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Robinhood raises $323M at a $7.6B valuation

reuters.com

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Re: Robinhood raises $323M at a $7.6B valuation

#31

Post by adrr »

mattferderer wrote: post #21

I'm curious if anyone with knowledge can speak to how Robinhood sells data to high frequency traders? This seems to result in a large percentage of their revenue which of course makes sense due to not having commission revenue. I've also heard some people argue if you're investing a decent amount, you're better off with commissions over market orders on Robinhood. The arguments were the above & that orders can take a…

They are selling order flow to the market makers. Market makers want retail orders and not hedge fund orders since assumption is hedge funds may be operating on more knowledge than the market maker. Eg: satellite pictures of parking lots to predict earnings report for retailers

Re: Robinhood raises $323M at a $7.6B valuation

#32

Post by alteria »

mattferderer wrote: post #21

I'm curious if anyone with knowledge can speak to how Robinhood sells data to high frequency traders? This seems to result in a large percentage of their revenue which of course makes sense due to not having commission revenue. I've also heard some people argue if you're investing a decent amount, you're better off with commissions over market orders on Robinhood. The arguments were the above & that orders can take a…

This recently posted article does a good job of explaining how Discount Brokerages make money.

tl;dr - order flow is $$$, but interest is even better.

1- Interest

2- Commissions

3- Asset Management

4- Securities Lending

5- Payment for Order Flow

https://news.ycombinator.com/item?id=20276551

https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...

Re: Robinhood raises $323M at a $7.6B valuation

#34

Post by paxys »

QuackingJimbo wrote: post #4

Robinhood is a predatory lending scheme. The vast majority of its users should not be trading anything other than indexes.

So Robinhood is now loaning money to helpless people at exorbitant interest rates? Or did you just make up a new definition for "predatory lending"?

Re: Robinhood raises $323M at a $7.6B valuation

#35

Post by mrep »

QuackingJimbo wrote: post #12
levosmetalo wrote: post #6

Earlier quoted context omitted.

Care to elaborate? I was under the impression that Indexes are treated the same way as stocks.

Amateur investors are best off buying indexes and holding forever. Robinhood entices them to trade in and out of individual stocks (or worse).

> Amateur investors are best off buying indexes and holding forever.

And you can do so on robinhood by buying ETFs while potentially saving money on transaction fees if you were to use a traditional brokerage (I say potentially because vanguard lets me buy their etfs without a transaction fee when I use their brokerage account).

Re: Robinhood raises $323M at a $7.6B valuation

#36

Post by stephengoodwin »

throwaway5752 wrote: post #30
AznHisoka wrote: post #9

I've been using Robinhood for the past year, and I hope they add basic features such as: - The ability to short a stock, which I still can't believe isn't available. - Price Alerts Everything else is gravy, IMO, especially if they keep the same basic, sleek interface, which I actually like.

Is there a way to allow shorts without having to manage margin and having to carry risk on the balance sheet? They have to deal with two counterparties (you, and whomever is lending you the shares). I am not sure how they could economically offer free short trades.

Not that I'm aware of. The only alternative would be to permit shorting if the user has a Long Put for defined risk protection.

You could always to a synthetic short through buying a Long Put, but time (and often volatility) decay become a factor (for shorter term trades).

Re: Robinhood raises $323M at a $7.6B valuation

#37

Post by smogcutter »

mattferderer wrote: post #21

I'm curious if anyone with knowledge can speak to how Robinhood sells data to high frequency traders? This seems to result in a large percentage of their revenue which of course makes sense due to not having commission revenue. I've also heard some people argue if you're investing a decent amount, you're better off with commissions over market orders on Robinhood. The arguments were the above & that orders can take a…

Re the 1st question, the article gringoDan posted will explain it, but I think the important thing to clarify that can get lost in the detail is that "payment for order flow" doesn't mean what it sounds like it means. They don't sell data in the way we usually think of in tech. Payment for order flow means Robinhood sells HFTs the opportunity to execute RH's transactions.

Re: Robinhood raises $323M at a $7.6B valuation

#38

Post by jazzyjackson »

LanceH wrote: post #24
elliekelly wrote: post #13

Earlier quoted context omitted.

> It's everyone's right to shoot themselves in the foot with dumb financial decisions. The industry regulations would indicate otherwise. Generally, the “dumber” the money, the more regulatory protections that will apply. At their core, financial regulators are consumer protection entities.

How is robinhood any different than all the other online brokers, except that they charge less?

Do other brokers let you trade on margin?

Re: Robinhood raises $323M at a $7.6B valuation

#39

Post by Youden »

QuackingJimbo wrote: post #15
AznHisoka wrote: post #7

Earlier quoted context omitted.

Can't you say the same thing about everyone using any other retail brokerage?

No. Upstanding retail brokerages (such as Interactive Brokers) don’t make interest on their customers’ balances.

To add an even clearer source to the other replies: https://www.interactivebrokers.com/en/index.php?f=1595

IB is abundantly clear that it makes money from cash balances. I'm not sure where you got this idea from.

Re: Robinhood raises $323M at a $7.6B valuation

#40

Post by tim333 »

throwaway5752 wrote: post #30
AznHisoka wrote: post #9

I've been using Robinhood for the past year, and I hope they add basic features such as: - The ability to short a stock, which I still can't believe isn't available. - Price Alerts Everything else is gravy, IMO, especially if they keep the same basic, sleek interface, which I actually like.

Is there a way to allow shorts without having to manage margin and having to carry risk on the balance sheet? They have to deal with two counterparties (you, and whomever is lending you the shares). I am not sure how they could economically offer free short trades.

You'd probably have to charge something like a borrowing cost. There isn't really a risk free way to do it - if you short a stock and it goes up 100x then there's a liability there and if the customer can't pay up then the broker is stuck with it.
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