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Stock trade app Robinhood raising at $5B+, up 4X in a year (techcrunch.com)
289 points by wgyn on Mar 16, 2018 | hide | past | web | favorite | 196 comments

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.

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).

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)


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.

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.

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.

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.


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.

If the market crashed by 50 percent in a day, I think defaulting on a car loan would be the least of his/your/our worries.

The problem is that there is no car loan in this case; he's paying for the car in cash, and borrowing in the investment account instead.

In both scenarios, let's say we have 60k in stocks to start.

Starting point: 60k stocks

Scenario A: 1 car, (30k car loan), 60k stocks

Scenario B: 1 car, 60k stocks, (30k debt in margin account)

Let's say the market drops by 50%, then recovers by 100% overnight.

At midnight:

Scenario A: 1 car, (30k car loan), 30k stocks

Scenario B: 1 car, 30k stocks, (30k debt in margin account)

Position is closed, so now Scenario B is: 1 car

In the morning, the world goes back to normal:

Scenario A: 1 car, (30k car loan), 60k stocks

Scenario B: 1 car

While we had the same amount of debt in both cases, in scenario A, there's no instant way for the car loan provider to instantly declare that you don't have liquidity at midnight.

> 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.

It's definitely more risky than that. With the credit card strategy your maximum loss is whatever the interest rate on the credit card is. The stock market could drop by a much larger amount.

I think the ideal cash management setup is to get a rewards checking account without a debit card usage requirement (harder than it sounds to find), direct deposit your paychecks into that, have a 1-2 month cash buffer there, and invest the extra through ACH pulls out of that. If your portfolio is large, having a month of expenses earning 1.75% or whatever risk-free is likely a small improvement. If your portfolio is large, the lower return on a small portion doesn't matter. If you portfolio is not large, you should have a larger cash position to de-risk your overall life.

You might also be able to mail checks written against a brokerage account with that option enabled, but mailing checks sounds like a pain. I know that Vanguard's brokerage account allows both check writing (with a $250 minimum) and direct deposit, but that doesn't quite do enough for running your life out of one account.

>whenever I make a purchase or bill payment from it

FWIW, if you have access to credit cards, you should pretty much always use a credit card rather than a debit card.

> I think the ideal cash management setup is to get a rewards checking account without a debit card usage requirement (harder than it sounds to find), direct deposit your paychecks into that, have a 1-2 month cash buffer there, and invest the extra through ACH pulls out of that.

This is pretty much exactly what I used to do, but the user experience of managing cash from my investment account directly is dramatically better than having to juggle cash between different accounts through ACH, in my experience. Even if I didn't value staying fully invested as much as possible, I'd probably still choose to keep those extra few months of expenses as cash in my investment account just for that experience alone. Though admittedly Schwab wouldn't be the best choice for that usage pattern, because their interest rates for cash are rather pathetic.

> FWIW, if you have access to credit cards, you should pretty much always use a credit card rather than a debit card.

Agreed. The only things I pay for with debit directly are things that won't let me use a credit card, like for rent.

Bank of America basically has this with Merill Edge and you also get free trades if you have over $50k

I am curious how much money you pay on margin a year using this scheme.

Had to look it up, but I paid a bit under $5 in total last year. Mostly towards the beginning of the year when I didn't have my bills set up properly (i.e. the timing didn't match my direct deposits at first, had to make some calls to change that) and from some large ticket purchases that a single paycheck couldn't fully cover (with sufficient planning those could have been avoided if I sold some stocks beforehand). I haven't needed to make use of margin at all for well over 6 months now.

Schwab's margin rates are on the high side, starting from 7% and up, but even then if you're borrowing for 2 days at a time the cost ends up being negligible (about ~$1 for every ~$3000 borrowed). At the very least, it's much better than most overdraft fees/lines of credit. Though if Interactive Brokers were to offer a bank account, I'd be very tempted to switch with their amazing margin rates.

IB has a debit card but no bank account, dunno if that's enough. You can also receive and initiate ACH transfers, but that doesn't pay credit card bills without routing through a checking account with bill pay.

What's stopping me from using IB is the $10/month commission minimum. It's waived at $100k account balance, so I plan on switching over then.

