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Robinhood reports 43% revenue decline

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Re: Robinhood reports 43% revenue decline

#171

Post by Denvercoder9 »

f-securus wrote: post #157
Denvercoder9 wrote: post #89

Earlier quoted context omitted.

There's a big difference between a stock freeze imposed by an exchange, and a broker prohibiting its clients from trading a given stock. If you're actively preventing your clients from selling the stock they own, that costs them actual money if the stock goes down and can very well end in expensive lawsuits. If you prevent them from buying more stock, they only lose the opportunity cost, which is generally much harde…

If a broker that handles a very large portion of retail trades suddenly blocks purchasing a security that retail trading has driven the price up then it stops retail pressure and the stock price will obviously drop.... you could say Robinhood cost retail money by removing the upward pressure on the stock. The SEC report on the incident mentions the price rise was mostly due to retail FOMO, and not the suspected short…

The problem with this analysis is that Robinhood didn't choose to block buy orders, they were forced to because they were no longer able to fulfill them. You can argue about whether Robinhood should've been better prepared for the volatility that arose (and that could be an interesting conversation by itself), but they weren't. GP claims "they shouldn't have done it", but continuing wasn't an option. The only other choice they had was to suspend trading in GME all together (both buy and sell orders), but I don't see how that wasn't strictly worse for them and their clients.

Re: Robinhood reports 43% revenue decline

#172

Post by adhesive_wombat »

gruez wrote: post #84
kareemsabri wrote: post #76

Earlier quoted context omitted.

This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have.

> This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. That's basically how the entire financial system works. You're supposed to be able to withdraw deposits as cash, but if everybody does it (from say, an internet meme event), the banks obviously wouldn't be able to "fulfill their obligations [...] to their customers".…

> It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs.

Indeed, that's the whole point of fractional reserve.

Re: Robinhood reports 43% revenue decline

#173

Post by jjeaff »

chrismcb wrote: post #146
dragontamer wrote: post #105

Earlier quoted context omitted.

Personally speaking, I blame the customers. They are paying for $0 trades to a very, very small trading firm with well-known trade-execution problems months / years before the GME instance. No serious trader actually trusted Robinhood, and nobody was surprised when Robinhood's trading ability was shown to be so weak in that timeframe. There were many respectable banks with much stronger finances who were able to supp…

Wait... What? You are blaming customers for being... customers? You have repeated multiple times that Robinhood essentially ran out of money. But then finally you mentioned why people are leaving... Because they don't trust Robinhood. It doesn't matter why they stopped trading, it simply matters that they did.

The customers aren't to blame, but it's a little unfair to blame Robin Hood for what amounted to a black swan event. One of the main reasons they ran out of capital in this case was not because of the volume of trading, it was because of the one sidedness of the trades (lots of buys) and all being on one stock. RH's margin requirements skyrocketed because so much of their liability was concentrated in one stock. Risk (and this margin requirements) go up the more the risk is focused into a single point of failure.

Re: Robinhood reports 43% revenue decline

#174

Post by kasey_junk »

Fomite wrote: post #129
gm3dmo wrote: post #122

Earlier quoted context omitted.

> so the easier narrative to believe is that Robinhood was part of a conspiracy theory to screw the little guy. Do Robinhood have big guys as customers? Their name suggests they should serve the little guy. If they cannot do that, then there is no reason for little guys to use them.

They market themselves as helping and serving the little guy, because of their commission-free trades. As with most things that are free, one needs to realize that if you're not the customer, you're the product. Robinhood makes its money on the interest in customer's accounts, margin lending, and selling trade data to high frequency traders. Only one of those is "little guy" neutral - margin lending is extremely dang…

Nitpick. They aren’t selling trade data to high frequency traders, they are selling the right to trade with you to high frequency traders. Payment for order flow is the term of art if you want to learn more.

Re: Robinhood reports 43% revenue decline

#175

Post by kasey_junk »

jmyeet wrote: post #90

The one thing I have to give Robinhood credit for is the good marketing that appealed to Zoomers and the WSB crowd. But, much like Crytpo Andys, a lot of these people just don't understand how anything works. Take the GME short squeeze, which a lot of people still fundamentally misunderstand. RH allowed (allows?) you to sign up, promise to deposit funds and trade on credit, essentially, until those funds arrive (typi…

Until recently every US broker accepted payment for order flow (even Vanguard did for options). Only Robinhood gave you back the money in the form of free trades. Thats to be commended.

Payment for order flow is a complex topic, mostly because the incentives are tricky, but at the end of the day, unless you are doing gigantic block trades (which you’d hire a specialist to do) you are almost certainly paying less in slippage with PFOF than you are in fees.

Re: Robinhood reports 43% revenue decline

#176

Post by eftychis »

f-securus wrote: post #151
dragontamer wrote: post #66

Earlier quoted context omitted.

> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a deliberate action that could only have one outcome on the stock price. Because Robinhood didn't have enough margin to keep buying GME. But if you sold GME, that reduced the margin Robinhood had to keep. ------- In other words: Robinhood has no more money to buy G…

If majority of retail was blocked out of buying during this period, then who was on the other end of the transaction and why do you think they would be buying when retail has the buy button turned off and the stock is 'severely disconnected from reality'? Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check? It seems big…

a) "big money" -- (such as retirement accounts or other institutions) -- don't care about "retail." They have to follow certain risk regulations and plans and will follow them, and that's it. Market makers will try to drive ahead of the market in an effort to provide liquidity (and make money to live and prosper in the process).

b) Robinhood was "blocked" because it decided to not do any serious risk management. And by blocked we mean it didn't have the cash that the clearinghouse required to service them.

c) No the collateral is for the clearance. The margin you refer to is what Robinhood lends you the customer. They are handling (mishandling in the case of Robinhood) their own equivalent side to be able to provide you with those stock trades.

