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Robinhood reports 43% revenue decline

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Re: Robinhood reports 43% revenue decline

#191

Post by cco »

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.

I do as well to a degree, in fact those clearing houses turned the absolute _screws_ to Robinhood, increasing the collateral requirements quite above and beyond what is normal. Robinhood was stuck between a rock and a hard place, squeezed from both sides, but unfortunately they chose to stay "silent" and stonewall their users, the wrong move imo.

They had an opportunity to rail at the system and cast themselves as the vanguard and champion of their users's rights. They were doing everything they could to cover the collateral obligations, but the big bad clearing houses and various market makers were dead set at dousing a bit of water on the fire. Instead they kept to the line, "There is no liquidity problem", which was a bald faced lie to protect against a run and/or loss of faith as you point out.

If there was any lesson to take from GME/meme stocks, "lack of faith" due to poor fundamentals is not a problem haha. Users would have LOVED Robinhood more if they perceived them as helping them fight "the power". But they chose not to and anecdotally any of my friends that were caught up cooled considerably on Robinhood, I don't know a single of my dozen or so acquaintances still using it fearing that Robinhood will fail them when it is critical.

Re: Robinhood reports 43% revenue decline

#192

Post by kasey_junk »

jmyeet wrote: post #188
kasey_junk wrote: post #175

Earlier quoted context omitted.

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 s…

You are mistaken. Other brokers also sold order flow [1] but not all. [1]: https://www.investopedia.com/terms/p/paymentoforderflow.asp

I’m sorry I’m not sure what you think the link says but it doesn’t contradict me.

I did a manual audit of the top 10 US brokers in 2019 and all of them participated in PFOF. The only caveats we’re that IB let you pay to opt out and Vanguard only engaged in PFOF in options. Every other broker I looked at used PFOF. Admittedly there could have been small brokerages that didn’t but it was such a small percentage I didn’t look.

Re: Robinhood reports 43% revenue decline

#193

Post by mumblemumble »

filoleg wrote: post #180
mumblemumble wrote: post #142

Earlier quoted context omitted.

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). Di…

OK, thanks for the validation.

I think the next step, then, is to observe that I don't see how this can be characterized as a case of Robinhood getting out over their skis. Gamestonk looks for all the world to me like it was a black swan event that nobody could have anticipated. And the amount of reserve money Robinhood's clearer required is, realistically, set by the clearer. I suppose technically Robinhood could have held more, but that seems like the kind of thing that no consortium of mere humans would ever actually do, right? Just something a monday morning quarterback might say they should have done.

Re: Robinhood reports 43% revenue decline

#194

Post by [deleted] »

gruez wrote: post #93
bidirectional wrote: post #78

Earlier quoted context omitted.

They only did what they were forced to. Making an active choice to arbitrarily restrict selling as well would have been an insane move -- who are they to tell their customers they cannot sell something they own?

>who are they to tell their customers they cannot sell something they own? To be fair exchanges do that all the time (ie. trading halts).

[deleted]

Re: Robinhood reports 43% revenue decline

#196

Post by deschutes »

SilasX wrote: post #183
gruez wrote: post #37

Earlier quoted context omitted.

>they should have that money as soon as it clears right? You'd think so, but no. The brokerages can't use customer funds to do that. They have to front the cost themselves. >We cannot use customer funds to front that cost due to regulation. So the brokerages or the clearing firms have to go into their own pockets to do it. https://finance.yahoo.com/video/heres-why-robinhood-restrict...

FYI to anyone reading: gruez and I had an exchange a while back where I tried to pin down what the collateral is accomplishing and why the customers couldn’t buy even with settled funds. I don’t think it resulted in a satisfactory explanation but it goes over a bunch of the same questions being asked on this story, and I still think it’s useful to help isolate what part doesn’t make sense. https://news.ycombinator.co…

Here's what I gather from that thread.

The bottom line is that the retail trader stays whole in the case the trade fails to clear.

If the broker was allowed to use the retail trader's money for collateral it would either not really be collateral or it would be at risk of being forfeit. You can't have it both ways.

Re: Robinhood reports 43% revenue decline

#197

Post by SilasX »

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…

> So what happens if people sign up, buy GME on credit and then GME crashes? RH is left holding the bag

Except they cut off buys even if made with settled funds.

Edit: to avoid retreading ground, here’s where I had the exchange before. Just tell me what you would say differently: https://news.ycombinator.com/item?id=27693578

Re: Robinhood reports 43% revenue decline

#198

Post by SilasX »

deschutes wrote: post #196
SilasX wrote: post #183

Earlier quoted context omitted.

FYI to anyone reading: gruez and I had an exchange a while back where I tried to pin down what the collateral is accomplishing and why the customers couldn’t buy even with settled funds. I don’t think it resulted in a satisfactory explanation but it goes over a bunch of the same questions being asked on this story, and I still think it’s useful to help isolate what part doesn’t make sense. https://news.ycombinator.co…

Here's what I gather from that thread. The bottom line is that the retail trader stays whole in the case the trade fails to clear. If the broker was allowed to use the retail trader's money for collateral it would either not really be collateral or it would be at risk of being forfeit. You can't have it both ways.

But that wouldn’t make sense as being a constraint that the Robinhood’s upstream counterparties would demand, since the collateral is purportedly to protect them. No one has ever argued this point in terms of “oh we just wanted to make sure no one took your money without giving shares”, or, if they did, they are really bad at communication.

Edit: note that this other authoritative explanation claims the failure mode is RH holding the bag for a client not depositing funds as promised.

Re: Robinhood reports 43% revenue decline

#199

Post by deschutes »

SilasX wrote: post #198
deschutes wrote: post #196

Earlier quoted context omitted.

Here's what I gather from that thread. The bottom line is that the retail trader stays whole in the case the trade fails to clear. If the broker was allowed to use the retail trader's money for collateral it would either not really be collateral or it would be at risk of being forfeit. You can't have it both ways.

But that wouldn’t make sense as being a constraint that the Robinhood’s upstream counterparties would demand, since the collateral is purportedly to protect them . No one has ever argued this point in terms of “oh we just wanted to make sure no one took your money without giving shares”, or, if they did, they are really bad at communication. Edit: note that this other authoritative explanation claims the failure mode…

It makes perfect sense for a regulation that intends to protect the retail customer's interests. I suspect Robinhood would put customer money up for collateral if they were allowed to do so.

Re: Robinhood reports 43% revenue decline

#200

Post by WoahNoun »

mazlix wrote: post #165
WoahNoun wrote: post #145

Earlier quoted context omitted.

They've been pretty open actually. They did not have enough cash on hand to support the buy volume. They have said this repeatedly. They have also said if incoming bank transfers from retail investors had settled faster they would have had enough cash. The "instant deposit" feature of letting people buy stocks with cash deposits they had only initiated but had not settled meant they didn't have the cash on hand to su…

January 27th, 2021 Robinhood sent me an email warning that "In an effort to help reduce risk, we've begun implmenting certain restrictions for GME and AMC options trading". They explain some restrictions being made to options. They don't provide any sort of warning that completely removing the ability to buy the underlying stock for all of their users was even a possibility. I think it sshould be part of their fiduci…

> inform people of the risks of purchasing stocks that they are running out of collateral

People weren't allowed to purchase those stocks so I'm not sure what risks you are talking about. There was no (additional) risk from purchasing from RH versus anywhere else. You could always sell. Not allowing people to buy doesn't have anything to do with fiduciary duty. A broker doesn't have to let you buy whatever you want.

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