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I understand that many give Robinhood crap because it is not "sophisticated enough" or because of the Gamestop fiasco. Although many startups like to claim that

I understand that many give Robinhood crap because it is not "sophisticated enough" or because of the Gamestop fiasco. Although many startups like to claim that they are "democratizing [x]", I honestly believe they did it. I have many friends that never traded before, and after they got their Robinhood account they feel comfortable enough to do it often. Even myself, who used to only trade a couple of times a year, started with $300 in my Robinhood account a few years back. Now I have at least ~60k that I rotate around in my Robinhood account on a daily/weekly basis. Yes there are other services that I now use or other apps that seems better, but for all intents and purposes, Robinhood did "democratize" trading for me.

cwkoss 5y ago
If they removed all of the dark patterns from their UI, I think they could be a real social good.
- deleted 5y ago
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yreg 5y ago
If I went for this positive spin, I'd talk about democratising investing, not democratising trading. Democratising trading is not inherently good, similar to democratising gambling.
- onlyrealcuzzo 5y ago
  If people want to gamble (or do drugs), why should we be nannies and stop them? I get the desire to stop commercial banks from gambling YOUR savings. But why shouldn't you be able to gamble your own savings if you want to?
  - 2OEH8eoCRo0 5y ago
    Huge societal costs that we all bear?
    - Consultant32452 5y ago
      A few randos going bankrupt is a minor societal cost at worst. The big societal costs are when the big boys get bailed out, usually by deflating all of our currency.
  - mym1990 5y ago
    It depends on how much you care for the person doing the gambling or drugs and at which stage its at. Being a nanny to everyone doing something 'bad' would be a 24/7 affair. On a large scale, eventually lots of people will be hurt. Everyone thought they were having lots of fun in 2007, and then people started jumping out of buildings. Those people had family and friends. Many of the young people in the market right now have never seen or gone through that, and if they keep preaching 'stocks only go up' while trading on 40x margin, they will eventually find out that stonks sometimes go down.
  - yreg 5y ago
    I'm not saying we should be stopping them. But I also don't consider democratising and enabling gambling or taking drugs heroic. Similarly, I'm all for drinking alcohol yet wouldn't cheer for an innovation that would make people drink more. ---- That being said, I think that RH (and many other platforms) do in fact democratise investing (and that's great).
    - wanderingmind 5y ago
      Do you consider legalising drugs as good for the society? Do you think drugs won't be advertised like how cigarettes and alcohol is being advertised. This is the price to live in a free society. You allow people to make their mistakes and live by its consequences.
      - tonfa 5y ago
        > Do you think drugs won't be advertised like how cigarettes and alcohol is being advertised Many countries ban advertizing for cigarettes. So while it's not banned the cost on society and public health is large enough that it's worth restricting advertizing. I realize that likely seems totally weird for US folks, but that's really not weird at all in Europe. Same as regulating advertizing targeting kids, etc.
        valleyer 5y ago
        The US has banned tobacco ads on TV and radio for over half a century. It does not seem "totally weird" to us.
        tonfa 5y ago
        Then I understand parents comment even less :)
      - yreg 5y ago
        I don't get how that's relevant? I can consider legalising X good and also consider it bad when more people in the society become addicted to X. That's not an inconsistent view.
  - NegativeLatency 5y ago
    There’s a difference between stopping them and stopping exploitative companies who want to profit off of them.
  - deleted 5y ago
    [deleted]
beambot 5y ago
Your use of the word "trade" versus "invest" perfect encapsulates the nuance of Robinhood. What exactly is Robinhood's product? It's certainly not the newly-minted traders -- their orders are "free". If you follow the money, it looks like it's mostly Pay For Order Flow (PFOF). I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain.
- gruez 5y ago
  > I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain. It really isn't. They're making money off the spread (eg. $105.01 bid vs $105.02 ask), which exists regardless of PFOF (regulation NMS mandates that the price be better or equal to NBBO). The reason why they want retail flow is that it's mostly "uninformed" and they're less likely to get run over. matt levine explains this in detail: https://www.bloomberg.com/opinion/articles/2021-01-29/reddit-traders-on-robinhood-are-on-both-sides-of-gamestop https://www.bloomberg.com/opinion/articles/2021-01-29/reddit... >I like to tell a fairly textbook version of that story. Market makers stand ready to buy or sell stock from or to customers; they try to buy for a bit less than they sell at, and pocket the spread. If you go out into the market and say “hey I’ll buy anyone’s stock for $10,” and a really smart hedge fund comes to you and sells you stock for $10, that’s probably bad. You’ve probably made a mistake. The hedge fund is selling you the stock for $10 because it knows it’s worth $8. This is called “adverse selection.” >More subtly, if a really big mutual fund comes to you and sells you stock for $10, that also may be bad. The mutual fund is probably selling lots of stock, because it’s so big; it sells you a little, then sells a little more, then a little more, until it pushes the price down to $8. The mutual fund isn’t necessarily smart, but by virtue of being big and doing big