
Stock-trading app Robinhood was rejected by 75 investors - jaoued
http://www.businessinsider.com/robinhood-crypto-stock-trading-new-funding-valuation-2018-5
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dawhizkid
They haven’t “won” anything yet...a high private unicorn valuation doesn’t
mean success.

I would really caution connecting your bank account through Plaid on RH. It’s
really unclear what data they are collecting but their privacy policy suggests
they are collecting your _bank account transaction history_ using Plaid’s API.
100% a dealbreaker for me.

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davidiach
>They haven’t “won” anything yet...a high private unicorn valuation doesn’t
mean success.

We could debate what "success" means endlessly, but if you're a VC, your job
is to put money in companies with low valuations that will eventually end up
with high valuations.

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sib
I think the idea is that, since RH hasn't been acquired or gone public, they
haven't yet "ended up" with a high valuation. It could all go away before the
investors can get liquid (e.g., Theranos for a pathological example).

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JumpCrisscross
There are deep secondary markets around late-stage venture-backed companies.
Robinhood investors seeking to exit around this valuation have options.

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ryguytilidie
Just to clarify, we're debating whether Robinhood is a success and the measure
of success being used is "can early investors cash out for a gain?"

What if every company checked that box and couldn't provide lasting value
beyond that? Do we still consider this a success because we're posting on a
forum run by a VC?

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argonaut
Ignoring any one specific company for a moment, an investor consistently able
to invest early and time their exits near the peak of each company's valuation
would be a roaring success.

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ryguytilidie
That's my point. We're saying that Robinhood is a success as a company because
an early investor would have had a nice exit? Thats our "success" barometer?

I'm going to call BS on that one.

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ironjunkie
I tried them and it is the most amateurish stock broker I have ever touched in
my life. There are no metrics for any of the stocks. The graphs are not
annotated, the spread seems to be inflated (as they probably make money with
it).

Also as said higher in the comments, if you are not paying you are most
probably the product. And I don't want my private investment informations to
be sold as data to BigCo. Paying x$ per transaction is a small price to pay to
not have your data all over.

They might be a good answer for newbies that want to spend 100$ on a stock for
the first time, but for anything else I will stay with Ameritrade. Thanks

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mortehu
> the spread seems to be inflated (as they probably make money with it)

The Order Protection Rule of Regulation NMS makes this illegal (during regular
trading hours).

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Teodolfo
Execution quality matters and given enough order flow a they can still match
client orders to make a profit without giving a worse price than NBBO.

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physguy1123
That's easier said than done. If you don't already have proper market making
infrastructure and strategies you'll probably lose money trying to do that.
Add in market makers paying per order and it doesn't make sense

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gst
The one feature that I'm really missing from Robinhood is selling based on
Spec-ID instead of just FIFO. FIFO means I won't be able to tax-loss harvest
making Robinhood effectively much more expensive than the alternatives (as the
additional taxes are much higher than what I would save in trading fees).

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im3w1l
Can you explain what this means?

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radicality
If you’ve been holding stock for more than a year and then sell, it will be
taxed at a lower capital gains rate. If you sell sooner, it will be taxed at
an ordinary rate.

If you have stock at a brokerage and you want to sell it, FIFO is first in
first out. The brokerage will sell the oldest shares you own. It sometimes
makes more sense to sell a specific set of shares you bought later depending
on purchase price and current price. For example a FIFO sell could generate
taxes while a specific lot sell could generate no taxes (you sold at a loss).

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notimetorelax
Is there anything like that available in Europe? In particular in Switzerland?

I checked what my bank, Postfinance, wants to charge for a brokerage account -
it's in multiple hundreds of dollars.

 __EDIT: __Thanks to All for the responses! The offered options seem to be
much better than my bank.

\- Interactive brokers

\- DeGiro

\- Lynx

~~~
chillydawg
Interactive brokers are a cheap European shop. Not free to trade but very
cheap and they give you access to a lot of big markets.

