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Robinhood launches 3% checking account (techcrunch.com)
972 points by ccwilson10 5 months ago | hide | past | web | favorite | 661 comments

For folks trying to understand this, some context which may be useful:

Checking accounts are loss leaders virtually everywhere, the exception being smaller community banks. Their primary revenue stream was, once upon a time, net interest income, but these days due to the extremely low interest environment and alternate sources of funding the revenue stream is more weighted towards fees (primarily NSFs, although that was hit a few years ago) and debit card interchange.

Robinhood also likely expects to not become the park-your-money account of choice for older dentists but rather to become the spend-your-money account for their millennial userbase. With high velocity of money and low balances the interest expense is minimal and, to the extent they use debit cards, the interchange revenue can be material. (In a stylized example where someone makes $2k a month and spends $200 on debit card purchases and $1.8k on rent/etc the interest cost for the year is ~$30 and the debit card interchange for the year is ~$60, even ignoring potential interest revenue.)

This is roughly in the same line as their core strategy, which is spending what would otherwise be a marketing budget on keeping commissions at zero, making money on the other ways brokerages make money. If you do not understand how a brokerage makes money, I encourage you to peruse the annual reports of e.g. eTrade or TD Ameritrade, which will happily explain their revenue sources and why commissions are a surprisingly small portion.

Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"

> Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"

reminds me of the first time i interviewed at google, and one of the interviewers asked "if you could set up your own project and get a team to work on it, what would you do?". i answered that i would get a bunch of maths phds together and have them work out graph-theoretic ways of detecting link farms (this was 2004, and i had actually been wondering for a while why google hadn't done exactly that).

the interviewer (who was a pretty senior person) asked "why do you think the spammers don't have their own phd mathematicians to defeat such measures?". i was only a few years out of grad school at the time, and it was honestly the first time i thought about the fact that people who were both smart and educated might nonetheless go into a shady and declasse activity like running spam sites. i consider it a valuable lesson to this day.

Geeks can and do outmath financial firms and even bookmakers and casinos.

The financial firm, bookmaker and casino just needs to outmath the 99.9% of customers who are not trying to beat them to win, and evict the 0.01% of customers whose outmathing is so good it is causing them problems.

Sure, but not with a 4-second calculation based on a news headline. That's the larger point here.

Exactly. Counting cards at the blackjack table in Vegas isn't illegal, but they won't let you play after they figure out that you are. You can can beat the bookmakers, but once you do, you either get cut off or you only get offered odds with more juice.

How much are you willing to gamble on the prospect that you're in the top 0.1%? And before you answer, consider that you haven't been evicted so you're obviously not in the top 0.01%.

With all due respect, I’m going to go out on a limb and assume you aren’t that geek since 99.9 + 0.01 != 100.

With all due respect, those numbers are on purpose, i.e.:

99.9% of customers who are not trying to beat them to win

0.01% of customers whose outmathing is so good it is causing them problems.

The rest are customers who are outmathing them, but not enough to cause them problems. And by problems I mean problems worth spending their time on.

>> people who were both smart and educated might nonetheless go into a shady and declasse activity like running spam sites.

The crooks I've met have been the smartest and most insightful people I've met in tech. I know one guy who, after years with a CC scam operations when to work for an online merchant. His knowledge of payment systems and payment processor policies was encyclopedic. The big issue was whether he was trustworthy. Lucky he had never been convicted of anything.

For every criminal savant there's probably at least 10 script kiddies exploiting older people, prostitutes, and every other vulnerable group imaginable.

I’ve never imagined link farms to be so profitable an enterprise that they could afford a team of phds and come out ahead; but if they could, then its an arm race, and google would be at a much greater disadvantaged if they didn’t have their own.

Thus, your response should have been: link farms with their own phds is only more reason to instantiate your plan

>I’ve never imagined link farms to be so profitable an enterprise that they could afford a team of phds and come out ahead; but if they could, then its an arm race, and google would be at a much greater disadvantaged if they didn’t have their own.

Go on a blackhat SEO forum. Look at the number of sellers, the number of listings, the number of positive feedback and the cost of some packages (you can easily go on and spend 50$ or a 1000$+ for a single package). There's a LOT of money in blackhat SEO. That's just the people offering to do it for you.

Then look at the dozens of software packages for sell that are constantly being updated and have both one-time fees and ongoing subscription pricing.

Then go look at the people selling just various social media accounts which mass-creation of gets harder and harder.

Then there's people that sell VPS access. They'll buy the software tools and host them all on a VPS and rent to you weekly or monthly so you can shell out tens of dollars or hundreds of dollars a month instead of needing to cough up thousands just to get all of the software for the month.

