Robinhood’s big gamble

https://www.newyorker.com/magazine/2021/05/17/robinhoods-big-gamble

by hhs • 5 years ago

103 148 5 years ago

sleavey• 5 years ago

I think in principle reducing the barriers to trading on stock markets is a good thing, but gamifying it is not. How much Robinhood are guilty of the latter, I don't know.

notyourwork2• 5 years ago

The internet makes risky behavior more accessible by very nature of connectivity. You can talk to someone on the other side of the world with much less friction. Similarly, a fintech company like Robinhood decided to make stock trading more modern and reduce the barrier to entry.

Granted, this wasn't really a big change in accessibility if you wanted to trade stocks. One could simply goto Fidelity ore other brokers and do the same thing. However, Robinhood's app is much more approachable for someone new to finance.

Reducing the barrier to entry isn't a bad thing and will always lead to some percentage of new comers doing dumb things. That doesn't mean Robinhood is encouraging it intentionally. I think its merely a side effect of their apps approachability for someone less familiar with financial instruments.

sithlord2• 5 years ago

Although robinhood's app was pretty revolutionary, I think their real "innovation" was removing the cost of trades, basically forced the entire market to remove that. Before, it would cost 4.99+ to execute a trade, so if you were not buying significant amounts that could EASILY eat up a lot of profits.

pfisch• 5 years ago

There have been brokers like that for at least 15 years. Zecco was doing it back in like 2006.

sniperjzp• 5 years ago

It’s looks like free but it isn’t, RH makes money by selling trading requests to high frequency trading firms like Citadel, which buy/sell before the actual order in a better position so they can earn a penny from selling to or buying from you. The more transactions, the more they earn.

- https://fortune.com/2020/07/08/robinhood-makes-millions-sell...

dmoy• 5 years ago

Nobody moved to remove the cost of trades until after IBKR in 2019.

The large brokers more or less did not care when robinhood did the same thing years and years and years ago.

cowmoo7282• 5 years ago

Isn't pushing Robinhood gold (leverage) onto users with repeated in app messaging about how great it is, Robinhood pushing users to do irresponsible things? Or the fact that if you end the day down, your whole app is red, unless you deposit enough additional cash to cover your losses and then it switches back to green? (edit note: not sure if this is still the case but it was true in the early days of the android app). The app feels like a mobile game developer switched to the stock market.

themanmaran• 5 years ago

If you deposit more cash than you lost in a day, does it flip back to green?

As far as I remember, it's just based on the gains / losses you had during the day. So depositing cash at the end of the day shouldn't affect your gain/loss.

dylan6042• 5 years ago

Sounds like the ultimate "Deposit another coin to Continue or Restart".

pembrook• 5 years ago

That doesn't mean Robinhood is encouraging it intentionally

This is news to me. As far as I can tell, everything about their app is designed for you to treat the stock market like a game. From the notification defaults down to the content layout. They also sign users up for a daily stock market newsletter that encourages "trading the news" and their unofficial user forum is essentially Wall Street Bets, which they have never tried to distance themselves from.

Making it easier to trade stocks through better UI design isn't inherently a bad thing, I agree. However, looking at the insanely disproportionate amount of their revenue that comes from "day" traders and speculative option junkies, they're extremely incentivized to keep milking this customer group over their more sane buy-and-hold users.

And we all know the data, a vast majority of these users will lose money on a risk adjusted basis compared to just buying the whole market in a passive ETF.

But there's no money to be made in passive ETFs, so Robinhood will likely never roll out automated passive ETF investing a la Wealthfront.

Robinhood has a responsibility to its investors to maximize profits, therefore its hilarious to think they won't do anything to keep encouraging their most profitable user segment to keep trading.

jack_pp• 5 years ago

The stock market is, was and always will be a game.

annexrichmond• 5 years ago

All the annoying emojis and push notifications talking to me like I’m an ignorant child trading stocks (“HOORAY!! YOU GOT DIVIDEND HIGH FIVE”) is what made me realize this app wasn’t for me.

I guess that’s exactly what to expect when you apply that SV-type growth hacker PMs to a trading platform.

notyourwork2• 5 years ago

Agreed, I typically disable push on most apps because they are regularly worthless and not helpful.

dimmke• 5 years ago

Why not both? Why are these things supposed to be mutually exclusive?

