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Robinhood S-1 IPO

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Re: Robinhood S-1 IPO

#131

Post by beambot »

gruez wrote: post #100
beambot wrote: post #68

Earlier quoted context omitted.

Your use of the word "trade" versus "invest" perfect encapsulates the nuance of Robinhood. What exactly is Robinhood's product? It's certainly not the newly-minted traders -- their orders are "free". If you follow the money, it looks like it's mostly Pay For Order Flow (PFOF). I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain.

> I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain. It really isn't. They're making money off the spread (eg. $105.01 bid vs $105.02 ask), which exists regardless of PFOF (regulation NMS mandates that the price be better or equal to NBBO). The reason why they want retail flow is that it's mostly "uninformed" and they're less likely to get run over. matt levin…

What you are describing is market makers, not Robinhood. Quoting directly from the S-1:

> Our PFOF and Transaction Rebate arrangements with market makers are a matter of practice and business understanding and not documented under binding contracts. For the three months ended March 31, 2021, 59% of our total revenues came from four market makers.

So 59% of Robinhood's revenue comes from selling PFOF to market makers. I promise you that there isn't some magic altruism on the part of market makers buying the PFOF and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools.

This is precisely why there's an entire section dedicated to PFOF regulatory risk in their S-1. It's increasingly a rigged game and rightfully deserves deep Congressional intervention.

Re: Robinhood S-1 IPO

#132

Post by kolbe »

gruez wrote: post #100
beambot wrote: post #68

Earlier quoted context omitted.

Your use of the word "trade" versus "invest" perfect encapsulates the nuance of Robinhood. What exactly is Robinhood's product? It's certainly not the newly-minted traders -- their orders are "free". If you follow the money, it looks like it's mostly Pay For Order Flow (PFOF). I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain.

> I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain. It really isn't. They're making money off the spread (eg. $105.01 bid vs $105.02 ask), which exists regardless of PFOF (regulation NMS mandates that the price be better or equal to NBBO). The reason why they want retail flow is that it's mostly "uninformed" and they're less likely to get run over. matt levin…

Former CBOE market maker here. You and the person you're responding to both have valid arguments. The problem is you are choosing only to present the ones that make this situation look good, and he's only insinuating the bad ones.

The fact is that this "spread" you speak of is a much more theoretical concept than Matt Levine understands. There is ample liquidity between the bid-ask in 99.9% of markets, and by selling order flow to someone who will internalize it at the worst legal price possible, they are intentionally failing to fill an order at the best possible price.

RobinHood also features various dark patterns that are designed to remove money from the pockets of their users and put it into their own pockets. Off the top of my head, I can list the following:

(a) Very difficult access to bis-ask spread information across multiple options. This keeps users ignorant of the fact that some options may be better priced than others, and gives market makers more opportunity to make more than a fair market spread on the transaction.

(b) Forced close-outs for reasons that no other legitimate brokerages use. Even worse than being ill-infomed about what to trade is to have all of your agency removed. It's situations like these where the gap between a fair market edge and the edge that market makers take becomes offensive.

(c) Disallowing option exercise before expiration. There are many situations where an option owner should exercise his option prior to expiry. Not only does RobinHood keep its users ignorant of this fact, they actually don't even allow their users to do it. In some circumstances, this can give market makers a massive arbitrage opportunity.

While you are right that one thing that makes RH flow more valuable is the smaller average account money size, this is actually far less of an issue than just the average account financial IQ size. Citadel loves trading with pensions just as much as RH users (i.e. similar financial IQ, but far different sizes). It's just that the type of trading that happens with each is a little different.

Add in the aforementioned reasons for keeping them not only ignorant, but handcuffed, then the more market makers will pay RH for access.

Re: Robinhood S-1 IPO

#133

Post by gruez »

beambot wrote: post #131
gruez wrote: post #100

Earlier quoted context omitted.

> I wonder why giant market-making hedge funds would pay for that order flow... Another tech faustian bargain. It really isn't. They're making money off the spread (eg. $105.01 bid vs $105.02 ask), which exists regardless of PFOF (regulation NMS mandates that the price be better or equal to NBBO). The reason why they want retail flow is that it's mostly "uninformed" and they're less likely to get run over. matt levin…

What you are describing is market makers, not Robinhood. Quoting directly from the S-1: > Our PFOF and Transaction Rebate arrangements with market makers are a matter of practice and business understanding and not documented under binding contracts. For the three months ended March 31, 2021, 59% of our total revenues came from four market makers. So 59% of Robinhood's revenue comes from selling PFOF to market makers.…

> What you are describing is market makers, not Robinhood. Quoting directly from the S-1:

Did i claim that robinhood is a market maker and/or participates in market making? I simply explained how market makers are making money in a non-nefarious way and why they might pay robinhood for order flow.

> I promise you that there isn't some magic altruism on the part of market makers

As explained in my prior comment there's no altruism involved. Retail orders are valuable because they're uninformed/non-toxic

>and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools.

Why bring in dark pools and "off-exchange"? The whole point of buying orderflow is to execute it yourself rather than letting anyone execute them.

