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Robinhood and How to Lose Money

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Re: Robinhood and How to Lose Money

#121

Post by leetcrew »

Melting_Harps wrote: post #61
WalterBright wrote: post #38

Earlier quoted context omitted.

> Steady investment will never give you that. Sure it does. I've seen lower middle class people become millionaires that way. Of course, one needs the discipline to not succumb to spending it on a car/house/divorce, and the intestinal fortitude to not panic sell when the market tanks.

> Sure it does. I've seen lower middle class people become millionaires that way. Of course, one needs the discipline to not succumb to spending it on a car/house/divorce, and the intestinal fortitude to not panic sell when the market tanks. I think he was referring to the adrenaline rush, not the potential to make life changing amounts of money playing the long game, which clearly doesn't yield the same 'rush' he wa…

it's not like riding a motorcycle, but buying close-to-expiry options can be sort of like trading bitcoin back in the day. the addition of time pressure makes it a little more interesting. pretty fun when you see your contract jump from a total loss to a 600% gain on the day of expiry.

Re: Robinhood and How to Lose Money

#122

Post by JumpCrisscross »

vmception wrote: post #76
bananaface wrote: post #74

Earlier quoted context omitted.

Why would anyone assume equity price dictates options price? If there's arbitrage between the two instruments, they'll both exert a force on one another and the larger market (options) will exert the larger force.

options pricing formulas are not settled and the predominant formula was made by a firm that blew up using it its not really about arbitrage between markets, it’s the varying motives within the options market and varying prices others are willing to pay. Although this can be influenced by arbitrage between markets for some people. the formulas are based on stock prices, and at least 5 other things, but a small option…

> options pricing formulas are not settled and the predominant formula was made by a firm that blew up using it

Options arbitrage between equity and options via BSM variants is settled science. As is put-call parity, an arbitrage between put and call pricing. The latter is a perfect arbitrage—it is riskless. The former is not, there is risidual risk that must be continuously managed. (That management is another transmission mechanism for information between the markets.) When mismanaged, it blows you up. But it still enforced a tight, arbitrabgeable relationship between equity prices and options.

What does blow people up is thinking options models are B.S. and then going and trading options. They’re likely the reason my options-trading hedge fund stakes have been doing so well.

Re: Robinhood and How to Lose Money

#123

Post by awinder »

raverbashing wrote: post #109
hftrader998 wrote: post #34

I work in the industry and these kind of articles are always full of bad information about order routing. * Robinhood order flow is informed and toxic like all other brokerages. Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly. * The "bad prices" the "novices" are trading at, are in fact, the same market price that all participants trade at (at or…

Question, does RH (or other brokers) do internal clearing/matching of orders? That is, they clear the purchases/sales internally if they can, going to "the stock market" only if they can't fill it? Or that is a big no-no for brokers?

Yes that is perfectly legal and happens, but I’ll try to be brief and explain why that wouldn’t happen usually and why it’s still a good thing. When you go to buy/sell a security you see a buy/sell price. Everything being discussed here pertains only to price improvement. That is, payment for order flow only happens if the offer is better than what you saw on the screen when you said buy/sell. When you go to sell/buy a security you’ll notice that there are different prices to buy or sell. Filling an order internally means that the difference in those 2 prices is entirely bore by your own customers, versus the ability to go to broader markets and improve outcomes for both of your customers.

Payment for order flow and internal clearing are 2 ways to execute out of a ton of options that a brokerage has. The specifics are seen as moats / “the secret sauce” for these firms so you’re not going to see anyone spill the specifics of how they get price improvement. But there is a ton of legislation & complexity around it for sure.

Re: Robinhood and How to Lose Money

#124

Post by WhompingWindows »

biql wrote: post #97
dmoy wrote: post #11

I do not get the appeal of largely gambling with your money on RH instead of just passively investing for the long term. Maybe with some of your money, but not to the extent a lot of people are doing. People want to get rich quick I guess? Even if you do want to do that, why not pick a brokerage which doesn't take as much from you, like IBKR? It's just a surreal situation to me.

