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

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

#291

Post by theseatoms »

smaddox wrote: post #270
theseatoms wrote: post #198

Earlier quoted context omitted.

Sure. It's Robinhood's money, which they're choosing to lend to their customers. So Robinhood can bear the consequences if the loan can't be repaid. (As others have pointed out, they have ways to protect themselves. Margin calls, forced liquidations, etc)

Is it Robinhood's money? Are they required to maintain reserves to cover 100% of the loans they issue? If not, then it's not their money.

Good point. I sure hope that they're required to hold 100% reserves on loans. I'd like to see an end to fractional reserve banking. That's not unique to Robinhood, but part of a much larger conversation—one that more people should be having.

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

#292

Post by jfim »

jbooth wrote: post #284
ThrustVectoring wrote: post #228

Earlier quoted context omitted.

Uhm, what? That's still fully secured. It's actually 4/3rds secured, not 1/3rds. If you have $1000 in your account and borrow $2000 to buy stocks, you've got $3000 worth of stocks that they can sell to cover a $2000 loan. Whenever this ratio goes near or below 1, they can sell the secured stocks to cover it.

If the stocks (or wacky option/derivative trade) still have value, then yeah, there's no problem. The problem is when people make a bet that doesn't work out. There are a lot of exotic trades that can clean you out completely in an instant if you bet wrong.

It doesn't even need exotic trades. If you're doing margin trading on a stock for which there is a sudden dip in stock price (as in previous flash crashes), then there will be a margin call and from the customer's perspective, all their money and shares will evaporate.

I wonder how Robinhood will handle it when it happens.

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

#293

Post by adrr »

lodi wrote: post #262
adrr wrote: post #153

Earlier quoted context omitted.

I wonder what percentage of their customer base is holding leveraged ETFs in a hope to get rich fast.

Nothing wrong with leveraged ETFs in principle. It's just another, slightly sub-linear, point on the risk/reward spectrum (ie. 2x/3x extra risk for slightly less than 2x/3x reward). http://ddnum.com/articles/leveragedETFs.php

It isn't myth. Prospectus of these leveraged ETFs say don't hold these instruments over a day. This is from JNUG which is popular with millennials:

"Because of daily rebalancing and the compounding of each day’s return over time, the return of the Fund for periods longer than a single day will be the result of each day’s returns compounded over the period, which will very likely differ from 300% of the return of the Index over the same period. The Fund will lose money if the Index performance is flat over time, and as a result of daily rebalancing, the Index’s volatility and the effects of compounding, it is even possible that the Fund will lose money over time while the Index's performance increases."

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

#294

Post by harryh »

kasey_junk wrote: post #263
harryh wrote: post #114

Earlier quoted context omitted.

It has to do with how people/companies called "market makers" make money. Let's say you want to buy a share of stock. Generally you don't end up buying it from another random person who happens to want to sell a share of stock at the exact same time. There might not even be another random person that wants to sell right now. Instead you are likely buying from a market maker. For pretty much any stock there are many m…

It's worth noting that "sophistication" is not really the defining characteristic that makes retail order flow appealing, it's that it's non-correlated with other market events. Retail flow is driven by things like needing money for purchases or having excess cash lying around. Also retail flow is less execution cost sensitive. That's what people mean when they say less sophisticated.

Indeed that is a more clear explanation of what I meant. Thx!

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

#295

Post by SEJeff »

nolok wrote: post #122
lend000 wrote: post #115

Earlier quoted context omitted.

Wouldn't want to enable people to make their own decisions with their money, would we? The fact that you have to make a paid account to use leverage (whereas you can trade indefinitely for free) is deterrent enough for most people who do not already actively manage their investments. I think Robinhood is doing a great service -- I just wish they would expose a better API.

Unless I misunderstood him, he's not complaining that people can make their own decisions with their money, aka that anyone can use this service even if they're not well versed in that field, he's complaining that Robinhood entire business model is based on pushing the very users who don't know how to use it in a sane way, to do it anyway. That will be the company's lifeline, as its way to make money. I can see the b…

However, they still sell their client order flow to the bank that pays them the most to execute their trades. This isn't illegal and was a HUGE point of Michael Lewis's hack-n-slash book on electronic trading "Flash Boys".

If my Robinhood trades of 100 lots or more execute at a few pennies higher than the price when I place the order, I think that is entirely fine. Why? Because it costs 5-10 to trade from Etrade or most other normal brokerage accounts. From what I've seen thusfar (I've got maybe 20k invested with RH), all of the trades have executed at the price I expected them to, or 1 cent higher on very volatile stocks (TSLA in specific). I'm still paying massively less than if I used a traditional broker and RH is making a bit of money by selling my order flow.

Win/win really.

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

#296

Post by devopsproject »

JBReefer wrote: post #175
harryh wrote: post #144

Earlier quoted context omitted.

Most Robinhood customers will not reliably make more money trading every day than they would buying and holding Vanguard Index funds ($VTI is a good place to start).

Given how frequently this is said, I'm shocked that people still don't get it. The only way you know more than analysts is: A. be a full time analyst B. work at the company you're trading If you're on Robinhood, you're not A. And if you're B, you're in touchy legal waters. The average unsophisticated trader loses money vs those ETFs in even small time frames.

> The only way you know more than analysts is

is to flip a coin: https://finance.yahoo.com/news/coin-flip-beats-listening-wal...

Now you could argue that diversification is key and that the best way to diversify is to choose an index vs picking your own asset mix. But deifying analysts is absurd

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

#297

Post by devopsproject »

scurvy wrote: post #71
mortehu wrote: post #43

Earlier quoted context omitted.

People do this when buying houses all the time, and often at a 5x or 10x margin, rather than just 2x. Even Vanguard supports this.

At the end of the day, you can't live in a stock.

but it does still exist

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

#298

Post by devopsproject »

ixacto wrote: post #176

This is gambling for almost all users, and yes I used robinhood for a couple trades. Use https://stockfuse.com and you won't actually lose your money.

that link kills the back button. also, you can't make money so why bother

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

#299

Post by blazespin »

AndrewKemendo wrote: post #16

“But ‘how are you going to make money long-term?’ has been a question mark” Bhatt says. Gold has answered that question.” A Gold subscription lets users borrow up to double the money in their account to trade on margin with leverage 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 m…

They make their money from bad routing rules. No such thing as zero fee.

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

#300

Post by devopsproject »

x2f10 wrote: post #62

I've been interested in Robinhood for some time. Does anybody here have experience with the app (good or bad) they can share?

good experience. The app is extremely smooth and attractive and it makes it easy to buy and sell.
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