What you see as a successful trade is only the execution of the trade -- that is someone has agreed to buy or sell at the price you asked/bid for. Next someone (broker + clearing house) needs to clear (Robinhood fucked up here) and then needs to settle. The clearing house takes the risk in case one of the counterparties falters or becomes insolvent, to ensure transactions do happen. It takes 2 days to trade (execution to settlement) non-options in most systems I am aware of these days.

c') Robinhood was just blind sided when its clearinghouse said "Hey, you know you actually just have way more buys that are more volatile than normal to the point of issues at clearing is 1, so increase your collateral." Robinhood said:"No money." Clearinghouse: "No worries, no trades, until you change your risk profile."

(Here is a quick link (just googled, couldn't find a better article I like) outlining the process https://thismatter.com/money/stocks/settlement-and-clearing.....

P.S. (@Edit): Also the brokers can not legally touch the customers' "hard cash" money and post it to cover their own obligations -- that would be commingling and let us say it is not good. I am not going to even begin imagining the issues, but people continuously get screwed due to commingling of funds.

Re: Robinhood reports 43% revenue decline

#177

Post by dragontamer »

chrismcb wrote: post #146
dragontamer wrote: post #105

Earlier quoted context omitted.

Personally speaking, I blame the customers. They are paying for $0 trades to a very, very small trading firm with well-known trade-execution problems months / years before the GME instance. No serious trader actually trusted Robinhood, and nobody was surprised when Robinhood's trading ability was shown to be so weak in that timeframe. There were many respectable banks with much stronger finances who were able to supp…

Wait... What? You are blaming customers for being... customers? You have repeated multiple times that Robinhood essentially ran out of money. But then finally you mentioned why people are leaving... Because they don't trust Robinhood. It doesn't matter why they stopped trading, it simply matters that they did.

They shouldn't have trusted Robinhood to begin with.

https://www.sec.gov/news/press-release/2020-321

Robinhood was all kinds of shady long before the GME events.

Re: Robinhood reports 43% revenue decline

#178

Post by filoleg »

f-securus wrote: post #167
timdev2 wrote: post #115

Earlier quoted context omitted.

I sold GME for a tidy profit on RH while buying was disallowed. Not hypothetically; I really did. Are you saying RH should have forced me to hodl? How would that have been a better customer experience?

In another reality Robinhood did not turn off the buy button and short hedge funds get margin called and the squeeze occurs... allowing you to hit a grand slam as opposed to being happy with your home run.

No at all how that other reality where they didn't "turn off the buy button" would've worked out.

In that other reality you are proposing, Robinhood gets declared insolvent and enters into receivership at the market close. Your entire investment account gets frozen for a year or so, until the insolvency process is finalized, and you can finally get your assets back.

Re: Robinhood reports 43% revenue decline

#179

Post by dragontamer »

f-securus wrote: post #151
dragontamer wrote: post #66

Earlier quoted context omitted.

> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a deliberate action that could only have one outcome on the stock price. Because Robinhood didn't have enough margin to keep buying GME. But if you sold GME, that reduced the margin Robinhood had to keep. ------- In other words: Robinhood has no more money to buy G…

If majority of retail was blocked out of buying during this period, then who was on the other end of the transaction and why do you think they would be buying when retail has the buy button turned off and the stock is 'severely disconnected from reality'? Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check? It seems big…

> If majority of retail was blocked out of buying during this period

They weren't. IB halted options but the actual stock GME kept trading. I myself made a buy/sell order on TD Ameritrade in that time period and I got the receipts to prove it.

It was just a few exchanges: Robinhood and some other one, that turned off GME buys.

> Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check?

No. Because it takes 2 days for funds to settle, and Robinhood couldn't afford to get any more stock from their partners.

You understand that when you buy a stock on Robinhood, Robinhood has to _FIND_ that stock for you from somewhere, right? Generally speaking, it is from a seller somewhere else. If those sellers aren't giving Robinhood any shares, then Robinhood can't give any shares to their customers.

> It seems big money was conspiring against retail and makes it difficult to trust the current opaque system.

It was Robinhood's fault for not having enough collateral, and it was Robinhood's customer's fault for placing their trust in such a crappy company.

This wasn't the first time Robinhood screwed things up, and it won't be the last.

Re: Robinhood reports 43% revenue decline

#180

Post by filoleg »

mumblemumble wrote: post #142
dangerlibrary wrote: post #68

Earlier quoted context omitted.

I'm not confused why they did what they did. I understand the situation they were in. I'm saying they shouldn't have done it, and that there is an obvious conflict of interest when there's a short squeeze on hedge funds going on, and Robin Hood's paying customers are hedge funds. Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out…

Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? Temporarily halting all trading is something an exchange can reasonably do, sure. But for an individual retail brokerage to do it (instead of only halting buying) seems like something that straight-up shouldn't be legal. Basically because of the balance of upside and downs…

> Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse?

You aren't missing anything. This is fairly obvious to anyone who understands how exchanges/brokers operate even on a basic level.

The bottom line of it is, disabling buying was a hard necessity to avoid a complete disaster for everyone involved (including customers). Disabling selling wasn't a necessity in any way whatsoever. It wouldn't have solved any problem at all, and would only add an extra problem for customers who wish to exit their positions.

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