
Stock trade app Robinhood raising at $5B+, up 4X in a year - wgyn
https://techcrunch.com/2018/03/15/robinhood-quintacorn/
======
asdsa5325
Crypto trading is the least notable reason why they are valued so high. Real
reasons:

1) Large number of users

2) Large number of _younger_ users (Millennials love Robinhood)

3) High amount of use per user (due to no fees)

They are still a growth company. If they add IRAs (they said they would soon),
Website (currently in closed beta), Options (currently in closed beta), and
OTC (not sure if they will), then they'll likely be the top broker for
individuals.

~~~
lewisl9029
After using Schwab for both my banking and investments for more than a year
now, I'm convinced that the most under-appreciated killer feature for a
brokerage is actually cash management (i.e. a checking account you can pay
bills from).

Managing both my banking and investments at Schwab allows me to keep $0 in my
checking account, and make use of their overdraft transfer feature to debit my
investment account whenever I make a purchase or bill payment from it. If
there's insufficient cash in my investment account at the time of the debit, I
have the option to cover the remaining amount with margin borrowing, which
usually ends up costing cents in interest since I generally sell a few shares
to cover for it in the same day (trades take 2 days to settle though, so some
interest will still accrue). I feel that's a tiny price to pay for the ability
to keep myself fully invested as much of the time as possible, and practically
speaking, I rarely ever have to resort to margin borrowing anyways since I
time my bills to match my direct deposits (which go directly into my
investment account).

Essentially this means I only have 1 account to worry about to manage all my
finances, and don't have to juggle money around between a checking account for
spending and investment account for growth. This might not sound like it'd
make much of a difference, but I honestly can't imagine ever going back to
managing my finances the old fashioned way with multiple accounts. Needless to
say, I can't see myself switching to a new brokerage that doesn't also offer
cash management features of the same caliber (and AFAIK, Robinhood doesn't,
but I'd love to be corrected).

~~~
toss892625
Reducing the free loan you provide to a bank with a checking account is good,
but be very careful with leverage. IMO any leverage should be a very
deliberate decision.

If you buy a 30k car/tuition one day (depending on how much you have invested,
this could be a lot of leverage!), and the market crashes by 50% the next day,
would you be ruined? It's possible that even if the stock immediately recovers
from some flash crash, you'll have insufficient collateral and the positions
will be closed. (Locking in huge losses at the worst time during some
irrational panic)

EDIT:

I suppose this is no more risky than buying something on a credit card, then
selling a stock to pay off the card after a month. Still, Schwab can't get
your credit card balance and close a position in real time, whereas they can
with this leverage strategy.

~~~
lewisl9029
You definitely raise a valid point, but as I mentioned in reply to a sibling
comment, I do try to prepare in advance for big purchases like those by
selling off stocks to pay those off in cash. I would never deliberately use
margin as a financing option due to those dangers you mentioned.

~~~
jonbarker
Your scenario meets the definition of 'using margin as a financing option'. It
is the same as the overdraft option provided by credit cards, only it is more
dangerous since in the margin call scenario they actually liquidate your
stocks without asking you (if I recall from reading up on how this works at
most discount brokerages a few years ago). The fact that you rarely do it
helps some but as we know the thing about rare events is they happen every day
:). I have held myself to a "current ratio" of over two, which is considered
'healthy' by most finance people when evaluating businesses. I would encourage
everyone to calculate their current ratio and make sure it is ALWAYS over two
as well. It's literally the current assets (cash you could get access to in a
year) divided by the current liabilities (all expenses due in a year). Easy to
calculate and immensely freeing once you decide it's a rule you'll never
break.

~~~
radiorental
Small point but I think you might mean Liabilities divided by Assets = 2. (aka
the 6 month rule)

> It's literally the current assets (cash you could get access to in a year)
> divided by the current liabilities (all expenses due in a year)

Essentially you should have a 6 month runway. If you have 25K cash and 50K
costs per year then the $25K will buy you 6 months to get yourself over a
layoff/health issue/etc.

Just a small point because it's a rule I live by and you freaked me out for a
moment thinking the advice/goalposts had move way beyond what I've saved for.

thanks