trades, it moves the price; if you are on the other side of its trades, you get run over. This is also a kind of adverse selection: You buy at $10 and are stuck selling at $8. Part of the spread that market makers earn in public markets—the difference between their buying and selling prices—compensates them for adverse selection, the risk of being run over by a counterparty who knows something they don’t. >Market makers, the textbook theory goes, would much rather trade with retail orders. Retail investors generally don’t know much, so if you buy stock from them you’re probably not making a mistake. And retail orders are generally small and uncorrelated: One investor buys a little, another comes along a moment later and sells a little, it’s all pretty random, and you’re not facing an avalanche of steady sell orders that push the price down. Trading with retail is so nice that market makers—wholesalers—will both give retail orders a tighter spread (pay more to buy their stock, charge less to sell stock to them) and pay their broker for the privilege of doing it.
matt_s 5y ago
I have read anecdotes that their ToS is geared towards them owning the securities because they pool purchases. Their business model is the brokers are the ones that actually pay them and potentially hold the securities. Also, from their recent "Systemic Supervisory Failures" [0]: > Between 2018 and late 2020, Robinhood experienced a series of outages and critical systems failures. The most serious outage occurred on March 2 and 3, 2020, when Robinhood’s website and mobile applications shut down, preventing Robinhood’s customers from accessing their accounts during a time of historic market volatility. In the event of a large market downturn could you actually transfer that 60k elsewhere or for that matter, even access the platform to exit positions? Payment for order flow means you are likely in line behind which ever Wall St firm is paying for that order flow. Yes that is illegal for them to do (called front running I believe) but the fines they pay are usually tiny compared to the revenue. [0] https://www.finra.org/media-center/newsreleases/2021/finra-orders-record-financial-penalties-against-robinhood-financial https://www.finra.org/media-center/newsreleases/2021/finra-o...
- atombender 5y ago
  Robinhood is a broker-dealer, and is subject to the same regulations as everyone else. All the major brokerages hold securities under their name ("in street name") on behalf of the customer. You still retain legal ownership, even for fractional shares. As far as I know, Robinhood has its own clearing house subsidiary, Robinhood Securities, that handles the share bookkeeping, including the fractional share inventory you're talking about.
  - matt_s 5y ago
    What I was referring to is most RH accounts are setup as margin because of instant deposits. This means they can liquidate that account without your action. IANAL but it might help to compare their TOS against other brokers. This latest fine isn’t there first fine. I wouldn’t trust them with a penny. There is too much shady stuff coming to light with RH.
  - dannyw 5y ago
    Only in America, mind you. In Australia, all publicly traded companies are under CHESS, which means that when you buy a share, it's directly held in your name.
ditonal 5y ago
Index funds democratized investing. Robinhood “democratized” the worst part of investing and exposed unsophisticated investors to the instruments they are most likely to underperform on. Individual stock picking is probably worse than indexes but fine, however the incentive to day trade or trade complex derivatives is almost certainly going to hurt people far more often than a Vanguard account. It’s not a coincidence Robinhood has been directly linked to teen suicide and Vlad gave the proverbial lip service. In any case, it really doesn’t matter. It’s awful at order execution, so you get worst prices on things. This was proven but SEC just gave slap on wrist. Its an extremely immature platform and has outages at the worst times. It’s app is simple but missing key info compared to competitors. Finally, the GameStop fiasco was unforgivable and only a naive fool would accept the explanation given. Citadel is the MAJORITY of Robinhood revenue and was opposite that trade. The stock market has existed for over a century with online trading for decades, including many volatile stocks, and apologists can’t name a single other example of one way trade restrictions. It didn’t happen during the Volkswagen short squeeze. Despite that, apologists act like the clearing house explanation is stone cold fact. Source? Not a single investigation other than the word of Robinhood CEO, who contradicted himself multiple times explaining it. It was the fraud of the century and only people with little understanding of finance bought the explanation.
- adabyron 5y ago
  M1, E-Trade, Trading 212, Interactive Brokers, TD Ameritrade/Schwab and WeBull halted options as well.[1] There are a few more I'm missing. I wasn't happy about it but I don't blame them. As much as people were talking about over 100% of GME shorted, I can't imagine how much margin on top of margin people were trading while there options had yet to be settled. If anything the issue should be how long it takes a trade to settle. [1]https://markets.businessinsider.com/news/stocks/robinhood-webull-m1-reopen-gamestop-stock-trading-2021-1-1030019926 https://markets.businessinsider.com/news/stocks/robinhood-we...
  - Judgmentality 5y ago
    > I wasn't happy about it but I don't blame them. What they did was illegal, so why not blame them? Robinhood is being investigated for it. Why not blame everyone that's guilty? https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood-ceos-phone-in-gamestop-trading-halt-investigation https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood...
mdoms 5y ago
