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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

#81

Post by tomp »

H8crilA wrote: post #76
tomp wrote: post #74

Earlier quoted context omitted.

I disagree with this description. Retail flow is primarily uninformed - "noise", not "signal" (i.e. "alpha" in finance speak). Retail traders might trade based on Twitter news, Reddit suggestions, weather, gut feeling, sudden money needs, ... Institutional traders are big and slow and they have long-term alpha (if any), I don't think they'd generate much worry for HFTs/market makers... The real worry is other HFTs, s…

That makes sense too (avoiding competition). But it's not what the quoted article says. Institutional trading (like mutual funds) certainly is a problem for market makers: > Sometimes, when a customer buys 100 shares at $100.01, it then buys another 100 shares at $100.02, and another 100 shares at $100.03, and keeps going until it has bought 10,000 shares and pushed the price up dramatically. The market maker who sol…

Indeed, this isn't a comment on your summary (which I have no reason to not believe to be accurate). I'm commenting on the ideas behind the article itself.

Still, I disagree. Even a large order won't "move" the market by itself (unless you're the Fed). At best, it might trigger a flash crash (we've seen a few of these in the past few years), where liquidity temporarily dries up (HFT market makers remove their passive orders, until they figure out what the hell is going on, precisely because they already predict cases like this) but comes back as soon as human traders figure out that nothing is going on (and the price has no reason to move).

More likely, a large order might blow through a few layers of the order book, which is good for market makers - instead of selling it at $100.01 (which is the "best", i.e. "lowest" price), you're selling it at $100.02 (i.e. you're making more money than your fellow market makers). In general, if you're an "institutional" (or otherwise big & slow) trader trading "large" orders (relative to the standard market volume), you're trying hard to disguise your intents. If HFTs know that you will buy the next 100 shares, they'll just sell it to you for $100.09 or more!

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

#82

Post by Lazare »

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…

> I'm curious if anyone with knowledge can speak to how Robinhood sells data to high frequency traders?

They don't sell the data. They sell the trade.

> 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.

Potentially, although if you have to ask, it's unlikely to really matter for you.

(Robinhood, as is required by law, gives you the best publicly available price, and no fees. They can do this because, as above, they're selling your order flow, and their are people willing to privately offer better-than-best prices to certain types of orders. That value can be split a number of ways between the broker and the customer, and Robinhood as opted to keep the money, use it to fund their operations, and offer zero commissions. But you could imagine a different broker who charges "normal" commissions and passes the price improvements on instead. For some customers, that might end up being a better deal...or not.)

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

#83

Post by bjacokes »

adammenges wrote: post #70
rconti wrote: post #67

Earlier quoted context omitted.

Can't you use whatever accounting method you wish, regardless of how they report it?

Yeah would love an answer here too

When you sell shares, cost basis is reported to the IRS by the brokerage. The parent comment suggests that RH always reports the FIFO cost basis, i.e. price of the first shares you bought as opposed to the last shares. There are places on tax forms where you can adjust your cost basis up or down from the one reported by your brokerage, but (without doing any research into it) I doubt that "I don't want to use my brokerage's cost basis method" is a valid reason to use those.

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

#84

Post by tehlike »

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.

Did you try interactive brokers?

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

#85

Post by elamje »

MuffinFlavored wrote: post #62
elamje wrote: post #59

Earlier quoted context omitted.

I am confident that everyone’s IRA would be better kept by Acorns. Robinhood encourages getting in and out of positions to frequently.

I'm confident that everyone's IRA would be better kept in a low-cost mutual fund that tracks a popular index.

That’s exactly what Acorns does. Only uses Vangaurd popular indexes.

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

#86

Post by [deleted] »

pertymcpert wrote: post #66
elamje wrote: post #56

Earlier quoted context omitted.

TLDR; question answer: An HFT makes money because they see you want to buy 100 shares of Apple. Their servers are located in the exchanges, so they can buy the 100 shares of Apple for $99.99 each quickly, then flip them to you for $100 each, effectively giving them a risk free profit of $1. The HFT then gives Robinhood a small reward for sending them the order data. Multiply that times millions of trades a day. If yo…

No. Front running is illegal, that's not what RH does. What RH sell is uncorrelated orders, and the users actually get better prices from this too.