MR4D2• 5 years ago

Both.

But then again, Hedge funds for rich people also encourage risky behavior (leveraging up their models, as imperfect as they are from time to time is definitely risky).

dcolkitt• 5 years ago

The basis of US securities law is that rich people ("accredited investors") know enough to be responsible to take risks. Whereas poor people are too stupid to make risky investments without turning into degenerate gamblers.

A lot of debates about financial regulation basically come down to whether this is a good principle or not. Too many times, both sides are arguing at cross purposes, because one implicitly assumes this is common sense, whereas the other thinks it's classist and paternalistic.

NortySpock• 5 years ago

"Rich people" can also afford time / money / labor costs to do independent due diligence to confirm if a company's finances are true and correct, or an elaborate sham.

JumpCrisscross2• 5 years ago

rich people ("accredited investors") know enough to be responsible to take risks

This is a straw man.

The real argument: someone with more money is less likely to become destitute as a result of a bad investment. Also: someone with more money is less likely to become a political problem that shuts down the market, or a drain on the public purse, when they lose money.

When it comes to private investments, someone investing e.g. $10k cannot afford to do legal diligence. They are also unlikely to unilaterally pursue someone who sued them in court. That almost guarantees they’ll be the sucker in the long run.

dylan6042• 5 years ago

Whereas poor people are too stupid

I get the point you are trying to make, but in the world of stock trading, I'm definitely poor. However, I'm not stupid. I am smart enough to know that the game is rigged for those in-the-know. Much like the poker adage "if you can't tell how the sucker is after $shortTimeInterval, you're the sucker".

make risky investments without turning into degenerate gamblers.

It seems to me that this is exactly what they want. Does having a gambling problem equate to stupidity?

lazide2• 5 years ago

It isn’t a ‘poor people are too stupid’ argument. It’s a ‘poor people don’t have the resources to do enough due diligence, go after someone who scams them using a legal team, or diversify enough they won’t be eating dog food or homeless if this goes sideways’. Which is true.

Additionally, if someone is rich enough they are a millionaire or billionaire or whatever and DOES somehow get ripped off enough to be homeless or eating dog food out of necessity, the general public is going to be cheering for whoever did the ripping off in the next Hollywood blockbuster, not calling their congresspeople angry about how that poor grandma is now destitute and the government SHOULD DO SOMETHING.

It’s a combination of having enough resources to plausibly be able to defend themselves and not lose everything, and a lack of public empathy if they screw up and get ripped off.

moshmosh• 5 years ago

Should be easy enough to look up what was happening that motivated those rules in the first place, for anyone who cares about them enough to consider removing them.

I tend to find "argument from reality" more compelling than arguments based on feeling, ideology, guesses about why people support a position, or reasoning from some moral axioms like one is completing mathematical proofs, personally. Possibly there were no major problems without those rules and it would be fine to remove them. Possibly a bunch of people were being significantly hurt with no recourse. Which was it?

dehrmann4• 5 years ago

Hedge funds also spent a decade not beating the market. Remember Buffet's hedge fund bet?

https://money.cnn.com/2018/02/24/investing/warren-buffett-an...

splitstud4• 5 years ago

If you ever have the need to invest billions that outcome might be meaningful. One need not beat the market. It is not difficult to trade time and thought for an upgrade in returns over funds. Frankly, just being awake to push the button during a crash, and making half ass reasonable investments afterwards is plenty.

pueblito• 5 years ago

Robinhood seems to being doing both, but it feels like small retail investors are getting the blame for a speculative bubble that they have little fault for.

walleeee• 5 years ago

And even if small investors do share some fault, it is incoherent to end a critique with them and their (perhaps understandable ab)use of Robinhood's business model, and skip the pervasive estrangement of financial speculation from productive enterprise, a situation for which the largest players are predominantly responsible

endisneigh2• 5 years ago

what's really dumb is the fact it takes 3 days for a trade to settle. why can't I buy $SPY and get my money immediately? it's 2021, jeez.

nightski• 5 years ago

From what I have heard is that they are working towards 1 day settlement, which isn't too bad.