> I understand that many give Robinhood crap because it is not "sophisticated enough" I don't recall ever seeing anyone criticise RH for this. It's RH's entire model to be unsophisticated and "democratise" trading. > because of the Gamestop fiasco Anyone who doesn't criticise RH for this has rocks in their heads. Anyone who believes RH's official explanation lacks basic critical thinking skills.
adabyron 5y ago
People complain about unfair advantages regular "retail" people have but Robinhood has made access to stocks & options a lot easier. They've made it easy to get the cheapest rates possible on portfolio backed loans. They're starting to try & give some type of IPO access, although I can't comment on the value of that. If they start to offer IRAs & other tax advantaged accounts, plus a way for non accredited investors to invest early in Start-Ups they would have hit a grand slam in my opinion. Obviously while I see the above as a lot of great things, in the wrong hands people can do a ton of damage to themselves with margin, options or trading risky stocks. Robinhood, at the demands of critics, has been improving their information in their UI to help people better understand the risks. And yes, their bash the button to get early crypto access shall never be forgotten & always be a tarnish. The Robinhood app is far better than anyone else out there for your average investor. ThinkorSwim is the only thing even close & it's far to complicated for most. Otherwise Robinhood is faster, cheaper, better info & overall better user experience. The other companies have all been incredibly behind times, as financial companies are known for. Side Rant: Robinhood wasn't the only one to run into GameStop issues. There are some people who believe the whole GME debacle was very close to having huge negative implications on the entire market that were going to hurt everyone, whether in the trade or not.
- m00x 5y ago
  Retail investors could still invest using regular tools. Most banks have portals where you can buy/sell, but most of them safeguard against margin bets and they have much less sketchy practices. Robinhood made it fancy and hid the complexities of investing so they could turn investing into a gambling platform.
- toomanybeersies 5y ago
  There's a reason why retail investors have traditionally been locked out of things like options and investing in IPOs. More often than not it ends up with the less wealthy losing their life savings. "The wrong hands" is the average retail investor. The philosophical debate is whether those people should be allowed to waste their life savings because they should know better, or if the government should make efforts to ensure that they can't.
arcturus17 5y ago
I really don’t understand this “democratizing” thing. In Spain, banks have allowed to trade on all kinds of assets for ages. Some with low fees. If you wanted to buy a certain asset you could do so in like three clicks. In the US I know as a fact that some banks like Charles Schwab have also made retail investing accessible for ages… Robin Hood has “democratized” trading in the sense of aggressively expanding it through marketing, maybe a cool UX (I wouldn’t know), but otherwise I don’t see how it has innovated significantly in the area of retail investing. Like a sibling commenter is saying it has also popularized day-trading more than anything. The math about day-trading is unequivocal and it may very well be that popularizing this is a net loss for society, or at the very least (yet another?) mechanism for transferring wealth from the middle class to sophisticated elites (I mean, this wouldn’t be a loss if you believe it’s stricly a zero-sum effect, and that wealth is just as well in either set of hands) To be clear, I may have moral qualms with RH and the popularization of day-trading, but I do believe in free market economics and I think it should exist - I can only hope that in time regular folk become educated about investing and that my transfer theory doesn’t come to fruition. I’m all open for counterpoints on both my claims that it hasn’t done all that much for democratizing retail investing and that day-trading for the masses may be a bad proposition.
- cyral 5y ago
  > In the US I know as a fact that some banks like Charles Schwab have also made retail investing accessible for ages… I was helping a friend open an IRA with Schwab the other day. After you sign up, it just plops you into their dashboard with no instructions at all. Search function was useless, actually took tons of clicks for me to figure out how to fund the IRA and invest it in an index fund (for example, the list of target date funds isn't found anywhere on their menus, I had to google and use their secondary fund site to find the symbol). Basically they sure didn't make it easy or accessible for new users, where as with Robinhood it is immediately obvious how it works (I know Robinhood doesn't have IRAs but the patterns for regular investing with other brokers are similar levels of clunkiness)
- dilyevsky 5y ago
  CS had like $9 fee per trade before they felt the heat from RH. Which btw was fine by me since it was small potatoes if you just casually invest and hold for a year or longer. What they really democratized is incessant day-trading, otm calls on dogshit stocks etc. basically a casino pretending to be a brokerage
paxys 5y ago
Yeah, whatever you say about Robinhood, the fact that they came in from nothing and massively disrupted a trillion+ dollar industry is undeniable. Mainstream brokers used to charge $10+ for a single trade, and the fees today are all down to 0. They are also starting to build half-decent apps.
elliekelly 5y ago
> Even myself, who used to only trade a couple of times a year, started with $300 in my Robinhood account a few years back. Now I have at least ~60k that I rotate around in my Robinhood account on a daily/weekly basis. I don’t think trading more stocks and trading them more frequently is a “better” or even “democratized” outcome. For the vast majority of people trading more shares more often is an objectively terrible investment strategy.