~~~
jonbarker
No, the numerator is current assets and the denominator is liabilities. This
way if you have half of what you are about to spend in a year, your ratio is
.5. If you have double what you are about to spend in a year, your ratio is 2.
In your example, your current ratio is .5. Still you are doing way better than
most people I know and the stats on national savings and lifestyle
requirements bear this out as well.

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tysonzni
Robinhood is the only one among the new batch of fintech startups that
_encourages_ active trading. Their entire UI is built to optimize for _ease of
trade_ rather than thinking in terms of portfolio objective and
diversification.

Contrast that to Wealthfront, Betterment, or Acorn - they're all built on the
"buy and hold" philosophy. They use technology to automate allocation, tax
reduction and rebalancing, while investing solely in index funds. How these
two trends play out is fascinating to watch.

~~~
charlesdm
What remains to be seen is whether passive investing will also be the way to
go for the next 20 years.

One idea I often hear is that the more money that is being managed passively,
the easier it is becomes for an active manager to "abuse" gaps in the market
(i.e. when all these funds liquidate all their assets the same time, across
the board -- not looking at whether you're selling Google or SmallCapX).

~~~
infinite8s
That's not abuse, that's a valuable price discovery mechanism. If the whole
market was passive there would be no way to determine the true price of an
asset.

~~~
tysonzni
The universe of passive funds or ETFs includes those that track specific
industry/sector, size, region and other factors. Even if the whole market is
passive, traders could still vote on the valuation of an asset by
buying/selling those funds.

If everyone is passive, price discovery would be harder but not impossible.
But there will always be traders who think they can gain an edge by going
active, right?

~~~
infinite8s
That edge is what drives price discovery.

------
fizzledbits
Robinhood gets their revenue from margin interest lending to people who can't
afford to invest but do it anyways. And also from selling the trading data to
high frequency traders to front-run the Robinhood traders. The top guys at
Robinhood all have HFT background and connections.

Their pr message is priceless but a sham. The users are the real product, with
all that we know goes with that.

~~~
godzillabrennus
Sounds like they engineered a fantastic business model.

Am I wrong? Is there downside for the typical consumer in all of this?

~~~
fullshark
Downside is greedy and ignorant investors adding debt and going bankrupt based
on unforeseen market movements.

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dguo
I appreciate the zero commission trading, but at the same time, I'm worried
about the attitude towards "investing" that they promote. Most people should
arguably be putting their money into index funds and holding for the long
term[1], not picking individual stocks and following price movements on a
daily basis. I wouldn't criticize anyone for speculating (i.e. gambling) with
money they can afford to lose. I've done that before, and I know how fun it
can be. But it shouldn't be the primary strategy for most people. We should be
signing up with Betterment/Wealthfront/Vanguard before Robinhood.

I have the Robinhood app but haven't made any trades yet. I had to turn off
push notifications for things like "Snapchat declined 5% today". That kind of
thing is what causes people to trade on their emotions, a great starting point
for losing money in the long term. Instead of buying low and selling high,
they end up doing the opposite.

[1]:
[https://www.bogleheads.org/wiki/Getting_started](https://www.bogleheads.org/wiki/Getting_started)

~~~
wgerard
> Most people should arguably be putting their money into index funds and
> holding for the long term

I think Robinhood is great for that! Zero commission means you can afford to
buy small amounts without worrying about fees eating into your principal too
much.

You can put in $250 every pay period and buy a share of $SPY without losing
~3% to fees.

With commissions involved you'd want to wait until you could afford a larger
trade, at which point you've lost time in the market.