Intraday settlement may sound good on paper but it also opens up a whole bunch of extra problems that you might not like.

endisneigh2• 5 years ago

From what I have heard is that they are working towards 1 day settlement, which isn't too bad.

awesome - any more details? I saw this: https://www.cnbc.com/2021/02/24/wall-street-clearing-firm-pr...

I assume that's what you're referring to?

Intraday settlement may sound good on paper but it also opens up a whole bunch of extra problems that you might not like.

I can imagine problems like liquidity or fraud on certain tickers, anything else? is it even possible to reverse a trade under any circumstances now?

partiallypro• 5 years ago

I agree, but that's an SEC rule and not something brokers can control.

liquidise• 5 years ago

Articles like this strike me as FUD no matter how hard i try and read them another way. "Risk" is such a wide spectrum when it comes to financial investments. Just look at the crypto crash today, and there are hundreds of billions invested there still. Robinhood giving younger people access to options is hardly a doomsday risk scenario in my mind.

Robinhood may well be responsible for a generation gaining investment literacy decade(s) before adults have in the past. Some of these young investors might be burned early, but i'd take the long view and wager that those who start learning now come out ahead in 10-20 years.

RosanaAnaDana• 5 years ago

Cost of tuition.

andreilys• 5 years ago

Or they end up spending the next 10-20 years paying off margin and credit card lines they used to invest in high risk assets.

This guy literally maxed out credit cards and bought doge on margin. https://www.nytimes.com/2021/05/14/technology/hes-a-dogecoin...

nexuist• 5 years ago

How is this any different from spending $70k a year on some useless degree with 0 job prospects? People will always find ways to lose money.

s1artibartfast• 5 years ago

Isn't this the point of bankruptcy. If this guy ends up bankrupt, it will be signal to future creditors that maybe they aren't the most prudent investor.

From the other perspective, isn't it the individuals risk to take? Even if it is essentially gambling, this is something that people are allowed to do. Why would a person be permitted to bet their life savings and max credit on black in a casino, but not some speculative coin?

Random fact: Terrance Watanabe may be the largest looser in the history of las vegas gambling, having lost over 220M over a 5 year period. He was also sued by Casinos for over 15M of credit they provided him to gamble with.

void_mint• 5 years ago

Only in the same way that all credit card companies encourage risky behavior.

ireliamain• 5 years ago

Working in a sports gambling field, I know the data shows that less than 1% of total players actually make a consistent profit. I wonder how similar it is for nonpassive traders(not investors) on the market, regardless of the platform. People trading futures or actively trading might not be making much money at all. Investing has been very profitable for a layman, but I do definitely believe that trading has been over glorified as a money investment method.

zie• 5 years ago

The professional "active investors" generally lose money after fees are taken into account:

"When performance is measured using before-fee model alphas and compared across the cross-sectional distribution, any active fund performance advantage is substantially less than one would conclude from benchmarking to average index fund performance. Moreover, any advantage of the top active managers over the top index funds is much less than the advantage of the worst index funds over the worst active funds. When performance accounts for residual risk, active funds no longer outperform index funds. " -https://www.cambridge.org/core/services/aop-cambridge-core/c...

JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS Vol. 53, No. 1, Feb. 2018, pp. 33–64 COPYRIGHT 2018, MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON, SEATTLE, WA 98195doi:10.1017/S0022109017000904 Passive versus Active Fund Performance: Do Index Funds Have Skill? Alan D.Crane and Kevin Crotty

I'm sure there are better sources, but I'm lazy today.

Day traders get even worse:

https://mathinvestor.org/2020/07/day-trading-in-the-age-of-c...

snarkypixel• 5 years ago

What's risky? If there were one easy and legal way to make a lot of money in a non-risky way, then everyone would do that. Is it more risky to invest in Doge or to give it to some professional hedge funds that have been losing money every year?

Maybe S&P is the closest to legal, free, easy, little-risk?

FPGAhacker• 5 years ago

Look up wash sales. I personally did not know about that. I made some money “scalping” on doge volatility, then learned of this tax rule, and I’m left wondering if I’m going to get a tax bill that wipes out what I made.

It’s not a stock, so maybe not. But I hadn’t even heard of such a rule and it was an eye opener. I could have gotten into a pretty deep hole and had no idea.

