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Robinhood’s big gamble

newyorker.com

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Re: Robinhood’s big gamble

#21

Post by Someone1234 »

I have a Schwab brokerage account, until recently I could trade OTCs and can still trade warrants and futures. These are riskier securities than common stock. None of which is possible on RH as far as I know. When I created my Schwab account I received and was offered no specific training, and largely learned how to trade on YT, Investopedia, and articles.

My point is this: RH has become the media's favorite whipping boy because retail trading has seen a spike in popularity not witnessed since the .COM Bubble. A lot of this critique is aimed at RH's interface/app because it is substantially better than the existing brokerages still using websites from the 1990s (this article criticizes it for being "slick" and complains about confetti).

The reality is that you can be a risky investor and lose it all on any brokerage, including Schwab, Fidelity, or TDA. RH has made some mistakes and isn't actually a good broker in my opinion, but dog piling them is just a proxy for arguments against retail investors being allowed to invest freely in the market (e.g. I've read multiple arguments for banning options trading for accounts under $25K for one example).

Re: Robinhood’s big gamble

#22

Post by pembrook »

notyourwork wrote: post #3

The internet makes risky behavior more accessible by very nature of connectivity. You can talk to someone on the other side of the world with much less friction. Similarly, a fintech company like Robinhood decided to make stock trading more modern and reduce the barrier to entry. Granted, this wasn't really a big change in accessibility if you wanted to trade stocks. One could simply goto Fidelity ore other brokers a…

> That doesn't mean Robinhood is encouraging it intentionally

This is news to me. As far as I can tell, everything about their app is designed for you to treat the stock market like a game. From the notification defaults down to the content layout. They also sign users up for a daily stock market newsletter that encourages "trading the news" and their unofficial user forum is essentially Wall Street Bets, which they have never tried to distance themselves from.

Making it easier to trade stocks through better UI design isn't inherently a bad thing, I agree. However, looking at the insanely disproportionate amount of their revenue that comes from "day" traders and speculative option junkies, they're extremely incentivized to keep milking this customer group over their more sane buy-and-hold users.

And we all know the data, a vast majority of these users will lose money on a risk adjusted basis compared to just buying the whole market in a passive ETF.

But there's no money to be made in passive ETFs, so Robinhood will likely never roll out automated passive ETF investing a la Wealthfront.

Robinhood has a responsibility to its investors to maximize profits, therefore its hilarious to think they won't do anything to keep encouraging their most profitable user segment to keep trading.

Re: Robinhood’s big gamble

#23

Post by ouid »

cblconfederate wrote: post #15

I always viewed the stock market as another form of gambling. Regulation existed to create enough friction to justify calling it "not gambling", but it was always gambling. Absent of regulation the two are indistingushable, robinhood is just taking advantage of the asymmetry

>just another form of gambling

Everything is gambling. Gambling in a casino is just a form where the expectation is always negative.

Re: Robinhood’s big gamble

#24

Post by dcolkitt »

MR4D wrote: post #5

Both. But then again, Hedge funds for rich people also encourage risky behavior (leveraging up their models, as imperfect as they are from time to time is definitely risky).

The basis of US securities law is that rich people ("accredited investors") know enough to be responsible to take risks. Whereas poor people are too stupid to make risky investments without turning into degenerate gamblers.

A lot of debates about financial regulation basically come down to whether this is a good principle or not. Too many times, both sides are arguing at cross purposes, because one implicitly assumes this is common sense, whereas the other thinks it's classist and paternalistic.

Re: Robinhood’s big gamble

#25

Post by endisneigh »

nightski wrote: post #16
endisneigh wrote: post #7

what's really dumb is the fact it takes 3 days for a trade to settle. why can't I buy $SPY and get my money immediately? it's 2021, jeez.

From what I have heard is that they are working towards 1 day settlement, which isn't too bad. Intraday settlement may sound good on paper but it also opens up a whole bunch of extra problems that you might not like.

> From what I have heard is that they are working towards 1 day settlement, which isn't too bad.

awesome - any more details? I saw this: https://www.cnbc.com/2021/02/24/wall-street-clearing-firm-pr...

