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Robinhood and How to Lose Money

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Re: Robinhood and How to Lose Money

#171

Post by KKKKkkkk1 »

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…

> Another option, the one that occurs in practice now is for the value to get split between the counterparty taking on risk (Citadel, in the form of less toxicity on orders), the customer (the Robinhood client, in the form of price improvement over the national bid/offer), and Robinhood themselves for sourcing the flow (a commission or payment).

According to the WSJ, compared to other brokerages, Robinhood disproportionately takes that value to themselves [1]. Part of the reason why it's so lucrative for them is that they're steering their clients to options trading, where the incentive payments from the market makers are much higher. I think this quote from the WSJ tells the whole story:

One executive with a high-speed trading firm that executes orders for Robinhood said its price improvement is much worse than that of competing brokers.

[1] https://www.wsj.com/articles/why-free-trading-on-robinhood-i...

Re: Robinhood and How to Lose Money

#172

Post by KKKKkkkk1 »

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…

Listen to Elon [1]. If you don't have $1,500, don't buy Tesla shares.

[1] https://www.cnbc.com/2020/05/01/tesla-ceo-elon-musk-says-sto...

Re: Robinhood and How to Lose Money

#174

Post by jmalicki »

vinay427 wrote: post #146
rchaud wrote: post #145

Earlier quoted context omitted.

At this point, I'm inclined to think that the only benefit VC-funded companies provide to the consumer is by subsidizing the price of the service. Uber, WeWork, DoorDash etc are all piling up losses by undercutting competitors to gain market share. That cannot last. At some point, the other shoe will drop. Be ready to jump ship if the benefits no longer exceed the costs (lock-in, bad business practices, sale of perso…

I find this characterization somewhat amusing, in a positive way. This makes it sound like someone implemented (rather poorly) an ambitious wealth gap reduction plan that uses insufficient approximations and no government oversight, leaving a significant number of people behind.

Is this a wealth gap reduction scheme? After all, the ultimate investors (outside of sovereign wealth funds at least) are usually pension funds, which tend to be pretty middle class. The beneficiaries of VC here are usually the upper middle class for both actual employees of these firms, and a lot of the beneficiaries of Uber, AirBNB, etc.

This could be wrong, but I think the direction of wealth transfer is worth considering - is this wealth redistribution, or is it the rich and powerful looting the middle class?

Re: Robinhood and How to Lose Money

#175

Post by orojackson »

WalterBright wrote: post #170
abduhl wrote: post #114

Earlier quoted context omitted.

Alternatively, you don't get a rush from gambling because you have a lack of imagination on how you can beat "the math" and so have never gotten the rush from your plan working out (at least in your small sample size and from your perspective).

> you have a lack of imagination on how you can beat "the math" I.e. I don't invest in ignorant fantasies. I recall going to Lake Tahoe once. Buses would pull up to the casinos, disgorging mobs of silver-haired people rushing into the casinos to spend the day losing money. It's sad.

Or taking a different view that concurs with yours: investing in index funds or broad ETFs lets me match or beat most long-term investors with nearly zero effort. There's no need for me to waste my time reading "financial news" or developing super fancy HFT algorithms like some posters here have done. I just need to buy those index funds at my desired asset allocation and I'm good to go. Repeat until retirement. Very simple.

Granted, I do complicate things a little by insisting that I never sell anything I buy, not even for rebalancing, until retirement (otherwise I wouldn't be buying and holding in my eyes). However, I get around that by constantly rebalancing with new money [1].

Honestly, I find it rather jarring that as someone who usually frequents /r/personalfinance and Bogleheads, I see lots of investing suggestions on HN that do not involve indexing.

[1]: http://optimalrebalancing.tk/

Re: Robinhood and How to Lose Money

#176

Post by qes »

leetcrew wrote: post #118
pjc50 wrote: post #68

Earlier quoted context omitted.

> needs the discipline to not succumb to spending it on a car/house/divorce Apart from the 2008 boom/crash, owning a house has been a great way for the middle class to become asset millionaires. I knew someone in London who was routinely out-earned by the asset appreciation on their own house. Besides, inflation has rather moved the bar for "millionaire" to every middle class couple with a house and two retirement fu…

> Apart from the 2008 boom/crash, owning a house has been a great way for the middle class to become asset millionaires. I knew someone in London who was routinely out-earned by the asset appreciation on their own house. there are certainly some hot real estate markets where houses appreciate a huge amount over a short period of time. in hindsight, it looks like a no-brainer to purchase a house in these areas. on the…

I'm not in a particularly hot real estate market - decidedly average.