> Though if Interactive Brokers were to offer a bank account, I'd be very tempted to switch with their amazing margin rates.

IB just started offering some kind of debit card. I don't use it, but I keep getting notifications from them about it.

Thanks! Just looked it up. It's really cool that they're moving in that direction.

Can you do bill payments directly from an IB brokerage account? I think that might be the final missing piece for me, but I'd love to be wrong about that.

No idea, sorry :-( I don't use any of those features, I just trade. I don't even use bill payment on my regular checking account.

They also have the whole world except the USA to expand to.

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.

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).

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.

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?

That edge is what drives price discovery.

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.

I thought they stopped selling order flow, but was wrong. For those interested, here is their Q4 2017 606 Filing w/ the SEC:


Don't forget that huge pile of deposits sitting in user accounts. Banks at least pay interest for those deposits.

To be fair, the other brokerages probably do the same exact thing and get $7 on trades.

Sounds like they engineered a fantastic business model.

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

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

>And also from selling the trading data to high frequency traders to front-run the Robinhood traders.

Where's your source on this because that is blatantly illegal- so I don't believe you.

Is any of this a concern for someone looking for a place to follow a simple passive investing strategy in SP500 / AGG?

I was commenting on their business model. I don’t know if the person you described would have anything to worry about, apart from their own moral feeling about the company in general. I won’t use them, because I dislike the entire premise.

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

> 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.

That is true. I'm not saying Robinhood is all bad or can't be used in good ways. My concern is that overall, the product and marketing seem to be geared towards speculative, short-term trading. When I first signed up, the app was recommending that I check out stocks like Apple, Netflix, and Snapchat, not index funds.

> My concern is that overall, the product and marketing seem to be geared towards speculative, short-term trading. When I first signed up, the app was recommending that I check out stocks like Apple, Netflix, and Snapchat, not index funds.

There's a broad spectrum of public companies obviously, but it's hard to see $AAPL as speculative in the same sense that people call penny stocks or cryptocurrencies speculative (i.e. much, much more risk involved in the latter two). Investing in large cap equities isn't the stupidest thing you could be doing as a new investor - that award would certainly go to buying derivatives.

And indeed if I have criticism of RH it's that they're trying to appeal to all investor types at the same time, new and experienced alike. It's easy to see how new investors can get confused when RH offers the ability to sign up for cryptocurrency trading and options trading, two things new investors obviously should not be doing (though admittedly there's obviously a questionnaire involved before you can be approved for options trading, not sure about cryptocurrencies).

Washington Mutual, Bear Stearns, Lehman Brothers, General Motors, Fannie Mae, Freddie Mac are all good examples of why you should avoid individual stocks, even if they are "blue chip".

Amazon, Alibaba, Mercado Libre, and Netflix are good examples of reasons not to avoid individual stocks.

More than 90% of my investments go into index funds and 10% into individual stocks, but if hindsight was 20/20 it would be 100% into my individual stocks and I’d be retired on my own private island today.

Aside from the hindsight/foresight inversion, you probably mean if your foresight was 20/20, but the rest of the market had no better foresight than they actually do.

In which case, of course, you should invest entirely in the highest rate-of-return investmentd that the rest of the market currently undervalues.

The problem is people are prone to overrate their own foresight.

Hindsight IS 20/20. I think you meant if foresight was 20/20.

LOL. Indeed I did.

Depends on when you bought them of course. I bought FNMA(Fannie Mae) in 2010 and it turned out pretty nicely.

But yes most people are better off buying index funds. That's where most of my money goes.

I find a good approach is to buy index funds, but when it comes to whatever your subject is, like I.T, you can pick companies you like or think will succeed. Just make sure to look at it in terms of the business and its future.

I can understand why they guide people towards investing in "hip" companies versus an index fund, but regardless why is their so much animosity towards robinhood on HN? Is someone getting into investing and investing in an Apple/Amazon/etc. not overall a pretty good entry point compared to opening up thinkorswim or the pretty atrocious (at least on mac) schwab desktop client? Investing a small amount of money is better than blowing that money on tons of consumeristic bullshit that that tons of people do and RH seems like a genuinely good stepping stone compared to the current incumbents in a lot of ways (fees/minimum deposit/super simple). The fact that you can even start with RH and then at a later date transfer to a brokerage once you have a large enough portfolio is also a huge plus in my opinion to people who may have otherwise never set aside that money in the first place.

