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Robinhood and How to Lose Money

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Re: Robinhood and How to Lose Money

#71

Post by [deleted] »

imtringued wrote: post #67
drevil-v2 wrote: post #15

Earlier quoted context omitted.

It just boggles the mind how people were able to invest for hundreds of years without a frictionless UX.

They didn't. The difference between today and a hundred years ago isn't actually in what people did. It's how many people did a certain thing. Back in the day people didn't invest because they were farmers. Nowadays a lot more people live in cities and have a high enough income to invest it and this requires financial services to scale to millions of customers.

[deleted]

Re: Robinhood and How to Lose Money

#72

Post by drevil-v2 »

imtringued wrote: post #67
drevil-v2 wrote: post #15

Earlier quoted context omitted.

It just boggles the mind how people were able to invest for hundreds of years without a frictionless UX.

They didn't. The difference between today and a hundred years ago isn't actually in what people did. It's how many people did a certain thing. Back in the day people didn't invest because they were farmers. Nowadays a lot more people live in cities and have a high enough income to invest it and this requires financial services to scale to millions of customers.

I am pretty sure online share trading has been around since early 2000s.

Re: Robinhood and How to Lose Money

#73

Post by jariel »

kjksf wrote: post #59
jariel wrote: post #46

Earlier quoted context omitted.

"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…

In stock market you're not playing against other people, including the "pros". You try to pick companies that will grow in the future. If you pick well, then it doesn't really matter if other people (including "pros") pick the same company or not because there's enough future growth for everybody. And I have much less reverence towards pros than you. The pros were saying that Amazon's valuation is so crazy that even…

"In stock market you're not playing against other people, including the "pros". You try to pick companies that will grow in the future."

Ah ha!

This is the fallacy, unfortunately.

Once stocks are public, it's more akin to poker than investing.

Every time you buy a stock, there is someone on the other side, wanting to sell it to you for the same price.

Now, you have to ask yourself the question - why is that person will to part with something that you think is going to be worth more?

If everyone were doing 'value investing' I think there would be a case.

But with day trading, leveraged into option trading ... it's poker. People are 'making bets on stocks' just like they would on horses.

Re: Robinhood and How to Lose Money

#74

Post by bananaface »

vmception wrote: post #51
raverbashing wrote: post #43

Earlier quoted context omitted.

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…

Learnings from 2008: - banning short selling during a market sell off irreparably harms the options market, exacerbating market dysfunction. - the tail wags the dog. although equities/asset prices should dictate options prices as an afterthought, options activity often can dictate equities/asset prices. - options market should not be ignored in policy decisions and should be made more efficient to ensure better price…

Why would anyone assume equity price dictates options price? If there's arbitrage between the two instruments, they'll both exert a force on one another and the larger market (options) will exert the larger force.

Re: Robinhood and How to Lose Money

#75

Post by GlennS »

JumpCrisscross wrote: post #20
aripickar wrote: post #17

I disagree with the premise of the article, since it takes the POV of an experiences trader, but that isn’t necessarily the whole story. The alternative for a lot of Robinhood traders wasn’t / isn’t trading on e trade or another platform, it’s not investing at all. If the market is going to be growing, which is the assumption of any economic theory, it should follow that people want to get money into the market in or…

> stock ownership and investment is unquestionably a good thing, when compared to money sitting in a bank account Agreed. But cash in a day trading account at the hands of an inexperienced trader has a lower expected return than that bank account. Particularly if they’re trading options. The net effect of Robinhood is we’re training a generation of investors with self-destructive habits. It’s possible to use Robinhoo…

> The net effect of Robinhood is we’re training a generation of investors with self-destructive habits.

When they lose a lot of money for the first time, won't they unlearn this training?

Re: Robinhood and How to Lose Money

#76

Post by vmception »

bananaface wrote: post #74
vmception wrote: post #51

Earlier quoted context omitted.

Learnings from 2008: - banning short selling during a market sell off irreparably harms the options market, exacerbating market dysfunction. - the tail wags the dog. although equities/asset prices should dictate options prices as an afterthought, options activity often can dictate equities/asset prices. - options market should not be ignored in policy decisions and should be made more efficient to ensure better price…

Why would anyone assume equity price dictates options price? If there's arbitrage between the two instruments, they'll both exert a force on one another and the larger market (options) will exert the larger force.

options pricing formulas are not settled and the predominant formula was made by a firm that blew up using it

its not really about arbitrage between markets, it’s the varying motives within the options market and varying prices others are willing to pay. Although this can be influenced by arbitrage between markets for some people.

the formulas are based on stock prices, and at least 5 other things, but a small options market was ignorable, while a big options market shouldn’t be

Re: Robinhood and How to Lose Money

#77

Post by jesterson »

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…

> That doesn't negate his point (that RobinHood can fill your order just as well, or better, than eTrade or Fidelity)

That may be right, but "better" order filling or any other bells and whistles will not help to beat the market or gain substantial benefits from it in the long run. I've seen traders sending orders in slow command line and making substantial returns, so the tool perhaps is not the instrument for success on the market in the long run. It's like saying that green car will drive you faster/safer/etc compared to black or white cars, while the most important contribution to speed and safety lies between steering wheel and driver's seat.

> 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

Needless to say orders may not (and most certainly will not) be filled when market (or HF) make sharp moves.

Re: Robinhood and How to Lose Money

#78

Post by TheOtherHobbes »

WalterBright wrote: post #38
pjc50 wrote: post #22

Earlier quoted context omitted.

Adrenaline? Same motivation as gambling. You can enjoy the hope of the possibility of wealth. Steady investment will never give you that. Of course, this involves a heavy dose of self-delusion, also popular these days.

> Steady investment will never give you that. 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.

This is like arguing that because twelve people a year become multimillionaires after buying a lottery ticket, the lottery can make you rich.

The empirical evidence is clear - for most people, day trading of any kind is a reliable way to lose money, and even buy-and-hold can kill you if pick the wrong asset class. (Ask Warren Buffet.)

You may be lucky, you may have an unusually effective model - but the odds are you're the noob at the poker table and the pros are laughing at you as they clean you out.

Re: Robinhood and How to Lose Money

#79

Post by bananaface »

vmception wrote: post #76
bananaface wrote: post #74

Earlier quoted context omitted.

Why would anyone assume equity price dictates options price? If there's arbitrage between the two instruments, they'll both exert a force on one another and the larger market (options) will exert the larger force.

options pricing formulas are not settled and the predominant formula was made by a firm that blew up using it its not really about arbitrage between markets, it’s the varying motives within the options market and varying prices others are willing to pay. Although this can be influenced by arbitrage between markets for some people. the formulas are based on stock prices, and at least 5 other things, but a small option…

What?

If I think stocks are mispriced, I will probably buy an option to maximise the profit from my edge. That will drive the equity market. How arbitrage is derived is irrelevant.

Re: Robinhood and How to Lose Money

#80

Post by WalterBright »

TheOtherHobbes wrote: post #78
WalterBright wrote: post #38

Earlier quoted context omitted.

> Steady investment will never give you that. 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.

This is like arguing that because twelve people a year become multimillionaires after buying a lottery ticket, the lottery can make you rich. The empirical evidence is clear - for most people, day trading of any kind is a reliable way to lose money, and even buy-and-hold can kill you if pick the wrong asset class. (Ask Warren Buffet.) You may be lucky, you may have an unusually effective model - but the odds are you'…

Just invest in the S&P 500. It isn't rocket science.
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