Robinhood stock trading app confirms $110M raise at $1.3B valuation

>A Gold subscription lets users borrow up to double the money in their account to trade on margin with leverage

Users pay money to be loaned money? How is this different than a microloan service?

>Robinhood also earns money from rebates its gets for directing its order flow to broker dealers

That means, presumably, the dealers are profiting in some way by handling trades from investors less informed than themselves.

At the end of the day, Robinhood may not have trading fees, but the underlying brokers it works with do. I don't see how a microloans service and some kickbacks are enough to compensate. Presumably they are hemorrhaging money right now and the VC money is subsidizing novice investor's trading fees.

Despite the name "Robinhood" like this is giving money to the poor, this service seems extremely predatory to its users, offering them cheap loans to gamble with on the stock market and taking kickbacks from the exact type of people Robin Hood was stealing from.

Wow, so that's effectively opening up new easy to get credit vehicles for unsophisticated investors. How could that go wrong?

Even if you are a professional trader you'll take a bath on margin over the long run. They are incentivizing what is effectively borrowing for gambling and that is their long term revenue strategy? Might be a great money maker but it certainly is playing with some really big barrels of fire.

"Three things ruin people: drugs, liquor, and leverage - Charlie Munger"

edit: The point here is not that Margin is a new service, yes every brokerage has it, it's that it is irresponsible to use Margin if you are not a sophisticated investor. Its even more irresponsible to push leverage onto unsophisticated investors.

Not everyone is going to understand the risks of leverage and if Robinhood makes it as easy as candy crush to trade on leverage, enough gamified users are "playing" stock market with real money and a margin call happens during a huge downturn, it will be exceptionally nasty.

I buy the stock myself a few days later, but at $40 each for a grand total of $4,000, and I just made $1,000. You get your 100 shares, I make $1,000 plus fees. Now imagine doing this hundreds or thousands of times a day. Or I simply sell my own existing supply conveniently to my own buyer and I dictate the fees, which has value in itself. Sure I'm only making $5 per head per month with these low-end customers, but now I have 100,000 customers instead of 1,000.

A savvy investor wouldn't ask to buy these shares. He'd know that he's better off shorting himself. Unsavvy investors are all over the place and if you can get them to come to you, you can make a lot of money off them with minimal investment or risk.

On top of that you can offer them predatory loans for investing. This app offers loans, no idea on terms, but I can't imagine them being very nice. They put up collateral like their car or home, so you have no risk. They fuck up, or not, it doesn't matter, you're at least getting fees and probably screwing them in other ways. Oh and you're getting interest on that loan as well.

edit: Front Loading absolutely happens, it can be done in a way that's difficult or impossible to detect and has a lot of loopholes as well.