Re: Robinhood S-1 IPO

#134

Post by yreg »

onlyrealcuzzo wrote: post #73
yreg wrote: post #58

Earlier quoted context omitted.

If I went for this positive spin, I'd talk about democratising investing, not democratising trading. Democratising trading is not inherently good, similar to democratising gambling.

If people want to gamble (or do drugs), why should we be nannies and stop them? I get the desire to stop commercial banks from gambling YOUR savings. But why shouldn't you be able to gamble your own savings if you want to?

I'm not saying we should be stopping them. But I also don't consider democratising and enabling gambling or taking drugs heroic.

Similarly, I'm all for drinking alcohol yet wouldn't cheer for an innovation that would make people drink more.

----

That being said, I think that RH (and many other platforms) do in fact democratise investing (and that's great).

Re: Robinhood S-1 IPO

#135

Post by gruez »

lottin wrote: post #130
gruez wrote: post #112

Earlier quoted context omitted.

>speculative bubbles are independent of monetary and fiscal policy If the fed pumps a few trillion dollars into the market and causes everything to go up in price, and bystanders look at that and decide to buy in, then that seems like that the fed's action caused the speculative bubble.

Actually the Fed doesn't pump dollars into the market. The fed buys bonds in the open market with newly created deposits. This alters the composition of balance sheets of financial institutions but not the size.

>Actually the Fed doesn't pump dollars into the market

Except when they did. Random google search:

>The central bank began purchasing ETFs such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) in early May last year.

However, even if all they do is buy bonds, money is fungible so those purchases will still spill over to other markets as investors chase for yields. If you pump a few trillion dollars into the bond market it's unrealistic to assume that it'll stay contained to just the bond market.

Re: Robinhood S-1 IPO

#136

Post by yreg »

ditonal wrote: post #90
rburhum wrote: post #48

I understand that many give Robinhood crap because it is not "sophisticated enough" or because of the Gamestop fiasco. Although many startups like to claim that they are "democratizing [x]", I honestly believe they did it. I have many friends that never traded before, and after they got their Robinhood account they feel comfortable enough to do it often. Even myself, who used to only trade a couple of times a year, s…

Index funds democratized investing. Robinhood “democratized” the worst part of investing and exposed unsophisticated investors to the instruments they are most likely to underperform on. Individual stock picking is probably worse than indexes but fine, however the incentive to day trade or trade complex derivatives is almost certainly going to hurt people far more often than a Vanguard account. It’s not a coincidence…

>It was the fraud of the century and only people with little understanding of finance bought the explanation

A CFO of a multimilion dollar company gave me the same explanation independently before Robinhood gave any statement.

Re: Robinhood S-1 IPO

#138

Post by mrkramer »

raziel2701 wrote: post #114
granzymes wrote: post #47

Headline financials: FY Ended December 31, in millions except percentage and assets per user | 2019 | 2020 | YoY ---------------|--------|--------|------- revenue | $278 | $959 | 245% op ex | $384 | $945 | 146% net income | $(107) | $7 | (107)% assets held | 14,136 | 62,979 | 346% monthly users | 4.3 | 11.7 | 172% assets per user| 3,287 | 5,382 | 64%

Also the cash - liabilities calculus not looking good. $8.8B in cash - $7.7B in liabilties = - $1.1 billion I'll pass.

Yup....Their business depends on dogecoin I mean good luck with that.

Re: Robinhood S-1 IPO

#139

Post by pavlov »

rfd4sgmk8u wrote: post #88
drewburg wrote: post #65

Earlier quoted context omitted.

Does this remind anyone else of the high APR (20-30%) credit cards offered to college students? I remember a table set up outside the main dining hall where they pitched getting started building that credit history ASAP. Now it's about building that portfolio ASAP and offering it to the most risk-tolerant age demographic. Subtly updated buying whatever you want on credit and worrying about whether you could afford it…

No? Because high APR cards are a trap to leech money from the young -- eg debt. Investing in growth assets like stonks is building assets. Very very different things!

If you’d bought a portfolio of the 2000 class of stonks, most of those equities would now be worthless or acquired for pennies along the way.

There were very few Amazons in the mix, and very many Palms. Even a reliable blue-chip like Cisco is still underwater compared to its March 2000 price.

Re: Robinhood S-1 IPO

#140

Post by LeapingPanda »

mym1990 wrote: post #93
slg wrote: post #79

Earlier quoted context omitted.

This is true at the level of basic buying and selling. However that isn't all that is happening with Robinhood. One of Robinhood's "innovations" was making it easier for novices to engage in more complicated trading including buying on margin, short selling, etc. This allows people to lose more money than they initially invested. A kid in the 90s wouldn't be buying Pokemon cards on credit with the potential to litera…

Robinhood has also gamified the trading experience. Once a day I get a push notification with something like "here are the day's biggest movers, hop on the train before it's too late!" and its essentially playing to that addictive quality that short term trading can have.

Exactly. A push notification like that is preying on the fear of missing out (FOMO), which is completely at odds with proper assessment and risk management.
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