And that's just what's readily available with paypal or a credit card on the clearnet.

A good answer is, "well yeah, I suppose they probably do have them, but that doesn't mean we should just give up."

It’s this kind of sharing that makes HN so valuable.

I never would have thought about the shady side had you not told this story. Makes me start to wonder what else I’m missing...

So did you get the job?

sadly no, though I did the second time around

Why would they expect this account to be used as a high-velocity, low-balance account rather than a park-your-savings account, given the rate?

I agree that the high rate is reasonable in that scenario, but the high rate is also actively fighting to ensure that scenario doesn’t happen.

I don’t see people here thinking that Robinhood is bad at math. They’re all asking, “what’s the catch?” Because it sure seems like there must be one.

I assume they're trying to break the inertia people have with major banks. There's no reason to change bank unless there's some substantial incentive like favorable interest rate to offset the hassle involved. I'm not sure there's an ulterior motive here other than customer acquisition.

Agreed, they are trying to buy customers, if it turns out that they can't convert these customers into traders they will lower the rate to a breakeven amount and not care if they lose those accounts.

Perhaps true, there's been an opening for a 'cool' millennial-oriented financial institution for a while now, so perhaps fewer customers will drop off than expected.

... I can't remember but there was one I used at some time that was like that. Had a weird spirograph logo and a cardboard motif on their site. There were a few others.

Which should tell you a lot. I've been through the "Millennial Bank" wringer.

Honestly, checking accounts are all the same. Especially because I use a credit card paid in full every month. It's a holding pool till next month's CC bill is due. Until the US treats debit cards with the same protections as credit, I won't let my debit card near a gas pump or wander off with a waiter or be used online.

I don't know that there's an opening really. That so-called opening keeps popping up since like 2005 and gets "filled" by a SV-backed MVNO-For-Banking and it's just........a checking account provided by some.other actual bank repackaged with a (nice) angular front end and on the AllPoint ATM network with crappy chat customer support.

Simple bank. They’re based out of portland. I use them. They’re pretty good and have great support. Also $1 out of country withdrawal fee which is nice.

Seems like a weak market to go after, given that people likely to respond to a "cool" financial services brand may be a poorer demographic that maybe doesn't have any prior experience with "legacy" financial services providers. So just because they create accounts @3% doesn't mean they'll also open trading accounts.

> So just because they create accounts @3% doesn't mean they'll also open trading accounts.

From the Robinhood website fine print “Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account.”

So, yes, opening a Robinhood Checking & Savings account does mean that they will open a trading account, because they aren't actually different accounts. (And it's a waitlisted feature where you get moved up the waitlisted by referring others to RobinHood, so it's a clear way of getting the overall service in front of more users.)

Millennials may not have money now, but they'll accumulate more wealth as they get older. If you can convert them now, the friction to changing again is high enough that you'll probably still have them when they're worth something.

That's a good point. A friend of mine in medical school told me that banks are itching to give loans to broke med school students because they know building the relationship now is going to pay dividends when the now-broke student becomes a doctor looking to buy a new car or new house.

Yep that's a good play, but their page says that the 3% can change depending on the market. So if that percent changes a few months after you create an account, I would bet many people would leave cause of the bait and switch.

And many won't leave, because many of us are lazy.

> Seems like a weak market to go after, given that people likely to respond to a "cool" financial services brand may be a poorer demographic that maybe doesn't have any prior experience with "legacy" financial services providers.

Yeah but people do grow up. And I don't know about you, but I've got some super long term relationships with some banks. They are in it for the long game.

I find legacy banks a nuisance. They're always trying to get me to come into a bank branch.

Huh. I don't have much of a problem going in to a bank branch, given that there's one every half mile. A quick in-person meeting is fine compared to the shitstorm of unusable menus and nearly unintelligible communication that is calling your bank on a cell phone.

(I mean it would be great if there were a bank that did all its customer service over text chat, but that's too much to ask for, right?)

I'd prefer a usable website in addition to guarantees of prudence in investing the money. My $ for both. If Robinhood replaced SIPC with something as credible, I'd go for it. They could probably do it with US Treasuries and bonds from Google, Apple, Facebook, etc.

Well, they’re trying, with chatbots

And I’d really wish they’d just stop

I've used a legacy bank since the credit union I used in college slammed me with a wall of fees.

The branches have only been to my benefit, never really required, just faster.

Poor now, wealthier once they have brand loyalty.

