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Robinhood’s big gamble

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Re: Robinhood’s big gamble

#141

Post by dfxm12 »

Someone1234 wrote: post #21

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…

Other companies don't have quite the amount of controversies (including a security breach - so we're not just talking about using them as a proxy again retail investing in general) as Robinhood in a similar amount of time: https://en.wikipedia.org/wiki/Robinhood_(company)#Controvers...

If Robinhood seems like a whipping boy, it's because they've been earning negative press (like you said, they've made these mistakes) on a regular basis for the past 2.5 years.

Re: Robinhood’s big gamble

#142

Post by ProAm »

bostik wrote: post #110
ProAm wrote: post #47

Earlier quoted context omitted.

> RH has become the media's favorite whipping boy because retail trading has seen a spike in popularity Because they cant operate as a real brokerage as we saw with GameStop and manipulated the market as a result. I think that is the largest reason they are (rightfully) the whipping boy. They should not be allowed to be a trading platform because of that alone.

If "operate as a real brokerage" means that you must have $5B+ of cash tied up at the clearing house, that's a pretty stiff barrier for entry. To be fair, I don't like RH. They are irresponsible, greedy and reckless. They have turned day trading into outright gambling - and quite frankly, if a gambling company gamified their UX the way RH did theirs, the gambling company execs would be rightfully raked over hot coals…

> Shitting on RH because they had to obey the clearing house rules is intellectual cowardice.

I think if you are going to operate as a brokerage you need to be able to fulfill all types of trades which in turn means you meet the needs of the clearing house, to limit investors to sells when you have funding from someone with a clear interest/holding/shorts (whatever) is a pretty stiff conflict of interest. This is just one of the reasons why they shouldn't be a brokerage. I understand that the clearing house changed the rules, but if you want to play in the game those are the rules. It is pure (even if it was truly non-intentional) market manipulation. They should have stopped all trading if they could not meet the needs of the clearing house (this can be debated as well). And if you cant meet the needs of the clearing house you do not deserve to be a brokerage IMO (I can see how this is also up for debate).

I agree your other points about gambling and gamifying, etc.... But the 'you are allowed to only sell and not buy a stock' is so grossly wrong I don't see how anyone can look past that unless you are 1) on the losing side of the coin (the shorts) and want to stop the bleeding or are heavily invested in RH performing a successful IPO.

Re: Robinhood’s big gamble

#143

Post by clairity »

Traster wrote: post #136
zachrip wrote: post #96

Earlier quoted context omitted.

Making things easier to understand does not mean the person doesn't understand it. Just because adults struggle to understand common core math, doesn't mean kids aren't just as capable of solving an equation. Options don't need to be confusing and I actually find RH's educational material and examples pretty good to get a basic understanding of how they work.

Disclaimer: I haven't used RH. However, if the person you're responding to is correct about their UI it's negligent. The price of an option does not vary only with whether "you think the price will go up". Essentially it's mis-representing an option as a delta trade which it isn't.

yah, the problem is in the invitation to make a serious mental model mistake on how options are valued, how they pay off, and what the hidden pitfalls are.

i’m all for democratizing access to (and the returns from) equity markets, but this isn’t about building wealth through long-term investing, or even about price discovery. it’s sharks looking to part small-time gamblers from their money.

Re: Robinhood’s big gamble

#144

Post by zachrip »

Traster wrote: post #136
zachrip wrote: post #96

Earlier quoted context omitted.

Making things easier to understand does not mean the person doesn't understand it. Just because adults struggle to understand common core math, doesn't mean kids aren't just as capable of solving an equation. Options don't need to be confusing and I actually find RH's educational material and examples pretty good to get a basic understanding of how they work.

Disclaimer: I haven't used RH. However, if the person you're responding to is correct about their UI it's negligent. The price of an option does not vary only with whether "you think the price will go up". Essentially it's mis-representing an option as a delta trade which it isn't.

That's fair, there could definitely be improvements in the way they explain that.

Re: Robinhood’s big gamble

#145

Post by JumpCrisscross »

MR4D wrote: post #135
JumpCrisscross wrote: post #34

Earlier quoted context omitted.

