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Robinhood launches 3% checking account

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Re: Robinhood launches 3% checking account

#411

Post by SEJeff »

elliekelly wrote: post #84
SEJeff wrote: post #14

As a user of the Robinhood brokerage for all of my "fun investment money" I'm a fan of this. I do wonder how the big banks are going to respond however as this is blatantly a "shots fired" kind of event.

Oddly enough I suspect the result will be lobbying for stricter financial privacy regulations. Almost half of Robinhood's revenue is from selling data.[1] Big banks won't be able to compete on that front and most of the big players don't participate/make enough money on order flow sales that they'd miss it if it were prohibited. So the banks will do what they do best: lobby congress & regulators to legislate & regula…

I don't think this means what you think it means...

Every single broker like Robinhood sells order flow to electronic trading firms. This flow is then executed faster due to improved market access. All of that to say that you're probably getting better execution because Robinhood wasn't stupid enough to try to go through some crappy broker or build their own order entry system.

Also, the order data can not be mapped back to you. That simply isn't how the stock market works at all. Every single other broker (Schwab, Merril Lynch, etc) does this.

Source: I work for one of those big market making electronic trading firms, the kind you try to demonize but fail fundamentally to understand.

Re: Robinhood launches 3% checking account

#412

Post by SEJeff »

elliekelly wrote: post #246
consumer451 wrote: post #179

Earlier quoted context omitted.

From your link: > Almost all retail brokerages employ the practice

In options maybe, not in equities. Bank of America doesn't, Vanguard doesn't, none of the firms I've worked at do. Bernie Madoff basically invented the "strategy" and most firms aren't exactly looking to emulate him. The FSA (U.K. equivalent to the SEC) effectively banned the practice a few years ago (2010 maybe?) which curtailed the practice a lot. I'm not sure about other states but the Massachusetts AG's office st…

This comment couldn't be further from the truth. You sound like you've read flash boys without reading the rebuttal that shows how it is entirely wrong.

Here let me link it to you: https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-...

I used to work with Peter Kovac, the author of that book, and can personally vouch for his integrity. He's a really humble and stand up guy.

Re: Robinhood launches 3% checking account

#413

Post by SeanAppleby »

theturtletalks wrote: post #386
jorams wrote: post #308

Earlier quoted context omitted.

Alternatively: If you get free money for parking your cash there, why risk that money by trading? 3% guaranteed earnings is a very good deal without any downside, while the risks involved with trading that money are substantial.

That's higher than index funds returns as of late.

Holding cash had higher returns than index funds over the last 6 months. That's not a high bar when the market is going down. VTI is below where it was 12 months ago.

Re: Robinhood launches 3% checking account

#414

Post by OscarCunningham »

matwood wrote: post #313
zackmorris wrote: post #282

Earlier quoted context omitted.

I hope this gets challenged in court at some point. The rules went into effect on September 28, 2001 as a knee-jerk reaction to the dot bomb and 9/11: http://www.finra.org/investors/day-trading-margin-requiremen... The real story is that the plebes realized they could make 2% per day by day trading and selling short. I did this with my dad and we were up about $40k before 9/11 wiped out most people's gains (this was…

Day trading is not some magical way to profit. Most people who make money around day trading are selling day trading services. Few make money over the long term day trading, and even fewer (any?) are making 2% every single day (400% over the course of a year with ~200 trading days). The rules were put in place to protect people from being lured into day trading by day trading service companies. The thought was to pre…

A gain of 2% a day over 200 days actually compounds to 5148%, not a mere 400%.