I agree Robinhood is better than the incumbents in multiple ways. But at some time, other startups offer similar benefits while promoting an approach that is more likely to help the average person increase their wealth in the long term.

I don't think Robinhood is terrible. I just think someone who doesn't know what they're doing would be better off starting with Betterment or Acorns, which are just as user friendly as Robinhood.

Etrade, Schwab and Ameritrade have commission free ETFs. Or you can just go to Vanguard and there's no commission if you buy their ETFs on their platform.

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

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

The Vanguard web experience isn't great, I agree. But if you set up a recurring automated purchase you rarely need to log in and mess with it. Set it and forget it.

Viewed another way, I would say the Vanguard fund costs are low for a reason. It seems unfair to expect a Mercedes experience for a Honda worth of expense ratio.

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

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

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.

Have you ran the math on how much that "user friendly" layer is costing you? I adore nice UIs, but I love even more keeping my money. Vanguard is really not that hard to use, and for how often you need to mess with it I don't think it's worth to spend more just to have prettier graphics.

I have both Betterment and Vanguard accounts. I haven't bothered to consolidate yet because Betterment is trying to add value to justify the fee with features like tax loss harvesting, and I haven't decided if it's worth it or not.

With regards to my friends though, my priority was to get them to invest in the first place, and the user friendliness of Betterment helped a lot.

Your friends can't exercise some level of long term financial responsibility unless they're presented with pretty graphics and a slick UI?

The lack of financial education in the US really makes me sad sometimes. And it pisses me off that companies like RH will take advantage of that.

I totally share[1] your feelings on the lack of financial education. In defense of my friends, they already knew to fund their 401(k)s. The question was what to do with their free cash. And considering the risk of losing money, any amount of friction (like a bad UI) can make it easy to procrastinate.

[1]: https://twitter.com/dannyguo/status/961684866285924354

>That's better than the alternative of not investing at all because Vanguard is not user-friendly

This is literally what happened to me. I lost out on 20%+ in gains because I procrastinated a year after reading about how much Betterment fees eat into your gains. In hindsight the amount of money I missed out on was WAY more than any fee Betterment would have hit me with.

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.

That's a good point. Deciding to go with those is still a choice though. It's like going to a restaurant that has both an omakase[1] option and regular dishes. Versus a restaurant that only offers omakase. The latter involves even less decision making.

[1]: https://en.wikipedia.org/wiki/Omakase

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.

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

There are US equivalents.

I'm in the UK and hold the GBP products, so I'm unsure sorry.

You pay an extra quarter percent to 1) not have to think about allocation and risk under-diversfication, and 2) commit to the "buy and hold" strategy since its withdrawal process is more cumbersome than normal trading.

I think for most people this actually ends up producing better long term returns.

How much are you willing to spend on a nice user interface? The whole point of passive investing is that you rarely interact with your account.

Even a slight difference in fees is worth thousands in the long run.

While this is a great point, the casual segment of the customer base that is being discussed would certainly not have enough awareness of this fact. At the very least, I didn't even though I do trade ETFs and large cap stocks casually...

I am sorry but "casual investors" should be doing long term buy and hold because if you can't be bothered to spend 30 minutes on research to compare brokerages, I am genuinely horrified at the idea of you doing anything other than buying and holding an index fund.

Robinhood's encouragement of the instant gratification, poorly researched trades is going to end badly for many of it's customers when we enter a bear market.

I disagree that investors' abilities to understand stocks and create portfolios should be judged by someone's willingness to find which individual brokerages offer free buy/sell of their own ETFs.

Their own ETFs - yes. But still a fee to buy other ETFs that aren't their own.

You're paying fees for something different than just buying and holding an index ETF - and that is a long-term diversification across asset classes and georgraphies, regular automatic rebalancing of portfolios, goal-based investing with multiple financial goals, reporting, etc. I am not saying that buying a single S&P ETF is bad, but you can do so mych more for your financial future with robos, that it is basically incomparable.

Edit: I also forgot an increasingly important diversification by asset manager as well.

But that's not new?