Based on my limited experience, you enter during the bull market, make some easy wins, and start wanting to bet more and more because winning feels so easy. I could totally feel this process when I bought a few option calls that over a few months made 10x. That felt fantastic at first but shortly after I noticed that I started to blame myself for not taking more risk because on the hindsight, it felt so obvious that…

I felt this. I bought a well-known controversial EV stock quite low; my plan was to make at least 33% on it. After a year, I'd made 400%, but I was struggling to click the "Sell" button. Some greed surfaced from somewhere, and it took me a couple of days to cancel the greed and sell the stock, making 12X what I hoped to the year before.

The stock has since gone up a lot more, but my dad told me: Buy low, and Sell too soon.

Re: Robinhood and How to Lose Money

#125

Post by blaser-waffle »

JumpCrisscross wrote: post #50
ab_testing wrote: post #42

I think that title of this article is click bait. The author himself acknowledges that Robinhood is not the only firm that sells order flow data. Infact all the well known so called discount brokerages sell order flow data and have done so for many years before Robinhood came along. In addition to that, all these firms were selling the order flow data and still charging their customers $7 per trade. That practise wou…

> all the well known so called discount brokerages sell order flow The order flow selling is sensationalised. Everyone does it. But Robinhood’s order flow being so much more valuable than competitors’ is interesting. And the difference cannot be explained solely by small order size. The market is betting Robinhood trades are profitable to trade against. Given how the UX encourages over-trading and complex trading, I’…

> The market is betting Robinhood trades are profitable to trade against.

LOL.

Fuck you retail investors, essentially. And it's not a bad approach, tbh.

Re: Robinhood and How to Lose Money

#126

Post by mam2 »

Cthulhu_ wrote: post #89
kjksf wrote: post #45

Earlier quoted context omitted.

Here's the appeal: I made 4x return in last 3 years "gambling" on stocks. That's far in excess of 8% return from "just passively investing for the long term". BTW: I gambled on IBKR, not RobinHood (I have RH account but don't use it). I just don't get why RobinHood is so vilified for the crime of making a fast, usable app. I use IBKR but their website is just bad. A security theater that makes logging in slow. Someti…

You got lucky; your post is why people pick Robinhood and day trading over the long-term one. It's survivorship bias. For every success story like yours, there's at least one - probably more - that lost three-quarters of what they put in. If you're thinking of investing, apply the "strong beliefs weakly held" practice; you think you may get high returns, so look for examples to the contrary to challenge your own beli…

It's not luck if you make consistent returns over 4 years. "gambling" is the term people use because they don't understand the stock market

Re: Robinhood and How to Lose Money

#128

Post by NovemberWhiskey »

totalZero wrote: post #116
ping_pong wrote: post #49

I don't think Robinhood is doing anything wrong. They are making things easy, which it should be. They still need to use the NBBO price, so it's not like they are making things more expensive for traders. But I've seen this exact same pattern during the dot com boom. Lots of people making a ton of money day trading. This usually culminates in a heavy crash and many people are completely wiped out. /r/wallstreetbets i…

Their platform has had outages during periods of extreme market volatility, and they allow unsophisticated traders to take option risk that they may not readily understand. /r/wallstreetbets doesn't have any fiduciary responsibility to anyone. RH does.

Is RH actually acting as an investment adviser in these transactions, or just a discount brokerage? If the latter, generally not a fiduciary, I think?

Re: Robinhood and How to Lose Money

#129

Post by blaser-waffle »

tptacek wrote: post #110
dlivingston wrote: post #5

Robinhood was an absolute game changer for me. Outside of my 401k (and a Viacom stock my mom bought me 20+ years ago to teach me about the stock market), my investment portfolio was nil. I now maintain a growing but conservative portfolio of stocks thanks partly to the frictionless UX of Robinhood - but, primarily, to the addition of fractional shares. To pay $1500 for a share of TSLA? When I could put that precious…

It's the beginning of the democratization of the market because they made it easier and more attractive for you to buy meme stocks?

Why would Wallstreetbets lie to me?

Re: Robinhood and How to Lose Money

#130

Post by simonebrunozzi »

hftrader998 wrote: post #34

I work in the industry and these kind of articles are always full of bad information about order routing. * Robinhood order flow is informed and toxic like all other brokerages. Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly. * The "bad prices" the "novices" are trading at, are in fact, the same market price that all participants trade at (at or…

> If the prices were obviously bad, there is free money available to the author here by simply quoting inside the spread.

Bam. Nailed it here. Instant credibility.

A pity your HN account is "new" (green color), as I would love to hear much, much more from you.

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