Re: Robinhood launches 3% checking account

#415

Post by TuringNYC »

mikeash wrote: post #218
patio11 wrote: post #115

For folks trying to understand this, some context which may be useful: Checking accounts are loss leaders virtually everywhere, the exception being smaller community banks. Their primary revenue stream was, once upon a time, net interest income, but these days due to the extremely low interest environment and alternate sources of funding the revenue stream is more weighted towards fees (primarily NSFs, although that…

Why would they expect this account to be used as a high-velocity, low-balance account rather than a park-your-savings account, given the rate? I agree that the high rate is reasonable in that scenario, but the high rate is also actively fighting to ensure that scenario doesn’t happen. I don’t see people here thinking that Robinhood is bad at math. They’re all asking, “what’s the catch?” Because it sure seems like the…

No one knows what Robinhood will do, but no bank can promise a perpetual 3% rate. The rate is probably a teaser. Even if it is perpetual, it may be "on the first $10,000, with a minuscule rate on larger sums...something that allows them to advertise 3% but offer much less on larger sums.

Re: Robinhood launches 3% checking account

#416

Post by mw6621 »

snowwrestler wrote: post #406
sand500 wrote: post #330

Earlier quoted context omitted.

Don't forget fraud protection on a credit card vs debit card.

Is there a difference? Last time I checked, my debit card offered the same protections my credits cards do.

The main difference is that if someone steals your debit card info and goes on a spending spree, that money is gone from your account until the fraud folks at your bank can deal with it.

This may result in overdrafts from other automatic payments or not being able to pay for things you need, until the money is restored to your account.

Re: Robinhood launches 3% checking account

#417

Post by superfrank »

stevewodil wrote: post #373
doctorpangloss wrote: post #344

Earlier quoted context omitted.

> Trading for most people used to be deliberately obtuse. When Robinhood initiates options trading by asking you, "Do you think the stock is going to go up?" on a phone interface, they've decided that trading is now just for morons.

Hahaha, I love this comment because when I'm trying to buy options it always makes me chuckle how they allow these type of people to trade naked options

You can't buy a naked call/put.

Naked, covered, and cash secured are terms used to describe how you are covering your downside when you are selling options.

When you buy an option, your downside is always the cash you spent on the option, so you don't have different types of purchases. When you buy you are just buying an option.

As for Robinhood, they don't allow for selling of naked options, only covered and cash secured.

Re: Robinhood launches 3% checking account

#418

Post by mindslight »

flexie wrote: post #407
mindslight wrote: post #317

Earlier quoted context omitted.

I'm not trying to defend the warts of the US banking system, but... "Credit card" would be a third account that is purely debt-based. It's optional, and you can spend directly from your checking account with a "Debit card" instead. It's just not advisable, due to the broken-ass card system you described. "Savings account" is optional, but earns interest. Does your single EU account earn reasonable interest? Long term…

For the past 30 years my European accounts haven't offered any interest worth mentioning - and neither did my American ones.

I would rather not live under an inflationary regime where one needs to continually seek returns just to tread water, but since I don't have a choice about that I'd rather somewhat keep up. Especially for sums that end up in liquid accounts "temporarily" and then drag out longer than expected.

Re: Robinhood launches 3% checking account

#419

Post by dmortin »

fokinsean wrote: post #397
dmortin wrote: post #192

Earlier quoted context omitted.

> If you put $250,000 in an SIPC-protected brokerage account, that account holds both cash and securities So I won't buy any securities, just use it as a checking account, keeping the cash sitting there earning the 3% interest. I wonder if there is a rule of Robinhood which prevents me doing this.

It looks like the checking and savings accounts are brokerage accounts, so if you put money into it then you are buying securities. I just learned that this is how Betterment's "Smart Saver" account is as well. > Is Robinhood a bank? No. Robinhood offers Checking & Savings through a brokerage account and it offers the Robinhood debit card in partnership with Sutton Bank.

SIPC protects cash in brokerage accounts too.

Re: Robinhood launches 3% checking account

#420

Post by stronglikedan »

stevewodil wrote: post #373
doctorpangloss wrote: post #344

Earlier quoted context omitted.

> Trading for most people used to be deliberately obtuse. When Robinhood initiates options trading by asking you, "Do you think the stock is going to go up?" on a phone interface, they've decided that trading is now just for morons.

Hahaha, I love this comment because when I'm trying to buy options it always makes me chuckle how they allow these type of people to trade naked options

People just like to have options, I guess.
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