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Is Robinhood Brokerage running out of money
12 points by Leeflanagan on Oct 8, 2015 | hide | past | web | favorite | 8 comments
I am researching to open a trading account and find these articles

http://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp

https://www.quora.com/What-is-Robinhood-investings-burn-rate




Back around the turn of the century, I used BrokerageAmerica, which not only had $0 trades but gave rebates on your trades. They made their money as a market maker. Eventually, they dropped the rebates, then they dropped the $0 trades, then they dropped themselves (selling off their accounts to Ameritrade).

Which is to say, they aren't the first $0 brokerage and they won't be the last $0 brokerage. But I don't expect them to be around long term and I double don't expect them to provide $0 trades long term.


I never understood their focus on mobile app rather than desktop. No real trader is going to want mobile, which makes their zero cost trades rather pointless doesn't it? A buy and hold person doesn't care about fees as much. But they do care about stability of the company...

I was excited to try Robinhood until I realized that bad execution on the app side (my side) and on getting order fills (their side) would eat up all if nor more of the benefits. Plus frankly if they were poor at getting you to trade to generate exchange rebates, I have to wonder what else they were doing/planning with your money.


> No real trader is going to want mobile, which makes their zero cost trades rather pointless doesn't it? A buy and hold person doesn't care about fees as much.

Perhaps its because they don't want "real traders" or "buy and hold" people as their inventory. Given that the users of Robinhood are what they are selling, maybe they can get more for those users if they prove that they are both unsophisticated and active? I know thats the kind of counterparty I'd want if I was paying for order flow.


I have an account with E*Trade and I tried Robinhood too. The reason I use Robinhood is because its free. The app crashes on Android all the time and is limited, but its Free. Everyone knows Trading costs fees, but if rich silicon valley VC's are willing to pay for my trades, I will take that all day. I did that with Zecco before they ran out of funds. You cannot beat it. I will make sure I get my $131 out before that run out. Its just $131, so i do not care. My suggestion is ride it while the VC sponsored trades last.


Side note, just because you don't pay fees with Robinhood that doesn't make it free. Robinhood has larger spreads than many of it's alternatives.

In other words - Robinhood's competitors make you pay a fee for access to better prices. That seems like a reasonable value proposition to me.


> Robinhood has larger spreads than many of it's alternatives.

You need to be careful about what you mean when you say this. Robinhood should not be offering spreads worse than the NBBO and if they are you should document it.

The vast majority of Robinhoods order flow and execution is paid for by Citadel and Knight, who also pay for the order flow of the vast majority of other retail trading outfits. I'd be very surprised if the spreads were significantly different (though maybe execution times are worse on Robinhood leading to worse fill rates).


I think Kasey is right. As to the question of larger spreads. I worked for Knight before they got into trouble. Robinhood does only stock trading and there is not much spread payments coming form it these days. Its so small these days, its not worth a lot. No matter what its not enough to give away trades. And these firms pay somewhat the same to all companies.

Robinhood is a fascinating scheme of some sorts in my opinion. They will have to raise money from new VC investors to make commission payments. They need to be raising more money. This app will continue as long as they raise money and the VC money feed continues. For the sake of its employees, I hope the feed continues.

"so I am "out". ( Shark Tank :))


I remember when ETrade needed a bailout as they got involved in mortgages during the last housing bubble. They sold all their order flow to Citadel for the bailout.




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