t have liquidity issues It is completely logical that larger brokerages will be able to weather liquidity issues more easily. If this was super important to you, going with the discount brokerage was a poor decision in the first place.

nrmitchi 5y ago

I'm just going to go off the top of my head here. 1. They released a "checking account" that they claimed was FDIC and/or SPIC insured when it was not. (yes, they backed off of this one when they got caught). 2. They've gamified buying/selling stocks using addictive dark patterns (like confetti explosions). FOMO-inspiring push notifications are another example here. 3. They have such a terrible level of support for a product which involves people's real money. 4. They let people start trading options without any of the due-diligence typically performed. 5. They released an initial options product which was quite literally "Do you think this stock is going to go UP or DOWN?" 6. Their entire product is based on people having margin accounts that do not know that they have margin accounts. 7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard. Overall, their business model is taking a variety of complex financial instruments and wrapping them up in lipstick to sell to people who overwhelmingly do not understand the thing they are actually buying (or selling). I'm sure I'm forgetting a couple but I'm also multi-tasking at the moment. Edit: I forgot about the "infinite money" "glitch", which was a situation explicitly called out in regulation as prohibited (regarding counting outstanding margin credit as assets when calculating margin credit)

dntrkv 5y ago
Many of your points were being lauded as good things just a year ago. "Robinhood made advanced financial instruments accessible to the average Joe" now that the average joe has continuously shot himself in the foot, people are realizing it might not have been the best idea.
- nrmitchi 5y ago
  > Many of your points were being lauded as good things just a year ago I'm sure some people did. I personally have never said these were a good thing, and am still not saying they were ever a good thing. > Robinhood made advanced financial instruments accessible to the average Joe This is definitely a very charitable interpretation of what I said.
- dane-pgp 5y ago
  How's this for some proposed legislation/regulation: Anyone who wants to use a share trading service has to first complete a one month "training period" where they use the service with virtual money only. The UI would be exactly the same, but you couldn't top-up or cash-out your balance. The catch, though, is that you "fail" this training period if you don't make a profit (or enough trades) during that month. You are also prevented from attempting another training period with that service (or any other service) for another 11 months. This would have the dual effect of locking out the large proportion of users who don't know what they are doing, and also preventing a sudden influx of users from taking advantage of (or falling victim to) some meme scheme that generates a lot of short-term media attention.
  - dntrkv 5y ago
    Making money on trades within a month doesn't tell you whether you know what you're doing. It only tells you if you're lucky. We should not be encouraging day trading. A better test would be if you put the money in non-penny/non-meme stocks and didn't touch it for the remainder of the month.
greenshackle2 5y ago
> 7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard. Just to elaborate a bit, with payment for order flow the broker essentially gets a kickback for executing a trade with a particular firm. They pass on part of the kickback to the customer as a rebate, and keep some of it for themselves. Robinhood was (is?) keeping a bigger cut for themselves than other brokers who do payment for order flow (practically all retail brokers at this point, I guess), while advertising that they have the best execution. If I remember right, they didn't get dinged for keeping a bigger cut because that's not necessarily illegal, they got dinged for lying about it - you can't say you have the best execution in the industry if you're taking more hidden fees than everyone else.
alexander-litty 5y ago
The FDIC-insured nonsense alone perplexes me. There is no web to spin here that favors them. Did they really think they could get away with this? Or did they have a severe cascade of miscommunication? It is incredibly irresponsible and careless behavior either way.

deleted 5y ago

[deleted]

ZoomerCretin 5y ago

They are paid to route their order flow through the same firm that is heavily invested in shorting GameStop. The specific action I’m referring to is the banning of buying any more shares of $GME. Assuming everyone was playing by the rules, there should be no reason why margin requirements would increase for buyers of a stock but not for the shorts whose collective positions had recently become net-negative in the $10,000,000,000+ range. Robinhood may have simply been coerced to do this, but regardless, it eroded my trust in their ability to provide me with any share I want in any quantity I can afford. I and many other retail investors switched to bigger firms that won’t have liquidity issues, or enact arbitrary restrictions on stock purchases because of those issues or their close relationships with the billionaires on the other side of the trade.

gruez 5y ago
>there should be no reason why margin requirements would increase for buyers of a stock but not for the shorts source for margin requirement only increasing for longs but not shorts? Some non-nefarious explanations I can think off the top of my head: * hedge funds and their prime brokers has much easier access to credit than retail brokerages, which allow them fulfill their deposit obligations than a discount brokerage * since the hedge funds shorted GME a long time ago, the trades were already settled, so they're not subject to any deposit obligations (since deposit obligations only exist for unsettled trades)
- nrmitchi 5y ago
  > which allow them fulfill their deposit obligations than a discount brokerage Not even just easier access to new capital, but you can be sure they are able to move money faster than someone doing an ACH transaction to Robinhood that would take multiple days to actually settle.
nrmitchi 5y ago
> no reason why margin requirements would increase for buyers of a stock but not for the shorts There are tons of reasons why (counter-party risk, correlated risk of brokerages with high exposure, T+2 settlement, etc). You seem particularly keen on ignoring them though. > Robinhood may have simply been coerced to do this, but regardless Please stop ignoring known facts in favor of your conspiracy theory. > I and many other retail investors switched to bigger firms that won’t have liquidity issues It is completely logical that larger brokerages will be able to weather liquidity issues more easily. If this was super important to you, going with the discount brokerage was a poor decision in the first place.