- waych 5y ago
  While "day trading is an objectively terrible investment strategy" for most, having more people in the market and market participants being more fluid in their investments than not, is strictly more efficient than a market with less participants who act more illiquid in their positions.
  - wolverine876 5y ago
    Imagine a market of 1,000 people. If we add 5,000 who significantly under- or overvalue, or make other errors, the good being traded, is that more efficient? In terms of economic efficiency, if that's what we mean, I would guess not: It causes the misallocation of capital to worse investments. Was the Gamestop market economically efficient?
    - waych 5y ago
      You are making the assumption that the first 1000 people somehow had a better way to value the assets being trading than the next group that joins the trade. This is a fallacy as the market sets the prices on its own. No by efficiency I mean the spread and incorporation of more information relating to the underlying asset, making it more closely match their fair value, and the resulting tightening of the spread and reduced volatility overall. See Efficient Market Hypothesis. It is also worth noting that it is this same hypothesis that backs the "index funds are better than stock picking" argument.
      - elliekelly 5y ago
lquist 5y ago
Democratizing investing is akin to democratizing gun ownership. Yes, more people have access to the technology/service/etc. but is it really desirable?
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human 5y ago
Robinhood "democratized" gambling on the stock market.
- mhh__ 5y ago
  Coming from a country where gambling is like a plague (Most UK high streets are identical, gambling shops are everywhere), is that any worse than gambling elsewhere? Your chances of lucking into some money seem better there than on sports.
  - pie420 5y ago
    Yeah, of course. All other forms of gambling have an inherent negative return (the house has favorable odds always), while the stock market has a positive return inherently as most companies on the stock market are profitable, so it's better than slots or sports gambling for sure
  - tayo42 5y ago
    There's a side effect where stocks are no longer tied to company performance. It gets harder to seriously invest.
rsync 5y ago
"I have many friends that never traded before, and after they got their Robinhood account they feel comfortable enough to do it often." This reminds me of the lamentations I sometimes hear about the "unbanked" or the "underbanked". I always think: "lucky them ..."
NelsonMinar 5y ago
They democratized gambling on the stock market, not investing.
stouset 5y ago
“Democratizing” day trading is just putting undereducated and underinformed victims in front of professionals with orders of magnitude more access to research, information, and market access. I said it elsewhere but this would be like praising Harrah’s for removing the rake (the casino’s cut) from poker games and encouraging novices to put their money down on the table with Vegas professionals. People would be mortified, but that’s astonishingly close to what’s happening here. Nobody would think this is a good idea, despite the existence of wealthy and successful poker players. We don’t give Robinhood crap because it’s “not sophisticated enough”. We do so because they have removed the guard rails, encouraged the some of the riskiest possible behavior (with a particularly poor risk:reward ratio), abrogated any responsibility of steering their users toward financial literacy or sound investing practices, and done all of this toward one of the most vulnerable classes of market participants. Day trading is not investing. It is to investing as predicting the weather is to predicting the climate. Getting masses of lay people “comfortable” with day trading is—frankly—unmitigated evil. It is a means by which the rich will get richer and the poor will have their money fleeced. The only reason this hasn’t unfolded in complete disaster yet is the absolutely unprecedented bull market we’ve been in. It will end—nobody knows when—but when it does, Robinhood’s customers will be amongst the worst off. We know this because repeated evidence has proven conclusively that one’s market returns are (on average) inversely proportional to the number of trades one makes. Buying and selling in the short-term maximizes the asymmetry between you and better-informed market participants. Buy-and-hold minimizes this, but that’s not even remotely what Robinhood promotes. Vanguard on the other hand actually did democratize long-term buy and hold investing, which is what we should be steering lay people towards.
- toomanybeersies 5y ago
  > Day trading is not investing You have no idea how many of my friends I've tried to explain this to. I try to explain that day trading is as much of an investment as betting on horse or dog races, but I think a lot of my mates also see those as legitimate expenses.
jjeaff 5y ago
Democratizing -investing- is a good thing. But Robinhood democratized -day trading-, i.e. gambling. I think Wealthfront or the few other similar companies actually democratized investing.
- kasey_junk 5y ago
  Let me play devils advocate for a minute. Robinhood had the clear market improvement of making trades cost zero dollars. Prior to their entry into the market $7 trades were considered cheap. Meanwhile wealthfront is marking up investment opportunities that are widely available in funds or etfs for much cheaper. I think wealthfront is much more predatory than Robinhood if judged on the basis of services rendered to informed actors.
  - loeg 5y ago
    Trades of index mutual funds and ETFs held in the administrator’s brokerage were free for years before RH. (Eg, Vanguard funds at Vanguard and Fidelity funds at Fidelity.) What RH accelerated was $0 individual stock trades, which are not great for retail investors at any price.