Vanguard has long offered commission-free trades of their ETFs and mutual funds. Same for many index fund providers.

You can open a Vanguard account and buy $VOO for zero commission too.

That's a good thought but zero commision doesnt really change the investment attitude that much apart from the fact that it makes very low value plays possible. There are tons of people having the same speculative investment behaviour on both sides of the line especially on larger bets. It's the smaller bets that Robinhood makes possible. I would also argue that Robinhood is a great playground to learn trading at minimal cost. I have tons of freinds with 500 dollar portfolios playing around and learning the ropes. This was seldom attractive with web based serious accounts. In the end it's all about discipline and eventually Robinhood users reach the same investment mindset as regular account players very soon.

That's why the $0 commission is such a key feature. They know people enjoy the emotional high of seeing the green numbers in their account when they open the app. This isn't a tool for high net-worth individuals, people that want "traditional" (Vanguard, Wealthfront, Schwab) wealth management investing with long-term planning, or advanced traders looking for Bloomberg terminal-esque features. This is designed to allow the average person to play with their money and see if they can "beat the market". It's like a fintech online casino. It's not gambling per se, but it definitely has a lot of psychological overlap with it for many of its users. With the addition of crypto trading, they've basically just opened up their new slot machines to the public.

I played with the Robinhood app before as well, but stopped using it after a couple weeks because it's just more of a novelty than a dedicated investment platform with all the features I want. I can see how some people that don't want all the complicated financial markets stuff would enjoy it though. If people think $0 trading is a short-cut to becoming a millionaire day trader though, they are in for a very bad time.

I’m probably not the average Robinhood user, but I was already putting about $50k/year into index funds for retirement.

So rather than putting even more in these I wanted to research and invest directly in a handful of stocks long term. I used to use Scottrade for this. That’s not too bad $7/trade ($14/round-trip).

If I’m making a sizable enough investment that won’t matter too much. But what if I only had $24 this week? I could buy one share of Ford on Scott-trade, but then I’m upside down until the price doubles (e.g. forever upside down).

With Robinhood I can make buys no matter how small the purchase.

Thanks. I think so many people here don't understand how people use RH and quickly jump to conclusion thinking it's only "low net-worth individuals" using it. Before RH, people still invested in individual stocks and it wasn't only "low net-worth" individuals attracted by the greens and reds in the UI doing those.

I’m sure for some users the notifications can be alarming or induce bad/impulsive behavior.

I have on occasion though found them useful where I get a notification that X stock is down Y% today. Most of these have been bad market days and I’ve said, “Nice, I’m long on X and it’s on sale today so I’ll pick up a few more shares.”

So on the one hand I understand how these could lead to a rash decision from some I don’t think Robinhood is trying to get people to buy high and sell low.

> They know people enjoy the emotional high of seeing the green numbers in their account when they open the app. This isn't a tool for high net-worth individuals, people that want "traditional" (Vanguard, Wealthfront, Schwab) wealth management investing with long-term planning, or advanced traders looking for Bloomberg terminal-esque features. This is designed to allow the average person to play with their money and see if they can "beat the market".

And this is exactly why these sorts of people will continue to remain low-net-worth individuals. Far be it for me to tell anyone what to do with their money to have fun, but these are exactly the sort of people who should be targeted for an easy to use solution that just auto deposits some amount of money into an index fund or target retirement date fund every pay period. It might not be "fun", but they'll be pretty happy later in life when they actually have retirement savings.

what does $0 commission mean? unless they're sourcing assets at mid then it's not 0 commission. and they can't be giving trades at mid to customers unless they're taking a loss on every transaction. they must be charging bid-offer - so how much?

I think it's pretty clear in the industry what commission means when it comes to trading stocks. It's on top of the spread. Go to any other broker and they have the same spread. It's not going to be much better at brokers for individual investors like us. And if you are worried about getting worse spread, use limit orders.

For some perspective. My uncle (retired from the Air Force) got into stocks in 1998. He did not tell my aunt until around 2002. He lost around 200K of their retirement because he was unwilling to accept loss. He is still at it and has moved on to day-trading and is doing just as bad. It is a addiction and he does not use Robinhood.