> there's been an opening for a 'cool' millennial-oriented financial institution for a while now

I think Simple was supposed to be that. I wonder how they'll respond to this, given that they only recently moved to 2% ($2k minimum).

Judging by their recent activity, Simple won't respond well at all. They've been in a downward spiral for the past few years post-acquisition by BBVA. All the original founders have left amidst a revolving door of executives, and the company has struggled to launch new products and innovate beyond their initial budget features.

Is that (this akin to) what Paypal did in the early days with their money market accounts?

Right, but that incentive is only substantial if you’re going to park a lot of money there, which is exactly the sort of customer they don’t want according to the comment I replied to.

I'll move my ~$100K emergency fund into there just to get free money. And move it out somewhere else when the rates change. Over the years I've moved accounts between Dollar Savings, Emigrant, Orange, Ally, and probably 2 or 3 others...

Would you really move your emergency funds into a less secure more likely problematic service though?

I would have to read up on the transfer times. If it's reasonably standard (2-3 days) and doesn't have any daily limits, then yes. It's a US company, FINRA approved, SIPC insured, so the risk is minimal.

SIPC says they don't think they have to insure this.


Not to make you feel bad, but at $150k/year salary (average in SV) one should be able to save $100k within 5 years, with little impact on quality of life.

It wasn't meant to be. I'm in my early 40's. I just saved and invested a bit each year.

They may be playing this on two sides: the more obvious one which is acquiring customers to feed their trading business, and simply trying to evolve into a financial institution, which should bolster their valuation in their inevitable IPO in 2019 or 2020. Their backers might be content to burn money for a year or so to get a larger multiplier at some point in the future.

They might be able to actually make a profit off the float in this case, too

Or maybe they're going to be able to sell people's transaction histories...

> Right, but that incentive is only substantial if you’re going to park a lot of money there,

You are assuming that customers make this decision rationally; marketing very often leverages the fact that humans very often don't do that.

> There's no reason to change bank unless there's some substantial incentive

Or you bank at Wells Fargo or some other institution whose corrupt practices spill out into public.

here the catch, I believe: 1. it's ensured by SIPC, not FDIC, so it's not as safe. 2. They're going to lower that 3% rate down whatever all the other banks are at (2%) in a couple of years, unless the interest rates catch up to their higher rate, which they are expected to do in about 2 to 3 years: at that time, 3% will be roughly the norm for the highest interest savings accounts.

I remember the days when Citibank would give out 4% interest about a decade ago. now of course, it's about 0%. It's just classic bait and switch.

> I remember the days when Citibank would give out 4% interest about a decade ago. now of course, it's about 0%. It's just classic bait and switch.

That's not a bait in switch, interest rates plummeted globally to the point a lot of people were happy to even get 0%!

Cash balances ensured by SIPC are safe to the coverage amount. 100% safe actually.

I’m sure they said that about Cyprus and Iceland too.

As far as I can tell, the coverage amount of 100,000 euros was respected in these cases, probably precisely to avoid doubts like that about the safety of deposits.

The UK and Dutch depositors in the Icelandic banks got bailed out by the UK and Dutch taxpayer.

Iceland's government/deposit insurance did not pull through.

Cyprus wasn't much different either.



Your first link doesn't mention the insurance amount at all, the second only talks about deposits beyond the 100,000 euro limit and apparently British customers got an even better deal with the higher limit of £85,000.

If the SPIC fails to cover the cash balances to the coverage limits, the financial world as we know it stopped existing.

This are cash balances, not money market funds or any other funds.

Apparently the president of the SIPC stated that Robinhood didn't contact the SIPC before making their announcement. The SIPC president Stephen Harbeck is on record saying that "SIPC protects cash that is deposited with a brokerage firm for one limited purpose... the purpose of purchasing securities. Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose."

He later stated that the SEC would need to take the lead on clarifying the matter though.

I have a one-year emergency fund with Robinhood that is invested in index funds (secondary emergency fund as the primary emergency fund is in cash). I think I'll keep my primary emergency fund in the PNC high yield savings account for now until all that gets worked out.

Bloomberg says it's a money market account. https://www.bloomberg.com/opinion/articles/2018-12-13/robinh...

Robinhood's checking page says "Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account."

I have not dug thought this specific offering but here is how it works in general it works this way:

Account has 3 parts:

1. Marketable securities -- value is NOT insured.

2. Cash on hand -- value IS ensured.

3. Money market fund -- value is NOT insured.

(3) may or may not be offered and if (3) is offered it has to be elected by the account holder. Money cannot flow from (1) to (3) or from (3) to (1) bypassing (2) due to securities regulations -- one cannot pay for one security with another security, a settled cash must be used.