cwkoss 5y ago

If they removed all of the dark patterns from their UI, I think they could be a real social good.

deleted 5y ago
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yreg 5y ago

If I went for this positive spin, I'd talk about democratising investing, not democratising trading. Democratising trading is not inherently good, similar to democratising gambling.

onlyrealcuzzo 5y ago
If people want to gamble (or do drugs), why should we be nannies and stop them? I get the desire to stop commercial banks from gambling YOUR savings. But why shouldn't you be able to gamble your own savings if you want to?
- 2OEH8eoCRo0 5y ago
  Huge societal costs that we all bear?
  - Consultant32452 5y ago
    A few randos going bankrupt is a minor societal cost at worst. The big societal costs are when the big boys get bailed out, usually by deflating all of our currency.
- mym1990 5y ago
  It depends on how much you care for the person doing the gambling or drugs and at which stage its at. Being a nanny to everyone doing something 'bad' would be a 24/7 affair. On a large scale, eventually lots of people will be hurt. Everyone thought they were having lots of fun in 2007, and then people started jumping out of buildings. Those people had family and friends. Many of the young people in the market right now have never seen or gone through that, and if they keep preaching 'stocks only go up' while trading on 40x margin, they will eventually find out that stonks sometimes go down.
- yreg 5y ago
  I'm not saying we should be stopping them. But I also don't consider democratising and enabling gambling or taking drugs heroic. Similarly, I'm all for drinking alcohol yet wouldn't cheer for an innovation that would make people drink more. ---- That being said, I think that RH (and many other platforms) do in fact democratise investing (and that's great).
  - wanderingmind 5y ago
    Do you consider legalising drugs as good for the society? Do you think drugs won't be advertised like how cigarettes and alcohol is being advertised. This is the price to live in a free society. You allow people to make their mistakes and live by its consequences.
    - tonfa 5y ago
      > Do you think drugs won't be advertised like how cigarettes and alcohol is being advertised Many countries ban advertizing for cigarettes. So while it's not banned the cost on society and public health is large enough that it's worth restricting advertizing. I realize that likely seems totally weird for US folks, but that's really not weird at all in Europe. Same as regulating advertizing targeting kids, etc.
      - valleyer 5y ago
        The US has banned tobacco ads on TV and radio for over half a century. It does not seem "totally weird" to us.
        tonfa 5y ago
        Then I understand parents comment even less :)
    - yreg 5y ago
      I don't get how that's relevant? I can consider legalising X good and also consider it bad when more people in the society become addicted to X. That's not an inconsistent view.
- NegativeLatency 5y ago
  There’s a difference between stopping them and stopping exploitative companies who want to profit off of them.
- deleted 5y ago
  [deleted]

beambot 5y ago

Your use of the word "trade" versus "invest" perfect encapsulates the nuance of Robinhood. What exactly is Robinhood's product? It's certainly not the newly-minted traders -- their orders are "free". If you follow the money, it looks like it's mostly Pay For Order Flow (PFOF). I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain.

gruez 5y ago
> I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain. It really isn't. They're making money off the spread (eg. $105.01 bid vs $105.02 ask), which exists regardless of PFOF (regulation NMS mandates that the price be better or equal to NBBO). The reason why they want retail flow is that it's mostly "uninformed" and they're less likely to get run over. matt levine explains this in detail: https://www.bloomberg.com/opinion/articles/2021-01-29/reddit-traders-on-robinhood-are-on-both-sides-of-gamestop https://www.bloomberg.com/opinion/articles/2021-01-29/reddit... >I like to tell a fairly textbook version of that story. Market makers stand ready to buy or sell stock from or to customers; they try to buy for a bit less than they sell at, and pocket the spread. If you go out into the market and say “hey I’ll buy anyone’s stock for $10,” and a really smart hedge fund comes to you and sells you stock for $10, that’s probably bad. You’ve probably made a mistake. The hedge fund is selling you the stock for $10 because it knows it’s worth $8. This is called “adverse selection.” >More subtly, if a really big mutual fund comes to you and sells you stock for $10, that also may be bad. The mutual fund is probably selling lots of stock, because it’s so big; it sells you a little, then sells a little more, then a little more, until it pushes the price down to $8. The mutual fund isn’t necessarily smart, but by virtue of being big and doing big trades, it moves the price; if you are on the other side of its trades, you get run over. This is also a kind of adverse selection: You buy at $10 and are stuck selling at $8. Part of the spread that market makers earn in public markets—the difference between their buying and selling prices—compensates them for adverse selection, the risk of being run over by a counterparty who knows something they don’t. >Market makers, the textbook theory goes, would much rather trade with retail orders. Retail investors generally don’t know much, so if you buy stock from them you’re probably not making a mistake. And retail orders are generally small and uncorrelated: One investor buys a little, another comes along a moment later and sells a little, it’s all pretty random, and you’re not facing an avalanche of steady sell orders that push the price down. Trading with retail is so nice that market makers—wholesalers—will both give retail orders a tighter spread (pay more to buy their stock, charge less to sell stock to them) and pay their broker for the privilege of doing it.

