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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

#301

Post by nayefc »

SEJeff wrote: post #295
nolok wrote: post #122

Earlier quoted context omitted.

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 m…

You think Etrade doesn't sell order flow?

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

#302

Post by pembrook »

artursapek wrote: post #288
pembrook wrote: post #283

Earlier quoted context omitted.

"Just pick winning stocks" and "sell them before they go down" are not strategies that any human OR algorithm has been able to perform consistently over long time frames. And no, Warren Buffet didn't make his fortune just trading stocks. So I assume based on your strategy you put all of your money in AMZN 10 years ago, sold it right before each drop, re-bought right before each rise, and are now filthy rich. Oh you'r…

> So I assume based on your strategy you put all of your money in AMZN 10 years ago, sold it right before each drop, re-bought right before each rise, and are now filthy rich. Oh you're not? I wonder why. No, that's just a buy-and-hold... just the same as an index fund. I didn't cherry pick anything. Plenty of high profile stocks went up more than 72% in the last 10 years. They're not even hard to find.

Of course it's not hard to find stocks today that went up over 72% in the PREVIOUS 10 years. That's not the problem.

The problem is how do you pick the ones that will beat the market beforehand, when everybody has access to the same information about the prospects for future growth & earnings?

It's been proven by hundreds of studies to be a statistical near-impossibility over long periods of time. Any outperformance over the short term can be mathematically reframed as random luck (which a retail investor like you and I will incorrectly attribute to being the result of our own abilities).

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

#303

Post by lodi »

adrr wrote: post #293
lodi wrote: post #262

Earlier quoted context omitted.

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…

Understood. But please read the whole link; you don't take a long position in any etf, geared or not, if you're expecting the underlying index to give negative or neutral returns. The whole point of the market is to grow--which is does "most of the time". (Caveat emptor, yadda yadda.)

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

#305

Post by morgante »

mabbo wrote: post #158
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.

> Wouldn't want to enable people to make their own decisions with their money, would we I think you're missing what the criticism here is. Let's say you, right now, have $10,000. I say "Hey, lend me that money so I can play the stock market with it." Would you give me the money? You know literally nothing about me. You don't know if I've ever traded a stock before. You don't know if I can ever pay you back. There's a…

Do you actually understand how margin loans work?

If your trade starts going bad they'll be aggressively unwound. They're a very well-understood model offered by tons of (profitable) brokerages out there. Robinhood is not doing anything new by offering them.

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

#306

Post by SEJeff »

nayefc wrote: post #301
SEJeff wrote: post #295

Earlier quoted context omitted.

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 m…

You think Etrade doesn't sell order flow?

They do, and they still charge you fees to trade, unlike Robinhood!

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

#307

Post by morgante »

vivekd wrote: post #168
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.

As a small investor, borrowing money to invest is almost invariably a terrible, terrible idea, because any return you make on the investment will likely be cancelled out by the interest paid to borrow the money. I just looked up margin interest rates, for loans of 10 000 or less (which is what we are likely talking about with robin hood) the interest rate is Base Rate + 1.25% which is 8.50% interest. I don't know man…

> I just looked up margin interest rates, for loans of 10 000 or less (which is what we are likely talking about with robin hood) the interest rate is Base Rate + 1.25% which is 8.50% interest.

Is that from Robin Hood? If so it's a travesty specific to them. You can borrow from Interactive Brokers for 2.4%, which is a lot easier to overcome even with straight broad-market ETFs. [0]

[0] https://www.interactivebrokers.com/en/index.php?f=interest&p...

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

#308

Post by morgante »

webninja wrote: post #210
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…

I use Robinhood and NO ONE should use margin if they don't know what a Margin Call is. Having understood that, the effective yearly simple interest rate on my particular Robinhood margin (extra buying power) is only 5%/year so all I have to do is earn higher than a 6% return each year. This last year, my return rate was 14%, so that margin was worthwhile. If new to investing and you aren't sure what to invest in, I s…

> Having understood that, the effective yearly simple interest rate on my particular Robinhood margin (extra buying power) is only 5%/year so all I have to do is earn higher than a 6% return each year.

If you are planning to use margin, I dearly hope you don't use Robin Hood. You can get much cheaper margin loan from other brokerages like Interactive Brokers (less than half as much).

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

#309

Post by morgante »

scott00 wrote: post #107
rl3 wrote: post #50

Earlier quoted context omitted.

> Even if you are a professional trader you'll take a bath on margin over the long run. Huh? It would be difficult to find a professional trader that doesn't ​ trade equities on margin. They pretty much have to due to the way the settlement process works. The returns of a professional trader depend on many factors, including available capital and the capacity or manner in which the trader operates. That said, they're…

Typical margin rates for professional traders are far below 5%. See https://www.interactivebrokers.com/en/index.php?f=1595 . And IB is basically the most expensive professionally focused brokerage. If you've got a million bucks you can probably get Fed Funds + 50 basis points.

> And IB is basically the most expensive professionally focused brokerage.

Uh, IB is not a professionally-focused brokerage. It's the most professional retail brokerage though.

On what basis are you calling it most expensive though? It's much cheaper than any other brokerage I know when you look at fees holistically.

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

#310

Post by cowmoo728 »

frgtpsswrdlame wrote: post #218
pembrook wrote: post #110

Enticing millenials to "trade" individual stocks is quite possibly the most anti- Robinhood thing I can think of. The only thing more ironic would be to encourage them to take on margin...which as it turns out is literally Robinhood's business model. 99% of users on the platform will ulimately end up participating in a direct transfer of their own wealth to a more sophisticated trader or algo (i.e. The banks and hedg…

You can also scratch the trading itch by buying a small amount of some of the more specialized etfs and just holding forever. Think water is the next crisis? Look into PHO. Think India's being underestimated in the world economy or Palladium prices are going to skyrocket or the US tech sector will outperform the broad market? There are etfs for that, just use them sparingly and do your research.

Many of the newer ETFs have high expense ratios and alarming clauses in the prospectus (e.g. a forced sale if the ETF drops below $x). If you aren't a professional day trader you should be very wary of the proliferation of opaque ETFs, especially the high leverage ones.
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