Not Robinhood’s fault, but a risk nonetheless.

cblconfederate• 5 years ago

I always viewed the stock market as another form of gambling. Regulation existed to create enough friction to justify calling it "not gambling", but it was always gambling. Absent of regulation the two are indistingushable, robinhood is just taking advantage of the asymmetry

tehsauce• 5 years ago

I think it’d more accurate to say all interactions with the stock market exist on a spectrum between gambling and creating real value, depending on your strategy.

ouid• 5 years ago

just another form of gambling

Everything is gambling. Gambling in a casino is just a form where the expectation is always negative.

mediaman• 5 years ago

To say that the stock market is gambling is to say that all forms of putting money at risk are gambling.

Buy a house as a rental investment? That's gambling.

Loan money to someone to start their business? Gambling.

Buy inventory of a product to resell it? Gambling.

One can make the argument that any money at risk is gambling, but this broadens the meaning of gambling so far as to make it useless.

Unlike actual gambling - where the expected return of each gambler is negative - stock market investing, like owning other assets, on average has positive expected returns.

Yes, it is possible to make bad investments. Just like it's possible to loan money to someone and have it go bad, or it's possible to buy a house and have renters stop paying. But we don't call those things gambling, so why call stock market investing gambling?

Someone12342• 5 years ago

I have a Schwab brokerage account, until recently I could trade OTCs and can still trade warrants and futures. These are riskier securities than common stock. None of which is possible on RH as far as I know. When I created my Schwab account I received and was offered no specific training, and largely learned how to trade on YT, Investopedia, and articles.

My point is this: RH has become the media's favorite whipping boy because retail trading has seen a spike in popularity not witnessed since the .COM Bubble. A lot of this critique is aimed at RH's interface/app because it is substantially better than the existing brokerages still using websites from the 1990s (this article criticizes it for being "slick" and complains about confetti).

The reality is that you can be a risky investor and lose it all on any brokerage, including Schwab, Fidelity, or TDA. RH has made some mistakes and isn't actually a good broker in my opinion, but dog piling them is just a proxy for arguments against retail investors being allowed to invest freely in the market (e.g. I've read multiple arguments for banning options trading for accounts under $25K for one example).

callamdelaney• 5 years ago

Yes, but Robinhood have taken actions which purposefully harmed its users in order to benefit their corporate customers(Citadel).

https://www.independent.co.uk/news/business/robinhood-gamest...

eckmLJE• 5 years ago

It will be interesting to see if this can be proven. Until then it seems more accurate to simply say that Robinhood took actions that harmed its users and benefited its corporate customers.

dehrmann4• 5 years ago

I think Schwab does this, too, and it supposedly gets traders better prices.

gruez2• 5 years ago

...lawsuit alleges.

SmellTheGlove2• 5 years ago

Schwab doesn't have outages during sell-offs of very visible investments, though. Hasn't Robinhood hit the rocks pretty hard during GME and DOGE sell-offs recently? The reason I won't use them is because I don't think I'm their customer - whoever is paying for the order flow is, and I don't trust their platform to be available in the middle of turbulence.

EDIT: I get it - Schwab also had visible outages. Sorry for that. Maybe a good time to say I'm a happy Fidelity customer and have been for years :D

jeffbee• 5 years ago

Eh, Schwab regularly has outages. Schwab went down five days in a row during the height of the GameStop stupidity, for example.

thebean112• 5 years ago

Schwab had multiple outages during height of the GME craze.

Someone12342• 5 years ago

Schwab doesn't have outages during sell-offs of very visible investments, though.

Yes they have. During one very red day they were down almost all morning (although StreetSmart Edge worked).

TuringNYC3• 5 years ago

As a Schwab customer, I can confidently note there are many outages, especially on volatile market days.

Sometimes, you have no idea if an order went through. With e-trade you get a sub-second push notification for trade confirmations, but with Schwab those push notifications come minutes or hours later. Meanwhile, if the website is down, you have no idea what exposure you have.

SmellTheGlove2• 5 years ago

Eh ok fine, I take it back, Schwab also has outages. I use Fidelity, though, and to my knowledge, they did not.

Point is, availability is important.

kasey_junk• 5 years ago

It’s worth noting that fidelity does take payment for order flow for some orders: https://clearingcustody.fidelity.com/app/item/RD_13569_21696...

throwitaway12352• 5 years ago

It was not a site wide outage. Only a small handful of stocks could not be ordered.