~~~
gst
IB is not European but based in the US. I would also recommend it but tax
could be somewhat more complicated (W-8BEN form, etc.).

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tomaha
IB has US and UK accounts (and likely more). For Switzerland (and Europe)
you'll get a UK account and you will not have W-8BEN problems.

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akvadrako
They also have local resellers in many countries, but avoid them because the
rates are higher.

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michaelcampbell
How do THEY make money? The article didn't say, or I missed it.

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abhi3
They sell orders/trading data of small retail investors to Big High Frequency
Traders so that they can gain an edge in the zero sum game of day trading.
'Robinhood' seems like an apt name.

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Mc91
I have heard from the horse's mouth that small retail investors orders/trading
data is used as a contrarian signal. In other words the Big Traders see what
the small retail investors are doing, and do the opposite.

~~~
stygiansonic
It's somewhat similar to that.

Assume you are a market maker - you make money off of the bid-ask spread.
Specifically, you supply liquidity by issuing standing orders: To buy at the
bid, and sell at the ask.

For a market maker, you typically want the price to "stable", and you set your
bid/ask to reflect the current order flow supply/demand - this is the
"equilibrium" price.

When prices are volatile, your risk is greater. Typically, market makers have
to maintain some position in the securities they transact in, and if they
don't effectively hedge this position and the price moves against them, they
could take big losses.

The optimal condition for a market maker is to have supply and demand
balanced, and unchanging. Then you can simply make money off the bid-ask
spread without much risk. (All else being equal, having fast access, i.e. HFT,
and fast processing systems to detect upcoming likely prices changes also
helps)

Market makers are worried about adverse selection; that is, if a huge buy
order comes into them, they are worried that the buyer knows more about the
price of the security than they do. If they sell to them, the price could
subsequently increase, and they could take a loss. (The same applies for a big
sell order)

That is why they would prefer not to transact on the open market - i.e. the
exchange. It's difficult to tell who are the informed traders.

Instead, they would rather transact against "uninformed" traders. "Uninformed"
here does not imply "stupid", but rather just implies that, on average, these
traders don't possess any special information or any more information than
they do.

In the optimal sense, market makers would prefer to transact against an order
flow that is unbiased; one example of this would be an order flow where there
are equal numbers of buy and sell orders.

This is why market making firms pay for retail order flow. Retail order flow
is assumed to be uninformed, and therefore unbiased relative to the
information that the market makers themselves have. Being able to transact
against retail order flow thus gives them a relatively unbiased order flow
from which they can profit off of the bid-ask spread with much lower risk.

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pietroglyph
The 75 rejections number doesn't seem to mean anything without some context...
Maybe the mean for companies with similar valuations over similar time frames
is 300 initial rejections, and this is actually an outlier.

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mrfusion
I never “got it”. It’s just a brokerage like etrade? Those places charge under
ten dollars per trade. What’s the big draw for zero fees? It’s not like you
buy stocks that often.

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JumpCrisscross
Brokerage is a book business. Robinhood is collecting a book of young
customers (whom traditional brokerages have not been successful attracting)
who frequently trade and use margin (which makes them lucrative).

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CamTin
Can you explain what the phrase "book business" means?

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JumpCrisscross
> _Can you explain what the phrase "book business" means?_

You accumulate a “book” of end customers, usually from a particular
demographic, for the purpose of selling to someone who doesn’t have that
demographic. Versus flow ( _e.g._ exchanges) or asset accumulation ( _e.g._
ETFs) businesses.

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perpetualcrayon
I think I see some flaws in how we automatically label a company's value based
on how much an investor is willing to invest. Why isn't a startup's "value"
pegged to real metrics? So in that sense, an investor is free to invest more,
but they can't automatically raise the company's value simply by the fact that
they were willing to invest more.

Semantically I guess it's accurate, but we really should come up with a better
way, or different words, to explain what it really means. Distilling it down
to "a company's value is X" is extremely misleading IMO.

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j45
Rejection can also mean a sign the investors didn't understand the idea,
opportunity, or the ability.

