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Robinhood reports 43% revenue decline

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Re: Robinhood reports 43% revenue decline

#51

Post by ceeplusplus »

lalos wrote: post #6
bombcar wrote: post #3

Much of what Robinhood actually added (an app) has been mimicked and copied by actual brokerages. And having your investment platform be basically synonymous with wallstreetbets isn’t that great.

Fidelity iOS app even has a beta toggle that sprinkles that UI/UX competitive advantage that Robinhood pioneered in the space. Anyhow, I wonder how much revenue decline is expected post-IPO, one would assume that they hyper-optimize KPIs 1-2 years before IPO to have good metrics and then those strategies do not continue in the longer term.

I've used Fidelity's new UX, as well as Vanguard's, and both are still way behind Robinhood in terms of just usability, nevermind addictiveness. Robinhood also makes it easy to take on insane amounts of risk through options and margin whereas that kind of leverage is difficult to achieve elsewhere.

Re: Robinhood reports 43% revenue decline

#52

Post by dmoy »

thehoff wrote: post #33
jasode wrote: post #24

Earlier quoted context omitted.

>I have no idea how necessary their actions were It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi... But retail traders (not the professional traders l…

I forget, weren't there others that did the same? Were they also in that same boat (not enough funds on hand to cover trades)?

Yes.

Some other brokers decided paying the premium to cover gme trades for the short term wasn't worth it, so they cut it off. To varying degrees

Schwab and TDA (which was already or was about to be bought by Schwab?) both put some limits on, like options or something.

Some other brokers did not (Fidelity I think?)

Re: Robinhood reports 43% revenue decline

#53

Post by Majromax »

thebean11 wrote: post #31
jasode wrote: post #24

Earlier quoted context omitted.

>I have no idea how necessary their actions were It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi... But retail traders (not the professional traders l…

They had enough money to cover users' trades in securities other than GME, though, right? If I sell GME to buy AMZN, does that have different collateral implications to selling GME to buy GME an hour later? If I send them a bank transfer for $10k, they should have that money as soon as it clears right? There are many other ways they could have handled it beyond halting buying (and buying only) in an individual stock.…

> If I sell GME to buy AMZN, does that have different collateral implications to selling GME to buy GME an hour later?

Yes.

Stock trades don't settle instantly, and brokers must put up collateral to ensure that parties don't walk away if the price moves against them between the order and the settlement.

Thanks to the meme-stock volatility, DTCC (the clearing house) imposed special collateral requirements for Gamestop stock. Also thanks to it being a meme stock, Robinhood was "net long" in its purchases -- its users weren't making offsetting transactions.

The overall result was that Robinhood was on the hook for stupidly high (and unexpectedly high) collateral requirements for Gamestop, but most other stocks were business-as-usual. That's also why Robinhood would allow users to close out (sell) Gamestop positions even during the purchase freeze: doing so would reduce Robinhood's collateral requirement.

None of this has anything to do with unsettled customer funds. Usually DTCC's operations are invisible to retail investors, so it's a huge surprise when the exceptional happens.

Re: Robinhood reports 43% revenue decline

#54

Post by gruez »

rurp wrote: post #47
jasode wrote: post #24

Earlier quoted context omitted.

>I have no idea how necessary their actions were It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi... But retail traders (not the professional traders l…

I don't know, not having enough collateral to fund normal operations seems like a failure on the company's part to me. It's not like the collateral was an unknown requirement, it's the normal way the system works. RH failed to adequitely plan for a surge in activity, which seems like an odd thing to blame retail trader ignorance on.

> I don't know, not having enough collateral to fund normal operations seems like a failure on the company's part to me. It's not like the collateral was an unknown requirement, it's the normal way the system works.

Yeah, but the high volume of people buying a specific stock, and that stock being exceedingly volatile (which meant higher collateral requirements) was unknown.

Re: Robinhood reports 43% revenue decline

#55

Post by 8jy89hui »

jasode wrote: post #24
ryanmcbride wrote: post #2

I feel like regardless of the reasons they did it, whether or not it was necessary, they lost a lot of good faith with the users when they locked the GME and crypto trading during that whole thing. I have no idea how necessary their actions were but regardless of its necessity it still cost a lot of user good will.

>I have no idea how necessary their actions were It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi... But retail traders (not the professional traders l…

The problem isn't that they blocked the trades but rather the lack of transparency surrounding it. Robinhood took multiple days to put out a comprehensive explanation of the event. They have a user-alert system. They easily could have expressed apologies at the time instead of begging for forgiveness later.