I was living with my sisters kid and set him up with a Robinhood account and stuck a few hundred in it. I explained things a bit and he was still sure he could time the market just with SPY and QQQ. He could not. I guess it is good people have a playground to learn that they really don't know what they are doing before they become my uncle.

While it may be helpful to make the stakes real for your nephew, there are fake/paper trading accounts available at many brokerages.

Paper trading is like playing poker without money. You’re still going to take risks you wouldn’t otherwise because there’s no pain.

I used them for a bit. Perhaps I am weak but I took my paper losses as a mistake and my gains as my prowess. And I don't like to think I made the wrong decision. So we can go from there into how people make horrible decisions.

The whole software/startup approach is currently based on user growth which relies on retention, trigger, actions, and rewards. Long-term investments don’t fit that model so there is no incentive for them to encourage that form of user behaviour.

User retention is arguably linked to capital preservation. So they do have some incentive to ensure people don’t lose their investments by trading too much.

When the market gets more volatile or if there’s a sharp downturn, that would become a big issue. Not sure they had to address this yet because since 2014 their founding year the market had been on a smooth, upward trajectory. A recession however is already around the corner.

There's a middle ground between day trading and just putting your money in an S&P 500 index fund and never looking at it again. Trading stocks can be fun and help you make a lot of money if you're able to spot undervalued investments. It's very complicated, but anyone can learn the basics of value investing and do a little bit of stock picking on the side.

That is an absolutely gargantuan “if”, given that any particular retail investor is overwhelmingly unlikely to possess novel knowledge or insight in any market.

The number of times this ever happens is outweighed a millionfold by the frequency of times where people incorrectly believe this to be the case.

What happens in the vast majority of cases is that people believe they’re making money, but after fees are actually losing to index funds. Or people believe they’re making money, but lose their shirts the moment the market turns sideways. Or people do succeed due to completely random chance, but the level of risk they took on to make that return is significantly higher than other investments with comparable returns.

> given that any particular ~~retail~~ professional investor is overwhelmingly unlikely

Reminder from Random Walk Down Wall Street; Professionals rarely beat the S&P 500 Index on a time horizon. It's statistically likely, that if a professional fund does beat the index one year, then it will underperform the next year.

That's true, most people likely won't know what they're doing. But it's possible to spend some time, pick up something like The Intelligent Investor by Ben Graham, and invest a little yourself. Ordinary people can sometimes have investable insights that most players in the market are not aware of.

While I also would like to learn how to trade stocks and believe in value investing, I think this comment severely understates the difficulty of beating the market. Let's not forget that the vast majority of professionals who do this day in and out can not beat the market on consistently.

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

Fidelity’s internal survey revealed that best performance correlated with low account activity http://www.businessinsider.com/forgetful-investors-performed...

But it's very possible most of the users of RH wouldn't have invested any money at all if not for RH. I know many of my friends wouldn't have. Now whether they make money is a different argument.

The vast majority of that is due to transaction fees/commissions, which RH doesn't have. I would still expect this to hold up even on a zero-commission basis, but the effect would be significantly diminished.

The transaction fees start to matter when the number of transactions goes up. Fidelity's thesis was the account growth was correlated to complete lack of transactions (except for DRIP, I guess).

On a side note, zero-fee instruments are not that rare for brokerages nowadays. Fidelity itself lists 3,691 mutual funds https://www.fidelity.com/fund-screener/research.shtml and 93 ETFs https://www.fidelity.com/etfs/overview as fee-free, and I think they're not even the leader in the space.

There's also M1 Finance (https://www.m1finance.com/), which is all about long term investing. Commission-free like Robinhood, but it also has fractional shares. Makes it even easier than Robinhood to manage a well-balanced portfolio.

If Robinhood opened up an API, wouldn't it be possible to invest in a way that mirrors existing index funds? I'm not super familiar with the details but it feels like it would be.

It'd be possible, but you can buy index funds on Robinhood already.

Other services that are built around long term investing provide additional features like automatic rebalancing and dividend reinvesting. An API could allow you to emulate those as well, but at that point, it seems like you might as well just use a robo-advisor instead of building your own on top of an API.

> I had to turn off push notifications for things like "Snapchat declined 5% today".

This is telling to me. If they have opt-out notifications nudging users to make various day-trades, they're in shady territory. Kind of the opposite of Robin Hood.