~~~
jcdavis
Vanguard charges no fees for buying/selling their owns ETFs. I believe Schwab
and others do as well.

~~~
wgerard
True! That being said, using the Vanguard website is... significantly
different from using the RH app.

~~~
dguo
The Vanguard website/experience is definitely not that user-friendly/modern.
That's the main reason I usually recommend Betterment to my friends instead.

~~~
dlp211
Betterment, where you pay an extra quarter percent to buy Vanguard funds.

~~~
dguo
That's better than the alternative of not investing at all because Vanguard is
not user-friendly. And I know that's possible because I have friends who were
in that situation.

If you sign up with Vanguard, you still have to pick which fund(s) to buy. If
you don't know anything about investing, that can be a daunting task. With
Betterment, the only decision you have to make is the percentage split for
stocks vs. bonds.

~~~
btmorex
Isn't that why Vanguard has their Total Stock Market and Total Bond Market
funds? Basically, they're the "invest in these if you don't want to bother"
funds.

~~~
mcintyre1994
They also have LifeStrategy 0/20/40/60/80/100 so you can balance stocks vs
bonds however you want, and have diversification handled for you.

~~~
TorKlingberg
I think the numbered LifeStrategy funds are only a UK (GBP) thing. Am I wrong?

~~~
matwood
There are US equivalents.

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justboxing
Cryptocurrency trading is very volatile, speculative and un-regulated.

RobinHood is aggressively going after the young and naive "investors" who will
quickly be parted from their money.

Obligatory Tweet:
[https://twitter.com/robinhoodapp/status/756262680537759744](https://twitter.com/robinhoodapp/status/756262680537759744)

~~~
swarnie_
For reference, see /r/wallstreetbets

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swyx
what a fantastically run company. a lot of cynics here but it takes a lot of
fortitude and talent to run a startup with this level of mission critical
reliability (else they get crushed by users and regulators). I’ve been on
record before doubting they could move into crypto so fast, and while the
rollout has been slow they have certainly moved far faster than I thought
possible.

Yes, commission free trading is a complete gimmick and probably bad for you.
But they have a $5bn company and I don’t. That is far more value creation than
simple armchair criticism.

Yes, it’s “just” a trading app. But simplicity is _hard_ and they have
threaded that needle incredibly well. They are selling a commodity service but
they know how to reach an audience that none of the incumbents can come close
to touching.

My real thought is: what other industry can you do this to?

~~~
mrlala
>and probably bad for you. But they have a $5bn company and I don’t. That is
far more value creation than simple armchair criticism.

Not necessarily. It's not value creation when you are creating a bubble and
letting people do things they probably shouldn't be doing.

Did it end up to be "value creation" when banks were allowing people to buy
houses with 0% down and variable interest rates?

Because from what I hear other people saying about Robinhood, they are making
money from interest on margin trading. Meaning they are encouraging their
users to be trading on margin and then act like "trading is free, see no
commissions!". Yeah that's great until you have millions of people invested
long on margin and then the market tanks and they end up losing more than they
even had.

So yeah, not too sure about the value creation here...

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rak00n
Sounds like we should have invested in Robinhood instead of buying stock from
them.

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justonepost
What people don’t realize is that these 0$ trading commissions just make it up
in their routing of the transactions. You’re not going to get the best price.

Use interactive brokers if you want a good price. Flat fee is higher but the
trade routes are great.

~~~
SEJeff
And this is what limit orders are for. Disclaimer: I'm a robinhood user, who
also works for a large high frequency trading firm. You're spot on (well that
and robinhood gold is how they really make their money).

~~~
jnordwick
I used to work with the founders, Vlad and Bijou. The are smart and very
entrepreneurial guys.