[deleted]

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

#87

Post by moose314 »

notyourday wrote: post #78
moose314 wrote: post #52

Earlier quoted context omitted.

The top of book liquidity on most equity stocks is light enough that a single retail investor can absolutely submit orders which must hit multiple exchanges, especially if they do so at non-peak hours. The NBBO doesn't help you if every market maker retreats before your broker can hit the next exchange. There was a post on Reddit just a month ago where a small investment club did just that. https://imgur.com/gallery/…

This is not 1994. Catching a market order with volume is winning a Power Ball. It will be a limit and if it is not IOC/FOK order, should it clear top of the book and not be filled it would simply become a new national best.

Its not really clear who you are arguing against, the GP mentioned large market orders, I simply made the point that most brokers have worse order routing than the HFT firms and Robinhood is probably not much worse than anything else out there. Using limit IOC orders is a tool that more savvy retail traders can use to prevent bad execution, but if they are trading size the commission they pay to the broker won't make much of a difference.

I would also point out that having your IOC order not fully filled is also bad execution. If you want to get a certain size done, repeatedly IOCing the market with manual click trades is not ideal.

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

#88

Post by elamje »

tomp wrote: post #75
elamje wrote: post #56

Earlier quoted context omitted.

TLDR; question answer: An HFT makes money because they see you want to buy 100 shares of Apple. Their servers are located in the exchanges, so they can buy the 100 shares of Apple for $99.99 each quickly, then flip them to you for $100 each, effectively giving them a risk free profit of $1. The HFT then gives Robinhood a small reward for sending them the order data. Multiply that times millions of trades a day. If yo…

> Their servers are located in the exchanges, so they can buy the 100 shares of Apple for $99.99 each quickly, then flip them to you for $100 each, effectively giving them a risk free profit of $1. I don't know a lot about trading US equities, but this sounds wrong. Brokers are required by law to give their customers the best price ($99.99 in your example). https://en.wikipedia.org/wiki/National_best_bid_and_offer

Brokers are required to, yes. But Robinhood doesn’t submit orders directly to exchanges, it always passes through a middle man who has to collect some fee for their service.

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

#89

Post by tomp »

elamje wrote: post #88
tomp wrote: post #75

Earlier quoted context omitted.

> Their servers are located in the exchanges, so they can buy the 100 shares of Apple for $99.99 each quickly, then flip them to you for $100 each, effectively giving them a risk free profit of $1. I don't know a lot about trading US equities, but this sounds wrong. Brokers are required by law to give their customers the best price ($99.99 in your example). https://en.wikipedia.org/wiki/National_best_bid_and_offer

Brokers are required to, yes. But Robinhood doesn’t submit orders directly to exchanges, it always passes through a middle man who has to collect some fee for their service.

No, they're not (if my understanding is correct) passing their orders through a middle man, they're passing their orders to a market maker. Market makers don't get "fees" and don't perform arbitrage (they can't, they need to match the best bid/offer). They make money by trading the spread (the difference between offer and bid). They buy at $100.01 (best bid) and sell at $100.02 (best offer) and pocket the difference ($0.01). This of course relies on statistics, law of large numbers (doing this often enough) and avoiding risk (a single large move can wipe out your profits from 1000s of trades). The reason they like trading with Robin Hood (and other retail traders) is that the chances of a large move following a retail trade is much smaller (retail traders are "uninformed", i.e. noise).

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

#90

Post by elamje »

tomp wrote: post #89
elamje wrote: post #88

Earlier quoted context omitted.

Brokers are required to, yes. But Robinhood doesn’t submit orders directly to exchanges, it always passes through a middle man who has to collect some fee for their service.

No, they're not (if my understanding is correct) passing their orders through a middle man , they're passing their orders to a market maker . Market makers don't get "fees" and don't perform arbitrage (they can't, they need to match the best bid/offer). They make money by trading the spread (the difference between offer and bid). They buy at $100.01 (best bid) and sell at $100.02 (best offer) and pocket the differenc…

I'm pretty confident we are talking about the same thing. I was referring to market makers as the middle men because they are not the stock exchange. Call it whatever you want, but trading the spread is arbitrage, i.e. a price mismatch with opportunity to profit.
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