Have you seen the vanguard ETFs in Robinhood? Would those be just as good as using the funds directly with vanguard?

Yes, better because the minimum is $0 not $10,000.

It's not as good as Betterment/Wealthfront/Hedgeable because you can't rebalance, reinvest dividends, or get fractional shares.

Important to note that when purchasing ETFs through Vanguard the minimum investment amount is the cost of a single share. No large minimum amounts such as the $3000 or $10000 with their mutual funds.

Vanguard has a full robo-advisor which has more assets under management than all fintech robo-advisors combined.

Vanguard has no robo advisor. There is a human advisor involved

You can rebalance and reinvest dividends at Vanguard.

Does the amount of dividend need to be the cost of one share?

If so, with VTI trading at $140, you would need about 250 shares to buy a share with each dividend.

No, they allow fractional shares. Source: https://investor.vanguard.com/investing/brokerage-dividend-r...

"When reinvesting dividends, Vanguard Brokerage Services combines the cash distributions from the accounts of all clients who have requested reinvestment in the same security, and then uses that combined total to purchase additional shares of the security in the open market. Vanguard Brokerage will attempt to purchase the reinvestment shares by entering a market order at the market opening on the payable date. The new shares are divided proportionately among the clients' accounts, in whole and fractional shares rounded to three decimal places. If the total purchase can't be completed in one trade, clients will receive shares purchased at the weighted average price paid by Vanguard Brokerage Services."

Most ETFs support DRIP and the dividends reinvestment happens at the fund level.

Dividend reinvestment for ETFs happens at the brokerage level, not at the fund level. You can see this because some brokers don't support reinvestment in the same ETFs.


> You can rebalance and reinvest dividends at Vanguard.

Right. I mean you can't do this on Robinhood.

you think they need a slap on the wrist for the attitude they promote? have you seen etrades recent ad campaigns? https://www.youtube.com/watch?v=yZ2Fa0zVglU

Etrade has always been doing this though.


Index funds aren't just boring, there is something morally abhorrent about simply investing in everything that has done well enough to be in an index fund. At that rate, why not invest in government bonds, given that the government gets whatever share it wants of literally every penny that goes through commerce in any capacity? If you want security, why invest in anything other than the government?

I admire people for investing their money actively instead of in an index.

It is the closest you can come to the capitalist spirit without actually doing anything. (Not a slight - not everyone needs to "do something" in the sense of starting a business - but being an active investor is very close to the same.)

Actively investing takes guts and a kind of entrepreneurial risk-taking.

> If you want security, why invest in anything other than the government?

Because you make more money in index funds with comparable security?

Bonds used to be the principal way to save and invest in the past when interest rates were much higher. Its honestly a bit of a shame that as a society loaning money to the government is such a poor investment - it more reflects on the failings of the state if there is literally nothing profitable they can do with money to justify a competitive return. States can do pretty much anything a company can and more, and in a perfect world would be the best managers of capital. Thats where concepts like single payer healthcare come from, after all.

And add to that that not everyone wants to be a capitalist. Index funds are specialization of labor - let the teachers teach and the doctors save lives while their money is invested and managed by people who are good at tracking markets.

That being said, financial advisory in general is adjacent to such prestigious professions as televangelists and online poker in my mind - the most successful in the business have almost no correlation with actually sane analytical expertise and more to do with who can advertise the best. Fundamentally it is all making educated guesses, and until shit hits the fan people flock to whoever boasts the most rather than whoever is nuanced and rational, at least until after a stock crashes or a market tanks.

I'm sorry it took so many days (11 - this is now on the third page of your userpage so you might not see this) to reply to this: you write extremely counterintuitive and challenging things. (While also supporting your statements with uncontroversial observations that are easy to agree with.)

Thanks for taking the time to reply! I'll reflect on what you've written.

I don't admire active investors. Most of them are going to get killed on commissions and fees and won't be able to compete with the professionals who spend all day, every day investing and have sources of information that aren't available to retail investors.

It's good that most Robin Hood investors are young and don't have much to lose. I hope they learn their lesson before they put they are old enough to put their retirement investments at risk.

To be honest it's a good sandbox.