I actually assumed they were selling order flow. They have a ton of dumb money
that many firms would die to interact with.

~~~
SEJeff
I'm sure you're right, like with most things in this industry!

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SSilver2k2
My biggest issue is their customer support. Downloaded the app, went through
all the sign up information, used an affiliate link so I should get one free
random stock. Never heard anything. My account was never activated.

After 2 months of waiting I emailed support, and they said my account raised a
flag and that's that. Nothing more I can do.

With Capitol One Investing going away I wanted to send my portfolio over.

Stock trading shouldn't have the same customer support issues Google is known
for.

~~~
cloakandswagger
Hello fellow Capital One Investing refugee. I too was thinking about moving my
portfolio over to Robinhood, but they'll need a web app before I'll make the
jump. I'd say I'm only a semi-active trader (maybe 2-3 trades a day) and it's
still hard to envision doing that on a mobile device.

~~~
serf
they now have a web-app.

it might be invite-only, not sure, but I have been using their web app for 3
weeks.

~~~
kylorhall
Don't even think it's invite-only, just an unannounced "beta". I didn't get an
invite and went to what I expected the url to be and was able to login just
now.

Will probably never really use it over the Android App, but glad it exists.

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gandutraveler
I think RH is great for experienced investors and newcomers like my GF. She
always wanted to get into investing but though learning curve is too steep
with all the terminologies etc. Anyways, I told her to try RH.She loved it.
It's one of the best and simplest trading apps ever designed IMHO. Anyways
after using RH for 1 years she ended up opening Betterment and 401k account
last year.

I think RH is great way to learn and enter into stock markets. You only learn
by trading and losing money.

I also think they shouldn't have entered crypto now. Its too early and it just
makes RH look more of YOLO traders/gambers targeted app.

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beiller
I tried my hand at algorithmic trading. It was an interesting experience
because I have no experience with stocks, only trying it with digital
currencies as a possible platform to eventually move to my portfolio. I found
that the bot was just dominated by larger overall market movements. For
example in the bull market, nothing I can do wins! It was an interesting
lesson and I like how the markets run 24 hours. But I wonder what the end game
of algorithmic trading is. Everyone can't run the same algorithm can they? My
naive approach was moving average crossover, and using neural network or
random forest, to train based on what the market looks like, to pick the
"windows" for the EMA. Anyone else tried that?

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ipsin
I wonder if they're able to separate their cryptocurrency risk from the rest
of their brokerage. I figure I'm insured to the $500k limit by their
SIPC/FINRA insurance, but it'd be annoying if they lost millions of dollars of
tokens and went out of business because of it.

Or are they somehow insured against _that_ risk? I'd find that hard to
believe.

~~~
RandomInteger4
Looks like, at the moment, they don't support deposits or withdrawals of the
cryptocurrency you're trading, so if anything, they seem more like ETNs of the
cryptos than the actual cryptos themselves?

I imagine it's for the reason you stated until they get the security protocols
in order. Not sure how they're getting around SEC approval, unless it's
something sort of like an IOU loophole where you can only sell the IOU, but
not redeem it for the coins yet per their terms of service?

I have no clue.

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dmode
Slightly off topic, but these huge rounds at Robinhood, Airtable and Doordash
a few days back underscores how the Valley is still the place to be. There
have been a number of posts in HN over the last few years about how another
region is about to overtake SV, but the facts still don't align.

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kylehotchkiss
I can't wait to access their web/desktop version! Phone has been nice.

As far as monetization goes, even if robin hood was $5-10/month it'd still be
fun for a beginner investor like myself, i just dread the idea of per-trade
fees on my single-stock purchases.

~~~
chrisabrams
You do realize you pay fees it’s just baked into the price? It’s pretty
impressive how they’ve worked it out.

~~~
lawrenceyan
That's only true in the most technical of senses. Yes, there is a spread, but
other brokerages take a spread AND additionally charge you another fee on top
of that which is often an outrageous $5-10.

~~~
nerfhammer
depends, how big is the spread?

~~~
lawrenceyan
The spread is generally on the order of a cent.

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poooogles
Any UK alternatives to this? Been looking at moving away from Barclays which
charge you fees out the wazoo.