It was abundantly clear when we bought that our location would not have a large apartment building built next to it - you can at least to some degree select for factors like that.

With all costs considered, we lived in a 2000 sq ft home with attached 2+ car, large shed, biggest yard on the block, etc. for a little bit less than it would've cost us to stay in our previous small 2 bedroom apartment in a equivalent enough location, assuming even that the rent remained the same for the past 10 years.

And on top of it we're walking away with $100,000 in equity. That is accounted for in the costs - but I'm not so sure that I would've actually saved that $100k if it hadn't been getting stuck away in the property value all along.

Anecdotal, of course, but it seemed like a no brainer at the time and in fact turned out to be such. It's not for no reason that home ownership is widely recommended as a good financial move.

Re: Robinhood and How to Lose Money

#177

Post by qes »

commandlinefan wrote: post #161
timavr wrote: post #136

This is just nuts, people know zilch about risk management. It is just a wealth transfer from people with zero knowledge to professional traders and brokers. Paying of credit cards, maximising your tax return, investing in things you 100% understand, way easier ways to make money. People still might get lucky and make epic money, but it is in the same zip code as driving drunk and not getting into a crash.

> investing in things you 100% understand Well, most of us (myself included) "invest" in a 401(k) that we don't really understand that well , but common wisdom is that this is still the best way to save for retirement.

> common wisdom is that this is still the best way to save for retirement

Because the tax advantage on the account makes it so largely irregardless of how well you understand it.

Also the options available are generally quite limited so that a) even if you did understand it you wouldn't have much choice within the tax advantaged account, and b) your choices are largely constrained to relatively safe index funds.

Re: Robinhood and How to Lose Money

#178

Post by p7hwfizeONj »

AznHisoka wrote: post #93

I love Robinhood as a product (simple, easy to use) but agree it’s advantages also can lead to recklessness. For me, I simply delete the mobile app for my phone and use another app to set price alerts. This prevents me from overtrading and obsessing over the markets everyday.

Do you have a recommendation for price alerts? Both E-Trade and Robinhood don't notify me immediately when a price target or percentage change is hit. A 90 day limit order does execute quickly enough but it isn't exactly what I'm looking for because there might be new information that would have made me not want to buy.

Re: Robinhood and How to Lose Money

#179

Post by qes »

kjksf wrote: post #64
jesterson wrote: post #60

Earlier quoted context omitted.

> You actually can get better results because as a retail trader participating with other retail traders you have uncorrelated order flow. Hedge funds will get even better results knowing what's robinhooders are betting upon with much better precision.

That doesn't negate his point (that RobinHood can fill your order just as well, or better, than eTrade or Fidelity). If you're trying to out-hedge hedge funds then the only way to win is to not play. You can (and should) use stop limit prices to guarantee a desirable price in which case there's nothing a hedge fund can do to bump you. And if you're sensitive to 0.1% differential in price then you're trading, not inve…

> use stop limit prices to guarantee a desirable price in which case there's nothing a hedge fund can do to bump you

This is VERY misleading - not sure if you just worded it poorly or if you believe this - but a stop limit is NOT a guarantee that your stock will be sold.

Someone has to take the other side of that trade for it to fill. If there's no one there to take the trade - which is common when the price moves quickly - it will not execute.

Re: Robinhood and How to Lose Money

#180

Post by AznHisoka »

p7hwfizeONj wrote: post #178
AznHisoka wrote: post #93

I love Robinhood as a product (simple, easy to use) but agree it’s advantages also can lead to recklessness. For me, I simply delete the mobile app for my phone and use another app to set price alerts. This prevents me from overtrading and obsessing over the markets everyday.

Do you have a recommendation for price alerts? Both E-Trade and Robinhood don't notify me immediately when a price target or percentage change is hit. A 90 day limit order does execute quickly enough but it isn't exactly what I'm looking for because there might be new information that would have made me not want to buy.

I use Fidelity. You can probably open an account there with nothing in it, and get price alerts for any security.
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