> Index funds aren't just boring, there is something morally abhorrent

Hyperbole much? There's plenty of capitalist spirit in placing your trust in the outcomes of markets. Specialization is a perfectly rational economic decision, and requires you not specialize in other things. There's no reason to believe a medical doctor for example is going to excel at active investing, or that society would be better off if we required it.

The wonderful thing about markets is that we can all benefit from the specialization of others. Specialization (and competition) produces cheap pencils, cheap food, and even stocks that are closer to fairly valued. It is a fundamental misallocation of human capital -- I'm better off further pursuing specialization in server administration than trying to stare at stocks and newsfeeds to separate information from noise.

We do need active investors, but the average person shouldn't be one if his or her goal is long term wealth generation. That doesn't mean maximizing security. It means maximizing the expected risk-adjusted rate of return.

If that's your attitude, you should only buy corporate bonds and IPO's.

Well, maybe not every IPO, but yeah. Good, armchair capitalist strategy.

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

For reference, see /r/wallstreetbets

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?

>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...

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

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.

> You’re not going to get the best price.

That's FUD (and I'm an Interactive Brokers user). That sort of routing flashes your trade to groups before it hits the exchange, and they have the option to take it. By regulation they can only take it at or better than top of book price. If they don't take it, it will hit the exchange.

Look, Interactive Brokers is a great brokerage. Very usable software and API, best in class commissions and margin rates, and you get direct routing and their smart router works pretty good too from what I understand. But don't oversell it by bashing RH.

I mean, average portfolio size for Robinhood users is probably in the $1k-10k range. How much does your 22 year old cousin care whether she pays $325.60 or $325.62 for a share of TSLA? For individuals it’s negligible, but for the HFT firms whose kickbacks make up most of Robinhood’s revenue, this adds up.

Yeah, worst case scenario use a limit

Do limits guarantee a price?

No but they put an upper bound on it which is likely what people would care about anyway

I can assure you that most robinhood users don’t have the slightest idea of what trade routing means. Also, I doubt there are many accounts placing big enough trades routinely for routing to have a material impact.

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).

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.

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

Limits don't work. Market might not cross your price.

Is this really true if you're submitting passive limit orders? If I'm not even asking for the best price, how can I be taken advantage of.

This is really speculation. There is no reliable source to confirm this. I have used Robinhood for over 6 months now and never observed the trade price deviate from what is listed on Schwab and IB.

Also, for most people who trade 100-1000 shares it doesn't really matter.

50K * 0.001 is $50 dollars.

Better to just pay a flat fee and get better routing.

I believe that RH is actually making their money off of the interest on spare cash in accounts. You can do limit orders in the app if you are particular about price. I don't have a source for this, other than I like the app.


IB doesn’t sell their order flow but they do take payment from dark pool operators & liquidity providers.

This. interactive brokers provide the best user experience for most portfolios. Very useful app.

Eh, use a limit and you’re fine

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.

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.

Their web app is in closed beta right now

they now have a web-app.

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

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.

Same situation here. They actually deactivated my account when I asked them why it still wasn't enabled after 3 months (even if I did send them all the info they asked for; even had to send it twice!)

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.

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?

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.

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.

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.

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.

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

Not really, just because they're selling order flow doesn't necessarily mean the customer gets a worse deal. Robinhood still has to follow reg nms, they have to fill you at the NBBO.

But is their NBBO worse than other firms (worse routing options)?

That's literally a contradiction. Look up what NBBO actually means.

It's actually more complicated, nbbo governs quotes but there are a few other things that affect your actual trade price such as exchange fees and price improvement.

For example, every exchange can have the same quote, but a different liquidity fee.

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.

That outrageous $5-10 probably helps the average person make money in the long run by not overtrading.

depends, how big is the spread?

The spread is generally on the order of a cent.

The same as literally any other brokerage.

Web / desktop version is out in the beta. You can signup to get on the waitlist here: https://robinhood.com/#web

You already have a desktop version of Robinhood available as an open source - http://bit.ly/2FJXl7b

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

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.

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.

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.

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

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

They are badly needed in Europe.

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.

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.

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

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"

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

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.

For the end user it’s an app

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

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

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

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

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

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.

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.

The interface looks pretty attractive

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

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

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.

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