> rich people ("accredited investors") know enough to be responsible to take risks This is a straw man. The real argument: someone with more money is less likely to become destitute as a result of a bad investment. Also: someone with more money is less likely to become a political problem that shuts down the market, or a drain on the public purse, when they lose money. When it comes to private investments, someone in…

> The real argument... I would agree with this except for one huge fact that has existed for close to 100 years - poor investors can put their money into options and blow up in a day, but can't put it into private equity. I'm not ascribing any good or bad intent to the regulators here, but this is so big of a hole that I can't believe this has anything to do with destitution. For what it's worth, I've seen an actual…

> poor investors can put their money into options and blow up in a day, but can't put it into private equity

Cost of diligence. One can theoretically fully diligence an option and its underlying stock’s issuer with public information. One cannot do that in private investments. Private investing requires expensive legal work; it also requires the ability to enforce one’s rights in court. Investing $10 or 20k pretty much guarantees one isn’t doing the former and can’t do the latter; that’s a recipe for disaster.

As a former options market maker who is now in private equity, I (a) agree that options should be more roped off from retail investors and (b) minimally dabble in private equity and don’t touch options in my PA.

The only responsible buyers of options buy them expecting to lose money. They’re the lossy leg of the trade, the insurance. When hedge funds want to go long or short they use cash positions or leveraged swaps. Not options.

Re: Robinhood’s big gamble

#147

Post by _irri »

Someone1234 wrote: post #21

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…

Signing up for options trading with Schwab or Fidelity requires filling an application including a survey about derivative products and your experience with each type of offering.

Vanguard is even more difficult. Application for a margin account requires mailing in a notarized form.

Robinhood makes it easy in order to profit off inept traders that have no business making these types of trades.

Re: Robinhood’s big gamble

#148

Post by splitstud »

kortilla wrote: post #90
CarelessExpert wrote: post #78

Earlier quoted context omitted.

> 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 Wow... you really think the criticism is just because RH is better? What, is it jealousy or something? Please. This isn't the case of someone being picked on by a schoolyard bully. RH is in the highly regulated, highly consequential consumer fintech space, and the…

> But to claim RH is the target of SEC investigations simply because they're good? Come on. You make it sound like this is outlandish, but it happens nearly every time a disruptive player comes into a heavily regulated market full of old players. It is much easier to cry foul than to deal with the fact that the competition just got hard.

Robinhood is not competitive whatsoever with the better brokers. Their limited UI and super slow execution won't appeal to anyone who has used a good platform.

Re: Robinhood’s big gamble

#149

Post by splitstud »

cyril_st_john wrote: post #125
sniperjzp wrote: post #32

Earlier quoted context omitted.

It’s looks like free but it isn’t, RH makes money by selling trading requests to high frequency trading firms like Citadel, which buy/sell before the actual order in a better position so they can earn a penny from selling to or buying from you. The more transactions, the more they earn. - https://fortune.com/2020/07/08/robinhood-makes-millions-sell...

As others in this thread have noted, what you described would be illegal. But suppose for the sake of argument that Robinhood's order flow is actually really bad and users are getting a measurably worse price through RH vs other brokers. RH targets small-time investors who are trading in small amounts - perhaps investing a bit of their paycheck every week. It seems unlikely that the order flow would be so bad that RH…

RH offered free trading in a small selection of issues with a poor ui and worse execution while others were offering great platforms for 50 cents to 7.95 a trade. They built a user base through marketing to the initiated, not through a better product.

Any investor can get 0 now with good brokerages or use something like IB for cheap trades on otc or foreign stocks in small amounts.

Re: Robinhood’s big gamble

#150

Post by splitstud »

JumpCrisscross wrote: post #145
MR4D wrote: post #135

Earlier quoted context omitted.

> The real argument... I would agree with this except for one huge fact that has existed for close to 100 years - poor investors can put their money into options and blow up in a day, but can't put it into private equity. I'm not ascribing any good or bad intent to the regulators here, but this is so big of a hole that I can't believe this has anything to do with destitution. For what it's worth, I've seen an actual…

> poor investors can put their money into options and blow up in a day, but can't put it into private equity Cost of diligence. One can theoretically fully diligence an option and its underlying stock’s issuer with public information. One cannot do that in private investments. Private investing requires expensive legal work; it also requires the ability to enforce one’s rights in court. Investing $10 or 20k pretty mu…

There are plenty of opportunities every day to responsibly buy a put or call because it happens to be the best price you can get for entry to execute on an investing thesis. Your background notwithstanding, there is nothing mystical or sinister about options as a vehicle when the price is right.
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