If that's not putting ones finger on the scale I don't know what is.

ProAm3• 5 years ago

RH has become the media's favorite whipping boy because retail trading has seen a spike in popularity

Because they cant operate as a real brokerage as we saw with GameStop and manipulated the market as a result. I think that is the largest reason they are (rightfully) the whipping boy. They should not be allowed to be a trading platform because of that alone.

bostik2• 5 years ago

If "operate as a real brokerage" means that you must have $5B+ of cash tied up at the clearing house, that's a pretty stiff barrier for entry.

To be fair, I don't like RH. They are irresponsible, greedy and reckless. They have turned day trading into outright gambling - and quite frankly, if a gambling company gamified their UX the way RH did theirs, the gambling company execs would be rightfully raked over hot coals. Shitting on RH because they had to obey the clearing house rules is intellectual cowardice.

Disclosure: I work for a gambling company. And yes, I deal with compliance questions on an almost daily basis.

dehrmann4• 5 years ago

I had to apply to get a margin account and options trading with Schwab. It was a pretty minor barrier, but it's enough to know that you're getting into something risky. The issue with Robinhood is that the slickness of the app encourages risky behavior.

aj7• 5 years ago

Fidelity gave me an EXAM on options concepts before allowing me to trade them. I made one trade, then realized it’s a casino where the sharks take money from the fish. I reasoned that options trading is a full time job to be successful.

ruggeri• 5 years ago

I think what you say is true, but I think the public reaction also reflects the disingenuity of Robinhood presenting itself as "democratizing finance," when in reality it seems like they are ambivalent about whether their users are investors or gamblers.

As other poster has noted, I think you have to apply on Schwab to trade options. I've never done that.

mustacheemperor• 5 years ago

Yes, I would be happy to see more of the criticism aimed at Robinhood focus on its more pointed flaws as an actual brokerage. I used it for “fun money” speculating/investing because of the easy interface, but it has repeatedly failed to transfer into my fidelity account. The transfer will succeed partially, leave a ton of margin debt in my fidelity account, and then reverse entirely in a few days. When the transfer does succeed, I still manually need to move the shares from margin holdings to real ownership because you don’t actually own the stocks you hold on robinhood. And Robinhood doesn't do much to make this process easy or well supported because they don’t want you to use another broker anyway.

During the GME debacle I decided to close my account and migrate entirely to fidelity and the transfer half-completed like described above, then failed entirely. It seems to me Robinhood was using my money to meet other obligations during a liquidity challenge.

room505• 5 years ago

The reason Robinhood may have become a whipping boy is because they are only known for trading stocks - that's it. Brokerages like Schwab, Fidelity and TDA are well known companies that not only allow you to trade, but actually administer 401k's, pensions and have financial managers that help you with long-term goals. Sure, they make mistakes, but they're the more mature companies that provide assistance/education in long-term goals. I haven't recognized Robinhood advertise in any TV/internet ads or blogs encouraging "buy and hold" mentality. I see Robinhood as a teenager still growing up. Schwab/Fidelity/TDA are the parents that knows what's best.

CarelessExpert4• 5 years ago

A lot of this critique is aimed at RH's interface/app because it is substantially better than the existing brokerages still using websites from the 1990s

Wow... you really think the criticism is just because RH is better? What, is it jealousy or something?

Please. This isn't the case of someone being picked on by a schoolyard bully. RH is in the highly regulated, highly consequential consumer fintech space, and they are clearly gamifying trading.

All the subsequent criticisms follow from that fact.

If you want to make the claim RH isn't gamifying trading and therefore the criticisms are off base, please, I invite you to do so.

But to claim RH is the target of SEC investigations simply because they're good? Come on.

kortilla2• 5 years ago

But to claim RH is the target of SEC investigations simply because they're good? Come on.

You make it sound like this is outlandish, but it happens nearly every time a disruptive player comes into a heavily regulated market full of old players.

It is much easier to cry foul than to deal with the fact that the competition just got hard.

nullspace• 5 years ago

they are clearly gamifying trading. If you want to make the claim RH isn't gamifying trading and therefore the criticisms are off base, please, I invite you to do so.