If the APY is on (2) they will get killed by the fatwallet/slickdeals crowd. If the APY is on (3) it is more complicated but debit/check transactions against (3) are very expensive to clear so I don't quite see what the play is.

> It's just classic bait and switch.

Are you unaware that interest rates today are drastically different than a decade ago?

The Federal funds rate is currently 2.00-2.25%.

A decade ago, the rate was 1.00%. (And three days later, it was 0.00-0.25%.)

all the other top savings accounts are currently 2% to 2.2%. i think they are not going to maintain that lead.

At this time it is not insured. The SIPC openly stated this.

The product is already being renamed as a "money management fund"

The danger for the user is that the $10k or $100k they store there may be ripe for {$urgent FOMO} buy.

So Robinhood wants users to have their cash on hand ready to jump into the market. Will be too tempting to many.

>Why would they expect this account to be used as a high-velocity, low-balance account rather than a park-your-savings account, given the rate?

Think of it like being a health insurance salesman who puts your office at the top of a long flights of stairs. You can have a lower risk pool because the only clients who come to see you are the ones who can climb a bunch of stairs to get there.

In other words, they advertise to a user-base that doesn't have much in the way of savings so they're avoiding people who would keep high balances anyway.

Besides, most people who do have large balances tend to park them in money market funds anyway. They can usually hit between 2% to 3% annually and offer more flexibility in terms of being able to access the money without transferring balances around. Alternatively they'll be putting it in tax-deferred accounts.

If you have enough money coming in that you can accrue a lot of savings, a savings account isn't the most productive place to put it. It should be regarded as more of a rainy day fund or a place to park money that you're saving up for something specific, like a down payment.

I'm a millennial, and the target market for this sort of product.

1. I don't care about physical branches, I've been using online banking from the beginning. 2. I am at a stage in my life where I am slowly paying back all my debts and making just enough to set some cash aside every paycheck.

I don't have enough money to go looking at financial instruments such as money market funds or CD's, because they tend to lock my money up for a certain period of time.

I still need to be liquid. Some place where I can make 3% and have it just sit is fine for me, and allows me to access it in case of an emergency without paying fines or penalties for doing so, and with less hassle than some other financial instruments where it is locked up.

Once I have a buffer built up, and I feel comfortable with that buffer, maybe then I'll start looking at other places to potentially let my money make more money faster with a little higher risk and with less liquidity.

I’m sure a lot of people might start out that way. But if you get free money for parking your cash there, why not use that money to dabble in some trading? Seems like there is little downside for the company, and potential for upside for the consumer. Pretty good acquisition strategy, in my opinion.

Alternatively: If you get free money for parking your cash there, why risk that money by trading?

3% guaranteed earnings is a very good deal without any downside, while the risks involved with trading that money are substantial.

>while the risks involved with trading that money are substantial.

Also, presumably lots of people would rather put their beautiful minds towards things other than being anxious about how their savings are going. There is a lot to be said for just being able to park your money somewhere and not have to worry about it while you go live your life.

Most people won't think like that though, especially the millennial target customer who has the time to gamble money, rather than necessarily needing to save for retirement. Currently Robinhood takes three days to transfer funds, so reducing that friction, when customers make impulse decisions when they see that the stock is going up, is paramount. Why wait a few days when the money is already there? This is the benefit of vertical integration.

That's higher than index funds returns as of late.

Holding cash had higher returns than index funds over the last 6 months. That's not a high bar when the market is going down. VTI is below where it was 12 months ago.

I bought a decent chunk of VTI @ 133.00 this week, glad I had some roth contributions left


Their treasury approach is probably very risky.

Usually you want to build a tractor (recurring deposits to a reference rate) at the 7 or 10 year treasury, to ensure that you have a stable supply of available deposits, and a short term rate too to handle "hot money".

You make money on the spread.

I really don't see how they are funding their interest rate.

Margin lending?

No one knows what Robinhood will do, but no bank can promise a perpetual 3% rate. The rate is probably a teaser. Even if it is perpetual, it may be "on the first $10,000, with a minuscule rate on larger sums...something that allows them to advertise 3% but offer much less on larger sums.

Kind of funny but I remember 3% rate being kind of normal for a checking account in the early 90s. Of course inflation and Fed was higher back then too.

What I don't understand is those people who willingly park their money in CDs at under 1% and the banks proudly advertising these rates.

This era of seemingly permanent low(or even negative) rates just somehow seem unnatural.