matt_s 5y ago

I have read anecdotes that their ToS is geared towards them owning the securities because they pool purchases. Their business model is the brokers are the ones that actually pay them and potentially hold the securities. Also, from their recent "Systemic Supervisory Failures" [0]: > Between 2018 and late 2020, Robinhood experienced a series of outages and critical systems failures. The most serious outage occurred on March 2 and 3, 2020, when Robinhood’s website and mobile applications shut down, preventing Robinhood’s customers from accessing their accounts during a time of historic market volatility. In the event of a large market downturn could you actually transfer that 60k elsewhere or for that matter, even access the platform to exit positions? Payment for order flow means you are likely in line behind which ever Wall St firm is paying for that order flow. Yes that is illegal for them to do (called front running I believe) but the fines they pay are usually tiny compared to the revenue. [0] https://www.finra.org/media-center/newsreleases/2021/finra-orders-record-financial-penalties-against-robinhood-financial https://www.finra.org/media-center/newsreleases/2021/finra-o...

atombender 5y ago
Robinhood is a broker-dealer, and is subject to the same regulations as everyone else. All the major brokerages hold securities under their name ("in street name") on behalf of the customer. You still retain legal ownership, even for fractional shares. As far as I know, Robinhood has its own clearing house subsidiary, Robinhood Securities, that handles the share bookkeeping, including the fractional share inventory you're talking about.
- matt_s 5y ago
  What I was referring to is most RH accounts are setup as margin because of instant deposits. This means they can liquidate that account without your action. IANAL but it might help to compare their TOS against other brokers. This latest fine isn’t there first fine. I wouldn’t trust them with a penny. There is too much shady stuff coming to light with RH.
- dannyw 5y ago
  Only in America, mind you. In Australia, all publicly traded companies are under CHESS, which means that when you buy a share, it's directly held in your name.

ditonal 5y ago

Index funds democratized investing. Robinhood “democratized” the worst part of investing and exposed unsophisticated investors to the instruments they are most likely to underperform on. Individual stock picking is probably worse than indexes but fine, however the incentive to day trade or trade complex derivatives is almost certainly going to hurt people far more often than a Vanguard account. It’s not a coincidence Robinhood has been directly linked to teen suicide and Vlad gave the proverbial lip service. In any case, it really doesn’t matter. It’s awful at order execution, so you get worst prices on things. This was proven but SEC just gave slap on wrist. Its an extremely immature platform and has outages at the worst times. It’s app is simple but missing key info compared to competitors. Finally, the GameStop fiasco was unforgivable and only a naive fool would accept the explanation given. Citadel is the MAJORITY of Robinhood revenue and was opposite that trade. The stock market has existed for over a century with online trading for decades, including many volatile stocks, and apologists can’t name a single other example of one way trade restrictions. It didn’t happen during the Volkswagen short squeeze. Despite that, apologists act like the clearing house explanation is stone cold fact. Source? Not a single investigation other than the word of Robinhood CEO, who contradicted himself multiple times explaining it. It was the fraud of the century and only people with little understanding of finance bought the explanation.

adabyron 5y ago
M1, E-Trade, Trading 212, Interactive Brokers, TD Ameritrade/Schwab and WeBull halted options as well.[1] There are a few more I'm missing. I wasn't happy about it but I don't blame them. As much as people were talking about over 100% of GME shorted, I can't imagine how much margin on top of margin people were trading while there options had yet to be settled. If anything the issue should be how long it takes a trade to settle. [1]https://markets.businessinsider.com/news/stocks/robinhood-webull-m1-reopen-gamestop-stock-trading-2021-1-1030019926 https://markets.businessinsider.com/news/stocks/robinhood-we...
- Judgmentality 5y ago
  > I wasn't happy about it but I don't blame them. What they did was illegal, so why not blame them? Robinhood is being investigated for it. Why not blame everyone that's guilty? https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood-ceos-phone-in-gamestop-trading-halt-investigation https://www.vice.com/en/article/wx5p8z/feds-seized-robinhood...