I have used RobinHood just a little bit, and it's not my main brokerage. However, I take issue with your phrasing. You start with the premise that whatever it is that RobinHood is doing is bad, it's impossible to argue against this where you are standing.

I hate the app that my main brokerage provides, but it was even worse before RobinHood existed. When I bought my first set of shares on RH, I was amazed by easy it was, and how well designed the UI was. IIRC, it is also super easy to find information on the stock that you're trading, so it's not like they are making the UI dumb.

I have read criticisms like how they make buying a stock seem inconsequential, but that's frankly pretty absurd to me. Do they need to make their UI flow less smooth, or give some big warning that people are dealing with real money?

If there are any parts of their app which encourages gambling, I agree it should be removed, but the actual criticisms I read are things like "they use bright flashy lights like slot machines" which seems very unconvincing.

smnrchrds• 5 years ago

Robin Hood did the equivalent of designing your bleach containers to look like juice boxes. They gamified day trading and made it look fun.

ep103• 5 years ago

Isn't that a bit like saying the media focuses on sports car crashes, because you can crash in any car, but sports cars are objectively better than other cars?

JKCalhoun• 5 years ago

FTA: "He felt a surge of excitement every time he saw a green number indicating that one of those stocks had gone up in value."

I think that is the issue. There is a tighter feedback loop that amounts to "gamifying" stock trading.

It's telling to me that the new investor cited in the article didn't take his dad's $1K, put it into a Vanguard index fund and call it a day. No, very much a day-trader type of customer is drawn to RH.

I'm not saying it's bad or good, but that seems to be the difference between RH and your Schwab brokerage.

suifbwish• 5 years ago

We don’t have a responsibility ethical or otherwise to protect adults from themselves. Any argument to the contrary is an appeal to emotion at best.

Dah00n• 5 years ago

Sure we do. That is why almost everywhere on earth it is illegal to drive a motorcycle without a helmet for example. Laws aren't made just to piss people off or create a thriving helmet industry. They are there to make it harder to fall into the stupidity trap.

LatteLazy• 5 years ago

I broadly agree, I wouldn't say RH are without blame though. They actively marketed themselves towards the WSB, Yolo, "gambling but on stock" end of the market. That's not the same as pushing misinformation, but it's pretty scummy...

jollybean• 5 years ago

To be fair, it's also the messaging, marketing and target audience.

agumonkey4• 5 years ago

I wonder how much is by design. Exchanges feel like having a grinder without second handle nor wheel guard. At best you get a little light saying 'warning this is about to get bloody'.

dfxm12• 5 years ago

Other companies don't have quite the amount of controversies (including a security breach - so we're not just talking about using them as a proxy again retail investing in general) as Robinhood in a similar amount of time: https://en.wikipedia.org/wiki/Robinhood_(company)#Controvers...

If Robinhood seems like a whipping boy, it's because they've been earning negative press (like you said, they've made these mistakes) on a regular basis for the past 2.5 years.

_irri• 5 years ago

Signing up for options trading with Schwab or Fidelity requires filling an application including a survey about derivative products and your experience with each type of offering.

Vanguard is even more difficult. Application for a margin account requires mailing in a notarized form.

Robinhood makes it easy in order to profit off inept traders that have no business making these types of trades.

diabeticApe• 5 years ago

Well seeing as stock trading is inherently risky, democratizing trading makes this risky activity more accessible to more people. Now instead of just the elite manipulating the market to benefit themselves at the expense of the public, the public gets a chance to turn the tables. Some of the newbies will make mistakes or do stupid things along the way. To consider them mutually exclusive seems a bit disingenuous. Also I dont recall this much media turmoil over the credit default swap mortgage crisis fiasco of 2008. But then again that only screwed over the entire economy instead of the few elites that benefited from everyone else's loss.

quickthrowman• 5 years ago

Also I dont recall this much media turmoil over the credit default swap mortgage crisis fiasco of 2008.

Were you a small child in 2008 or something? The GFC and its causes (CDS and CDO blowups, among other things) were widely talked about when it was happening, you couldnt go a day without hearing about exotic derivatives and their effects on the economy/markets in the news.

yalogin• 5 years ago

I would love ve to understand what kind of user data they sell to what kind of clients and how those clients use it. Feels to me they might have opened up a can of worms that was kept shut or may be it already happened before too.

joncp• 5 years ago

Definitely. Here's a couple of things that hit me in the face when I use RH:

1) You open the app and the first view is the one-day graph with the bottom lopped off of the y-axis. This encourages day trading and reacting to tiny fluctuations in the market. If they want to encourage investing over gambling, they'd show you the long-term graph of your portfolio. Or maybe skip the graph and take me to the fundamentals.