~~~
ghostwriter
\- [https://www.trading212.com](https://www.trading212.com)

\- [https://freetrade.io](https://freetrade.io)

~~~
antouank
Do you pay fees every day, like IG? Just want to go long on some ETFs, not
sure what the difference is with IG and trading212.

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kolbe
I would love to know what the goal is here. Interactive Brokers has
traditionally been the finest model of how to run a low cost brokerage. They
have great tools, and charge an appropriate amount for a good sustainable
business, unlike etrade and the such.

And despite having a small fraction on the market share and a small fraction
of the markets available, RH raised at the same value as IB'S market cap. The
only reasons I can think for this is that RH has a plan on how to become
scummy like etrade, or SV doesn't know how to value brokerages.

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jbigelow76
I really wish Robinhood supported DRIPs, I'd move to them in a heartbeat. It
seems like such low hanging fruit for a brokerage, way less work than crypto
trading. Just not sexy enough I guess.

~~~
hackerman12345
Why does it matter? They don't charge fees.

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cleansy
Robinhood (.. Markets, Inc ) is split into "Robinhood Financial LLC",
"Robinhood Crypto, LLC"

It looks that the RH Financial LLC is good enough capitalized but I wonder why
they split up into 3 different entities? Or is that usual practice?

The latest SEC filing for RF Financial:
[https://www.sec.gov/Archives/edgar/vprr/1701/17016683.pdf](https://www.sec.gov/Archives/edgar/vprr/1701/17016683.pdf)

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iknowstuff
They are badly needed in Europe.

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bertil
DST coming in, that probably means they are interested in internationalisation
of the product, which would be interesting. There are many people who know
about US-based company but can’t really invest because stock-trading options
outside of the US are even worst.

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eden123
Does anyone know their plans to expand to other countries? I am curious how
they will manage to apply to different laws and fee structures overseas.
Expanding with the premium option only would also make sense to me.

~~~
sumedh
They are coming soon to Australia for the last 2 years.

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rdiddly
Who noticed that the graphs on the two phones in the second graphic are
vertical mirror-images of each other? i.e. on the left is "Bitcoin" and on the
right is "very-large-number-minus-Bitcoin"

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GreaterFool
Given the complexity of running a stock brokerage service I don't think it's
appropriate to call Robinhood an "app"

~~~
bonoetmalo
Until they're accessible in a cross platform way, as far as the consumer is
concerned yeah they're just an app. If Facebook or Amazon were only accessible
through an Android or iOS app, it'd be the same, no matter what investments
they're making behind the scenes.

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dawhizkid
Employees starting soon better hope there's a board meeting before the
fundraise :0

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PokemonNoGo
Ask Solem of Celery fame is the principal engineer at Robinhood! Celery is so
nice!

~~~
dyim
Ask is a really, really nice guy too! And he knows nearly as much about
synthesizers as he does about async tasks.

------
mancerayder
Will it be illegal to advertise in June, since it's been deemed Bad?

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jgalt212
What % of their revenue comes from selling customer order flow?

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yalla
I love the business model of taking the old-school industry and offer the
basic use for free with slick UI and modern look. WOnder if this model can be
applied to other fields.

~~~
aryamaan
That's a nice perspective. I think it will be more likely to happen where user
experience is not so much tied to human interaction like e-commerce. And where
network effect is not required eq. social websites.

So, places where an user's exp with the business is individualized- like in
this case.

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braptor
The interface looks pretty attractive

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singularity2001
how can something which is so trivially cloneable be valued so high?

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KasianFranks
They're enabling crypto trading for millions too. This is big.

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lend000
Seems like Robinhood has some scaling issues. Anyone who is serious about
investing wants access to a web client or an official API... how long has it
been now? Still on the waiting list for Robinhood Web. Ended up transferring
all my money out until they make it more friendly for 'power users.'

Maybe that isn't their intended audience, though.