I assume that's what you're referring to?

> Intraday settlement may sound good on paper but it also opens up a whole bunch of extra problems that you might not like.

I can imagine problems like liquidity or fraud on certain tickers, anything else? is it even possible to reverse a trade under any circumstances now?

Re: Robinhood’s big gamble

#26

Post by mediaman »

cblconfederate wrote: post #15

I always viewed the stock market as another form of gambling. Regulation existed to create enough friction to justify calling it "not gambling", but it was always gambling. Absent of regulation the two are indistingushable, robinhood is just taking advantage of the asymmetry

To say that the stock market is gambling is to say that all forms of putting money at risk are gambling.

Buy a house as a rental investment? That's gambling.

Loan money to someone to start their business? Gambling.

Buy inventory of a product to resell it? Gambling.

One can make the argument that any money at risk is gambling, but this broadens the meaning of gambling so far as to make it useless.

Unlike actual gambling - where the expected return of each gambler is negative - stock market investing, like owning other assets, on average has positive expected returns.

Yes, it is possible to make bad investments. Just like it's possible to loan money to someone and have it go bad, or it's possible to buy a house and have renters stop paying. But we don't call those things gambling, so why call stock market investing gambling?

Re: Robinhood’s big gamble

#27

Post by dylan604 »

cowmoo728 wrote: post #12
notyourwork wrote: post #3

The internet makes risky behavior more accessible by very nature of connectivity. You can talk to someone on the other side of the world with much less friction. Similarly, a fintech company like Robinhood decided to make stock trading more modern and reduce the barrier to entry. Granted, this wasn't really a big change in accessibility if you wanted to trade stocks. One could simply goto Fidelity ore other brokers a…

Isn't pushing Robinhood gold (leverage) onto users with repeated in app messaging about how great it is, Robinhood pushing users to do irresponsible things? Or the fact that if you end the day down, your whole app is red, unless you deposit enough additional cash to cover your losses and then it switches back to green? (edit note: not sure if this is still the case but it was true in the early days of the android app…

Sounds like the ultimate "Deposit another coin to Continue or Restart".

Re: Robinhood’s big gamble

#28

Post by FPGAhacker »

snarkypixel wrote: post #13

What's risky? If there were one easy and legal way to make a lot of money in a non-risky way, then everyone would do that. Is it more risky to invest in Doge or to give it to some professional hedge funds that have been losing money every year? Maybe S&P is the closest to legal, free, easy, little-risk?

Look up wash sales. I personally did not know about that. I made some money “scalping” on doge volatility, then learned of this tax rule, and I’m left wondering if I’m going to get a tax bill that wipes out what I made.

It’s not a stock, so maybe not. But I hadn’t even heard of such a rule and it was an eye opener. I could have gotten into a pretty deep hole and had no idea.

Not Robinhood’s fault, but a risk nonetheless.

Re: Robinhood’s big gamble

#29

Post by diabeticApe »

Well seeing as stock trading is inherently risky, democratizing trading makes this risky activity more accessible to more people. Now instead of just the elite manipulating the market to benefit themselves at the expense of the public, the public gets a chance to turn the tables. Some of the newbies will make mistakes or do stupid things along the way. To consider them mutually exclusive seems a bit disingenuous. Also I dont recall this much media turmoil over the credit default swap mortgage crisis fiasco of 2008. But then again that only screwed over the entire economy instead of the few elites that benefited from everyone else's loss.

Re: Robinhood’s big gamble

#30

Post by NortySpock »

dcolkitt wrote: post #24
MR4D wrote: post #5

Both. But then again, Hedge funds for rich people also encourage risky behavior (leveraging up their models, as imperfect as they are from time to time is definitely risky).

The basis of US securities law is that rich people ("accredited investors") know enough to be responsible to take risks. Whereas poor people are too stupid to make risky investments without turning into degenerate gamblers. A lot of debates about financial regulation basically come down to whether this is a good principle or not. Too many times, both sides are arguing at cross purposes, because one implicitly assumes…

"Rich people" can also afford time / money / labor costs to do independent due diligence to confirm if a company's finances are true and correct, or an elaborate sham.
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