2) They use the word "investments" to refer to crypto holdings. Crypto has never and can never be an investment, but calling it that subtly emboldens users to trade in it without understanding the risks.

arcticfox• 5 years ago

Crypto has never and can never be an investment

Whether you like or dislike crypto, this seems false according to both the dictionary and common use definition

grey-area• 5 years ago

Speculation, not investment.

The use value of cryptocurrencies is near 0.

dehrmann4• 5 years ago

It's a speculative investment (or asset). Whatever you call it, not including that word is disingenuous.

shubik22• 5 years ago

Last time I checked on Robinhood (and maybe they've changed it since then), when you want to buy options on their app, their UI gives you two options: "I think the stock is going to go up" and "I think the stock is going to go down."

Say what you will about "democratizing" finance, but even if you think enabling retail investors to buy options is a laudable goal, surely they should at least know what a "put" and a "call" is? (The point being options are complicated to understand, and if you don't even know their names, you probably don't understand how they work. And if you don't understand how they work, maybe you shouldn't be buying them.)

I feel like a lot of the arguments I see in favor of "democratizing finance" could be applied to a company making some incredibly harmful drug. Ok, maybe we shouldn't make it illegal for companies to produce or sell that substance, but surely we can all agree that company is actively doing harm to its customers? And we don't need to pretend that the company is "democratizing" chemical consumption.

vineyardmike• 5 years ago

surely they should at least know what a "put" and a "call" is?

You do learn what this is, but the "i think its going up" is just the starting UI and tbh its more approachable and faster to navigate since you don't need to memorize turns.

zachrip2• 5 years ago

Making things easier to understand does not mean the person doesn't understand it. Just because adults struggle to understand common core math, doesn't mean kids aren't just as capable of solving an equation. Options don't need to be confusing and I actually find RH's educational material and examples pretty good to get a basic understanding of how they work.

Traster• 5 years ago

Disclaimer: I haven't used RH.

However, if the person you're responding to is correct about their UI it's negligent. The price of an option does not vary only with whether "you think the price will go up". Essentially it's mis-representing an option as a delta trade which it isn't.

qeternity• 5 years ago

It’s like a casino, not because there’s something wrong with it, but because of house advantage. And there’s actually not anything wrong with that. But there’s a reason Citadel pays so much for Robinhood orderflow. And that reason is options. People lifting offers with market orders creates massive opportunities to make markets.

The average Robinhood user mostly like doesn’t understand what a put/call is, much less what Black Scholes is, or how to trade around their gamma.

But I don’t think that’s a reason to stop anything. Trading is naturally self correcting: bad traders stop. If anything it says more about reconsidering gambling laws. Let adults spend their money how they see fit if it’s not infringing on someone else’s rights.

akarma• 5 years ago

While gamifying trading is dangerous for society, the onus for that is more on society's current obsession with memes overlapping into reality. Uneducated retail investors will lose a lot on Gamestop and Dogecoin and Shiba Inu coin, and whatever the TikTok, Reddit, etc., community hype up next, not because they haven't learned options terminology.

When I was young and started investing in individual stocks, I would've appreciated "I think the stock is going to go up/down" (as an intro as Robinhood uses it) instead of needing to google and memorize put/call. Knowing a put vs. a call added nothing useful as a retail investor. It didn't change my hypothesis about the stock or my decision to trade.

6gvONxR4sf7o• 5 years ago

Tenev acknowledged some early mistakes. “I’m the first to admit, our compliance procedures, especially in those early years, were the compliance procedures of a growing company,” he said.

I hate so much that this is such a typical startup path. Talk about a euphemism.

99_002• 5 years ago

Everyone is encouraging risk taking. If you don't follow suit you will won't make money. It's basic strategy.

Eventually the risk taking will result in you no longer making money when things go bad.

But at that point when your fund, brokerage, whatever, goes bust you will have a very nice personal bank account.