mdoms 5y ago

> I understand that many give Robinhood crap because it is not "sophisticated enough" I don't recall ever seeing anyone criticise RH for this. It's RH's entire model to be unsophisticated and "democratise" trading. > because of the Gamestop fiasco Anyone who doesn't criticise RH for this has rocks in their heads. Anyone who believes RH's official explanation lacks basic critical thinking skills.

adabyron 5y ago

People complain about unfair advantages regular "retail" people have but Robinhood has made access to stocks & options a lot easier. They've made it easy to get the cheapest rates possible on portfolio backed loans. They're starting to try & give some type of IPO access, although I can't comment on the value of that. If they start to offer IRAs & other tax advantaged accounts, plus a way for non accredited investors to invest early in Start-Ups they would have hit a grand slam in my opinion. Obviously while I see the above as a lot of great things, in the wrong hands people can do a ton of damage to themselves with margin, options or trading risky stocks. Robinhood, at the demands of critics, has been improving their information in their UI to help people better understand the risks. And yes, their bash the button to get early crypto access shall never be forgotten & always be a tarnish. The Robinhood app is far better than anyone else out there for your average investor. ThinkorSwim is the only thing even close & it's far to complicated for most. Otherwise Robinhood is faster, cheaper, better info & overall better user experience. The other companies have all been incredibly behind times, as financial companies are known for. Side Rant: Robinhood wasn't the only one to run into GameStop issues. There are some people who believe the whole GME debacle was very close to having huge negative implications on the entire market that were going to hurt everyone, whether in the trade or not.

m00x 5y ago
Retail investors could still invest using regular tools. Most banks have portals where you can buy/sell, but most of them safeguard against margin bets and they have much less sketchy practices. Robinhood made it fancy and hid the complexities of investing so they could turn investing into a gambling platform.
toomanybeersies 5y ago
There's a reason why retail investors have traditionally been locked out of things like options and investing in IPOs. More often than not it ends up with the less wealthy losing their life savings. "The wrong hands" is the average retail investor. The philosophical debate is whether those people should be allowed to waste their life savings because they should know better, or if the government should make efforts to ensure that they can't.

arcturus17 5y ago

I really don’t understand this “democratizing” thing. In Spain, banks have allowed to trade on all kinds of assets for ages. Some with low fees. If you wanted to buy a certain asset you could do so in like three clicks. In the US I know as a fact that some banks like Charles Schwab have also made retail investing accessible for ages… Robin Hood has “democratized” trading in the sense of aggressively expanding it through marketing, maybe a cool UX (I wouldn’t know), but otherwise I don’t see how it has innovated significantly in the area of retail investing. Like a sibling commenter is saying it has also popularized day-trading more than anything. The math about day-trading is unequivocal and it may very well be that popularizing this is a net loss for society, or at the very least (yet another?) mechanism for transferring wealth from the middle class to sophisticated elites (I mean, this wouldn’t be a loss if you believe it’s stricly a zero-sum effect, and that wealth is just as well in either set of hands) To be clear, I may have moral qualms with RH and the popularization of day-trading, but I do believe in free market economics and I think it should exist - I can only hope that in time regular folk become educated about investing and that my transfer theory doesn’t come to fruition. I’m all open for counterpoints on both my claims that it hasn’t done all that much for democratizing retail investing and that day-trading for the masses may be a bad proposition.

cyral 5y ago
> In the US I know as a fact that some banks like Charles Schwab have also made retail investing accessible for ages… I was helping a friend open an IRA with Schwab the other day. After you sign up, it just plops you into their dashboard with no instructions at all. Search function was useless, actually took tons of clicks for me to figure out how to fund the IRA and invest it in an index fund (for example, the list of target date funds isn't found anywhere on their menus, I had to google and use their secondary fund site to find the symbol). Basically they sure didn't make it easy or accessible for new users, where as with Robinhood it is immediately obvious how it works (I know Robinhood doesn't have IRAs but the patterns for regular investing with other brokers are similar levels of clunkiness)
dilyevsky 5y ago
CS had like $9 fee per trade before they felt the heat from RH. Which btw was fine by me since it was small potatoes if you just casually invest and hold for a year or longer. What they really democratized is incessant day-trading, otm calls on dogshit stocks etc. basically a casino pretending to be a brokerage

paxys 5y ago

Yeah, whatever you say about Robinhood, the fact that they came in from nothing and massively disrupted a trillion+ dollar industry is undeniable. Mainstream brokers used to charge $10+ for a single trade, and the fees today are all down to 0. They are also starting to build half-decent apps.

elliekelly 5y ago

> Even myself, who used to only trade a couple of times a year, started with $300 in my Robinhood account a few years back. Now I have at least ~60k that I rotate around in my Robinhood account on a daily/weekly basis. I don’t think trading more stocks and trading them more frequently is a “better” or even “democratized” outcome. For the vast majority of people trading more shares more often is an objectively terrible investment strategy.

