Robinhood and How to Lose Money

* 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 inside the bid/offer). If the prices were obviously bad, there is free money available to the author here by simply quoting inside the spread.

* Recall that the majority of trades on lit exchanges are from professional or institutional investors. For this reason, spreads are wide because providing liquidity means you will likely get run over. Robinhood orders do not exhibit as much short term momentum, and so trading against them is safer for broker-dealers because there is less risk. This risk profile is valuable, and you might wonder what's a fair way to allocate that value. One option is to not capture it, and send all Robinhood orders directly to the market. The author implies this makes sense (a gravy-free approach), but it does not, the retail customer actually ends up worse off. 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).

> And let’s remember that options are far more illiquid and opaque than standard equities.

Okay, first of all the growth of the options market is AMAZING, and their utility increases the more liquid the market is.

So massive new groups of traders with a low barrier of entry make options much more liquid, and this is amazing.

There used to only be one series of options that expired once per quarter and had 5 cent ($5) bid and ask spreads, and strikes only every $5 or $10 dollars.

Now there are 20 series trading at once and pretty much all indice constituent companies, let alone the index itself, alongside strikes every $1 - $2.5 dollars, even $.50 cents sometimes.

There are so many strategies that were unviable because the spreads were too wide, the strikes were too few and far between, and the commissions structure was prohibitive.

That's all changed now, and that's the other perspective.

Robinhood is also still handicapping users, as the regulations allow for much greater amounts of leverage and margin capabilities, which Robinhood doesn't offer yet, which TD Ameritrade and others have offered all along. So all the surprise and angst directed at Robinhood is as ignorant as the speculators that you are worried about.

This is an education problem, not an access problem. They are mutually exclusive.

To the people not using options for what they were made for:

"Just avoid holding it in that way." - Steve Jobs

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.