The person who didn't encourage risk will also go out of business (because everything will be dragged down) but they won't have a nice personal bank account.

Why would you choose to be the poor person?

haskellandchill• 5 years ago

Because you actually believe in things and don't just follow trends. Fundamentals work, they really do.

derivagral• 5 years ago

There's an assumption here that you can get out in time. What if you can't tell when and you miss conversions due to any number of reasons (congestion, availability, liquidity, counterparty risk in defi, etc)

I ask because I don't get the sense that most risk-on investors in crypto regularly convert gains back to fiat.

99_002• 5 years ago

It depends. People who have skin in the game are going to be the most responsible.

People who's compensation is based on bonuses... not so much.

ghufran_syed• 5 years ago

Seemed to work well for Vanguard: https://en.wikipedia.org/wiki/The_Vanguard_Group

ullevaal• 5 years ago

I think democratising asset investments is a worthwhile goal. The gamifying and the fact that RobinHood makes it money from trades does lead to some strained incentives, where most people would probably be better of maximising their tax advantaged pension contributions or setting or forgetting an index fund savings plan. However, I think also direct access to small and free to stock picks is generally good, so hopefully RobinHood is able to thread the needle, and make some money also when their customers make money.

md_5• 5 years ago

But statistically speaking it empirically isn't. Piketty, as mentioned by Tenev in the article, does indeed point out that one of the reasons return on capital is higher for the wealthy is because of access to lower-cost asset management and higher-return esoteric investments that the rest of us don't enjoy, but it's absurd to suggest (as Tenev does) that this is materially changed by bringing the cost of retail stock purchases from $4 down to $0.

md_5• 5 years ago

The thing I don't see mentioned in this thread is how incongruous Robinhood's image is (a professed goal of fighting inequality by giving the working classes access to the same return on capital as the wealthy enjoy) in relation to their business model.

Say what you will about Wall St, but customers of traditional brokers tend to know what the brokers are in it for: the money. Robinhood's big product innovation might be zero-commission trades and a gamified UX, but their big marketing innovation is to wrap themselves in the ever-dingier cloak of Silicon Valley "changing the world".

I can't help but think of this absolutely spot-on parody from "Silicon Valley": https://www.youtube.com/watch?v=B8C5sjjhsso.

fullshark• 5 years ago

If you throw away all the pretense is it just the case that RH has a better business model compared to etrade, Schwab etc? They recognized that consumers prefer zero commission trades, a good UX smartphone app, and don't care about the fact that RH sells order flow?

All that other stuff is noise.

md_5• 5 years ago

If I'm being candid, what bugs me about this kind of marketing is that I work for a Silicon Valley company which spends a lot of hot air on "doing what's right"—and I want it to be true.

So, for {altruistic, self-interested} reasons, I want to push back on the dilution of "doing good by doing well."

To directly answer your questions on Robinhood, though: I believe (with low confidence) that the big innovation is gamification. That's it. And I have trouble feeling like that's beneficial.

If Robinhood had gamified saving for retirement in a boring 3-fund portfolio with zero commission trades, I don't think we'd be having this conversation. But PFOF on once-a-month 401k inputs wouldn't be very good for their investors.

MangoCoffee• 5 years ago

one good thing that Robinhood did is eliminated the commission fee and now every broker have remove it.

i have a Scottrade/td ameritrade account, it was the lowest commission at the time ($7 per trade) when i open the account and now there is no commission fee anymore.

nimbius• 5 years ago

is the app democratizing finance or encouraging risky behavior?

For anyone who paid attention to the WSB fiasco This isnt a meaningful question.

When Robinhood halted trading on a stock that had the very real potential to harm monied, cloistered elites it basically confirmed whatever definition of "finance" it claimed to represent was rigged from the start. the app is no different than facebook. You arent an empowered investor, you are their product.

jkingsbery• 5 years ago

Did anyone else on reading the headline picture Cary Elwes asking "An archery contest?"

throwitaway12352• 5 years ago

Robinhood did not have an "outage" as many people are saying in relation to the GameStop manipulation.

I don't recall the specific date, but I and x number of people put purchase orders in during the overnight that were not executed when the market opened.

Calling this an outage is disingenuous. Especially considering purchase orders for other stocks on that specific date/time were executed.

Robinhood’s big gamble

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