Re: Robinhood reports 43% revenue decline

#56

Post by lovecg »

michaelgrosner2 wrote: post #48
dnadler wrote: post #32

Earlier quoted context omitted.

I don't know that I'd lay the blame at retail traders not being sophisticated enough to understand this. I'd lay the blame with the company that had such poor risk controls that they allowed this to happen in the first place.

In a way I sympathize with RH. If they were truthful that they didn't have enough money, they would have had to publicly admit they couldn't cover the purchases, which could have led to a run on them and everyone pulling out of Robinhood at once. In some ways, pulling the buy button was the best option they had. Too bad they didn't account for the fact that it would spawn a thousand conspiracy theories.

It’s the classic “do you lie or do you cause a stampede” dilemma. Similar to the masks shortage debacle in the early pandemic.

Re: Robinhood reports 43% revenue decline

#57

Post by toast0 »

rurp wrote: post #47
jasode wrote: post #24

Earlier quoted context omitted.

>I have no idea how necessary their actions were It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi... But retail traders (not the professional traders l…

I don't know, not having enough collateral to fund normal operations seems like a failure on the company's part to me. It's not like the collateral was an unknown requirement, it's the normal way the system works. RH failed to adequitely plan for a surge in activity, which seems like an odd thing to blame retail trader ignorance on.

The collateral requirements increased significantly overnight as a result of the dramatic surge in trading.

I wouldn't qualify that as normal operations.

It's certainly not a positive mark for them, but it seems reasonable, and they were able to quickly get more collateral, just not quickly enough to enable the surge of trading to continue on that particular day. Not the worst brokerage failure.

Re: Robinhood reports 43% revenue decline

#58

Post by codyb »

Palmik wrote: post #11
kyriefh wrote: post #4

Earlier quoted context omitted.

this is a good example of the importance of comms and user education. robinhood didn't lock trading - or at the very least, they were far from the only brokerage to do so and had very little choice in the matter. however, they were the front end that uninformed users experienced it through and thus took a huge PR hit

They switched to reduce-only mode for GME, effectively going against the retail tide. The fact that other brokers did it is not an excuse. They should have known their user base better. And it's not like they did not have other options -- they could have posted more collateral, and given that they raised billions soon after, it was within the real of possibility for them.

I'm not sure "understanding your user base better" makes billions of dollars appear in your bank accounts instantly, but I'm not a market maker so who knows

Re: Robinhood reports 43% revenue decline

#59

Post by j-bos »

paulgb wrote: post #50
rurp wrote: post #47

Earlier quoted context omitted.

I don't know, not having enough collateral to fund normal operations seems like a failure on the company's part to me. It's not like the collateral was an unknown requirement, it's the normal way the system works. RH failed to adequitely plan for a surge in activity, which seems like an odd thing to blame retail trader ignorance on.

> normal operations But that's the thing, a bunch of their userbase aping into one stock isn't (or rather, wasn't ) normal operations. It's the financial markets equivalent of jumping in an elevator.

Can't help but say, elevator's are designed to handle jumping, even many people jumping.

Re: Robinhood reports 43% revenue decline

#60

Post by 015a »

rurp wrote: post #47
jasode wrote: post #24

Earlier quoted context omitted.

>I have no idea how necessary their actions were It was financially unavoidable for Robinhood because they didn't have the _extra_ billions$ in collateral deposited at the clearinghouse to back up their customers' trades (e.g. GME). Various stories about it having to raise extra billions in an emergency: https://www.google.com/search?q=robinhood+emergency+raise+bi... But retail traders (not the professional traders l…

I don't know, not having enough collateral to fund normal operations seems like a failure on the company's part to me. It's not like the collateral was an unknown requirement, it's the normal way the system works. RH failed to adequitely plan for a surge in activity, which seems like an odd thing to blame retail trader ignorance on.

What happened last year was FAR from normal operations in the markets. What happened last year wasn't even a "surge in activity"; it was a hurricane.

And, to be frank; Robinhood can obviously accept some blame, sure, but the financial settlement system is what almost bankrupt them. There's no good reason why transfers have to take four, now three, now two days to settle. Everyone in the industry knows this; but they're slow as molasses at remediating it.

Its insane to think about how much economic prosperity has been, quite literally, destroyed into nothingness by this antique component of our financial system. Whether its the billions of dollars tied up in depository collateral, rather than being productively deployed. Or the businesses, like Robinhood, which were (or were nearly) destroyed due to black swan events.

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