waych 5y ago
While "day trading is an objectively terrible investment strategy" for most, having more people in the market and market participants being more fluid in their investments than not, is strictly more efficient than a market with less participants who act more illiquid in their positions.
- wolverine876 5y ago
  Imagine a market of 1,000 people. If we add 5,000 who significantly under- or overvalue, or make other errors, the good being traded, is that more efficient? In terms of economic efficiency, if that's what we mean, I would guess not: It causes the misallocation of capital to worse investments. Was the Gamestop market economically efficient?
  - waych 5y ago
    You are making the assumption that the first 1000 people somehow had a better way to value the assets being trading than the next group that joins the trade. This is a fallacy as the market sets the prices on its own. No by efficiency I mean the spread and incorporation of more information relating to the underlying asset, making it more closely match their fair value, and the resulting tightening of the spread and reduced volatility overall. See Efficient Market Hypothesis. It is also worth noting that it is this same hypothesis that backs the "index funds are better than stock picking" argument.
    - elliekelly 5y ago

lquist 5y ago

Democratizing investing is akin to democratizing gun ownership. Yes, more people have access to the technology/service/etc. but is it really desirable?

deleted 5y ago

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human 5y ago

Robinhood "democratized" gambling on the stock market.

mhh__ 5y ago
Coming from a country where gambling is like a plague (Most UK high streets are identical, gambling shops are everywhere), is that any worse than gambling elsewhere? Your chances of lucking into some money seem better there than on sports.
- pie420 5y ago
  Yeah, of course. All other forms of gambling have an inherent negative return (the house has favorable odds always), while the stock market has a positive return inherently as most companies on the stock market are profitable, so it's better than slots or sports gambling for sure
- tayo42 5y ago
  There's a side effect where stocks are no longer tied to company performance. It gets harder to seriously invest.

rsync 5y ago

"I have many friends that never traded before, and after they got their Robinhood account they feel comfortable enough to do it often." This reminds me of the lamentations I sometimes hear about the "unbanked" or the "underbanked". I always think: "lucky them ..."

NelsonMinar 5y ago

They democratized gambling on the stock market, not investing.

stouset 5y ago

“Democratizing” day trading is just putting undereducated and underinformed victims in front of professionals with orders of magnitude more access to research, information, and market access. I said it elsewhere but this would be like praising Harrah’s for removing the rake (the casino’s cut) from poker games and encouraging novices to put their money down on the table with Vegas professionals. People would be mortified, but that’s astonishingly close to what’s happening here. Nobody would think this is a good idea, despite the existence of wealthy and successful poker players. We don’t give Robinhood crap because it’s “not sophisticated enough”. We do so because they have removed the guard rails, encouraged the some of the riskiest possible behavior (with a particularly poor risk:reward ratio), abrogated any responsibility of steering their users toward financial literacy or sound investing practices, and done all of this toward one of the most vulnerable classes of market participants. Day trading is not investing. It is to investing as predicting the weather is to predicting the climate. Getting masses of lay people “comfortable” with day trading is—frankly—unmitigated evil. It is a means by which the rich will get richer and the poor will have their money fleeced. The only reason this hasn’t unfolded in complete disaster yet is the absolutely unprecedented bull market we’ve been in. It will end—nobody knows when—but when it does, Robinhood’s customers will be amongst the worst off. We know this because repeated evidence has proven conclusively that one’s market returns are (on average) inversely proportional to the number of trades one makes. Buying and selling in the short-term maximizes the asymmetry between you and better-informed market participants. Buy-and-hold minimizes this, but that’s not even remotely what Robinhood promotes. Vanguard on the other hand actually did democratize long-term buy and hold investing, which is what we should be steering lay people towards.

toomanybeersies 5y ago
> Day trading is not investing You have no idea how many of my friends I've tried to explain this to. I try to explain that day trading is as much of an investment as betting on horse or dog races, but I think a lot of my mates also see those as legitimate expenses.

jjeaff 5y ago

Democratizing -investing- is a good thing. But Robinhood democratized -day trading-, i.e. gambling. I think Wealthfront or the few other similar companies actually democratized investing.

kasey_junk 5y ago
Let me play devils advocate for a minute. Robinhood had the clear market improvement of making trades cost zero dollars. Prior to their entry into the market $7 trades were considered cheap. Meanwhile wealthfront is marking up investment opportunities that are widely available in funds or etfs for much cheaper. I think wealthfront is much more predatory than Robinhood if judged on the basis of services rendered to informed actors.
- loeg 5y ago
  Trades of index mutual funds and ETFs held in the administrator’s brokerage were free for years before RH. (Eg, Vanguard funds at Vanguard and Fidelity funds at Fidelity.) What RH accelerated was $0 individual stock trades, which are not great for retail investors at any price.