Robinhood and How to Lose Money • Hacker News Board

Re: Robinhood and How to Lose Money

#41

Post by JumpCrisscross » Mon, Jul 20, 2020, 6:55 AM UTC

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…

> Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly

Why? This is literally the definition of order flow purchasing and market making. Flow amidst spreads creates profits.

The non-cynical explanation for Robinhood’s flow being attractive is in the law of large numbers. Robinhood’s trades are tiny. That means buying their flow gives one lots of small, idiosyncratic exposures. Institutional flow, on the other hand, is lumpy, which can leave one with a few giant positions.

Re: Robinhood and How to Lose Money

#42

Post by ab_testing » Mon, Jul 20, 2020, 6:56 AM UTC

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 would have continued unabated had Robinhood or some other startup not come along and provided free trading platform.

Also from a real world perspective, I have tried Robinhood and Schwab market orders and they are very close to each other (most of the times - same price down to the penny). So I am not sure why Robinhood is geting paid more for their order flow, compared to the other discount brokerages.

Also Robinhood is great for buy and hold investment.

Re: Robinhood and How to Lose Money

#43

Post by raverbashing » Mon, Jul 20, 2020, 6:56 AM UTC

vmception wrote: post #36

> In the first three months of 2020 ... [Robinhood users] also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size > 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 tra…

If only we had learned something from 2008... But apparently not

(For those who aren't aware) The problem with options is that your liability with them can get bigger than your equity. You buy 10 shares of Newthing.js for $1000 ($100/share), the maximum you're losing is $1000

You shortsell NTJS because they use JS instead of Ruby, but guess what NTJS rose to $200 per share and at the time of selling you need to cover the difference.

(Edit: had conflated put options with shortselling, https://www.investopedia.com/articles/trading/092613/differe... ), as the article says "Because of its many risks, short selling should only be used by sophisticated traders familiar with the risks of shorting and the regulations involved. "

Re: Robinhood and How to Lose Money

#44

Post by WalterBright » Mon, Jul 20, 2020, 6:56 AM UTC

system2 wrote: post #24

What's the reason of this article showing RH as an evil corp? People also gamble in Las Vegas, no one is stopping them. It is a good tool, thought me a lot about stocks and options. I am not investing heavily, but overhead of my investments would be far more higher with other competitors. The other trading companies literally asked my lifestory, bunch of scans and very long process of acceptance. Let alone their extr…

> literally asked my lifestory

That's a result of federal regulation and lawsuits. Investors have a tendency to sue brokerages when they lose money, arguing that "nobody told me stocks could go down!" Hence brokerages try to head this off by refusing to sell to you if you don't certify you are a "sophisticated" investor.

Re: Robinhood and How to Lose Money

#45

Post by kjksf » Mon, Jul 20, 2020, 6:58 AM UTC

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.

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. Sometimes it fails to log me in. Sometimes it fails to show my portfolio. Because, you know, it's only job no 1 of an investing site.

Re: Robinhood and How to Lose Money

#46

Post by jariel » Mon, Jul 20, 2020, 6:58 AM UTC

system2 wrote: post #24

What's the reason of this article showing RH as an evil corp? People also gamble in Las Vegas, no one is stopping them. It is a good tool, thought me a lot about stocks and options. I am not investing heavily, but overhead of my investments would be far more higher with other competitors. The other trading companies literally asked my lifestory, bunch of scans and very long process of acceptance. Let alone their extr…

"People also gamble in Las Vegas, no one is stopping them."

If Robin Hood was positioned and sold as 'gambling' and regulated a such, nobody would have a problem with it.

But if anyone doesn't see the maximal hypocrisy in their branding (literally: Robin Hood) and the materiality of their offer, then that's the issue right there.

By 'gravy' the author means 'fish' in gambling terms.

There's just no way kids on their app, are, on the aggregate going to be able to be beating pros esp. on sophisticated things like options trading, but that's the whole point.

Re: Robinhood and How to Lose Money

#47

Post by vmception » Mon, Jul 20, 2020, 7:00 AM UTC

JumpCrisscross wrote: post #39

vmception wrote: post #36

> In the first three months of 2020 ... [Robinhood users] also bought and sold 88 times as many risky options contracts as Schwab customers, relative to the average account size > 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 tra…

> new groups of traders with a low barrier of entry make options much more liquid Are you claiming Robinhood users are responsible for a significant fraction of option market liquidity over the past year? Because that’s categorically wrong.

All additional participants to the options market makes options more liquid.

No, I am not quantifying Robinhood users, only elated to see one chisel helping narrow the bid and ask spreads across expiration dates.

Shouldn't bother you that much.

Re: Robinhood and How to Lose Money

#48

Post by rydre » Mon, Jul 20, 2020, 7:02 AM UTC

WalterBright wrote: post #40

rydre wrote: post #31

Earlier quoted context omitted.

The quality of life increase fore mere 8% return is not as much. You'd need much higher returns for many people to make them not use the money now. Losing 1K every month for 5 years for a person who make 200k a year is not much Given the chance to make 100million - billion even if is very little. Think of it as being a indie VC. Most investment will lose, the ones that gain might make you a lot.

Your odds are still likely better than lottery tickets.

It's not all about the odds. Sure at an aggregate level it might make sense. But instead of looking at it as mere % expected return, look at it as a tiered return. Above 200K I'd need 1M+ a year to improve my life. Above that, I'd need 10M+ a year. Above that 50M, then 500M and then 4B a year etc.

The quality of life improvement varies in the income bracket. Not every % increase is equal for individual humans.

Re: Robinhood and How to Lose Money

#49

Post by ping_pong » Mon, Jul 20, 2020, 7:03 AM UTC

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 is hand-in-hand with Robinhood and wsb more than RH is really making a huge game out of this, and it's crazy. I know people that have gotten sucked in by wsb and started buying crazy amounts of options just to lose all their money. If there is a big crash, I hope RH ends up IPO'ing before this, otherwise all their investors and employees will be holding onto worthless stock as trading volumes goes to zero, like it did after the dotcom-bust.

Re: Robinhood and How to Lose Money

#50

Post by JumpCrisscross » Mon, Jul 20, 2020, 7:05 AM UTC

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’m inclined to agree.