What happened to banker's 6-3-3 rule? "Lend at 6%, borrow at 3% and go golfing at 3:00PM"

> What happened to banker's 6-3-3 rule? "Lend at 6%, borrow at 3% and go golfing at 3:00PM"

The Bretton Woods agreement ended.

> No one knows what Robinhood will do, but no bank can promise a perpetual 3% rate.

It's not too crazy, rates have gone up a ton without most bank accounts adjusting from being near 0%. The 10-year is currently just under 3% with the whole curve being really flat and lots of online banks offer over 2%. I currently get 2.05% with my Marcus account and Goldman Sachs isn't exactly known for giving things away (and with 3 month t-bills paying 2.41% they certainly aren't giving anything away!).

Their FAQ states no caps, though it can vary depending on what the fed does with rates.

With the current 2 year treasury being 2.76%, they must making money on fees. I am seriously considering moving my savings from a Capital One money market account that earns 2% to this that earns 3%. That extra percent is decently significant.

You should look into their recent problems. Locking option traders out of their accounts ( potentially millions lost)

They have no customer service and a decently easy collection of horror stories related to their lack of customer service.

The catch is soon there will be a maximum balance or activity requirement, or something to that effect, all of which are not contradicted by their PR sheet. It's otherwise utterly unsustainable.

> geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"

Moviepass was also bought by a financial firm... Come to think of it, they have many similarities. Both companies are basically handing out free money and it's unclear how they would make any profit. People speculate that both companies would make money by "selling data." Unless if Robinhood is doing something very illegal, there is no way that they could make enough money that way.

That said, I do think that Robinhood knows what they're doing. They're getting a lot of publicity right now. In the worst case scenario, Robinhood can cut costs by slashing interest rates and putting a cap on the number of free trades you can do. Their worth would plummet, but later investors would be the ones who pay that price. Overall, Robinhood would still be better off.

Moviepass was bought by what is, primarily, an analytics firm. Though apparently so is Robinhood.


That's not "analytics"; that's order internalization, something almost every retail brokerage does†, both because they get paid to do it and because it improves outcomes for their customers.

You could argue either way about whether IB gets paid to "internalize" orders or whether the order flow rebates they get are something else.

This article implies for example that on a $10,000 trade that Robinhood would be compensated $0.80 (0.00008 per $1 of trade). That seems pretty modest.

Moviepass also wrongly assumed they had greater leverage with theaters. Turns out moviepass is still small beans compared to normal moviegoers.

If they had been able to work out a profit share off concessions and cheaper tickets with AMC/Cinemark/Regal/etc they might be in a different setting right now.

Robinhood doesn't make money on commissions, but they do make money with payment for order flow [1]. So they wouldn't want to put a cap on the number of trades you can make.

[1] https://www.investopedia.com/terms/p/paymentoforderflow.asp

With transaction fees alone, there's plenty of room to make money. A huge chunk of the population doesn't have money parked in savings/investment and literally spends nearly all of what they have coming in. Especially in younger/millennial targets.

Robinhood makes their revenue on rebate fees, it’s not illegal but considered shady by some people. Ordinary brokers generally don’t do that (although some might).

Robinhood sells order flow, profiting off of its users with exclusive agreements with high-frequency traders

It's also a way they can secure their loans. It's the exact same reason Capital One has bank accounts along with their credit card business (and Amex doesn't). Getting credit on the open market is expensive, by getting you to sign up with your bank account, they can leverage it to get cheaper loans for buying stocks (i.e. margin accounts). Capital One targets lower income people, so it's riskier and more vulnerable to fluctuations in market conditions. Amex in contrast, targets higher income individuals so fluctuations impact then less. This they can get away not holding bank accounts and securing credit elsewhere.

This means if there's a downturn in the market, they won't go bankrupt due to all the outstanding margin accounts (or have to do margin calls).

Perhaps true in the past, but AmEx has recently (I think?) started offering bank accounts. Their high-yield savings account is 2%, which is pretty comparable to Ally, etc.


American Express Bank has been around for at least 2-3 years.

In the world of banking, thats "started" to me.

I believe AmEx started their savings accounts at the same time or very shortly after converting to a bank holding company during the 2008 crisis.

Commercial banks also have access to the Fed discount window, which other institutions do not. This is one reason all the big investment banks converted to bank holding companies during the financial crisis.

In answer to your metacomment. The financial crisis is a strong indication that, yes financial firms can be terrible at math. Luckily, they have friends who can bail them out with taxpayer money when they fail at math.

Was that them being terrible at math, or them covering their eyes and singing "lalalala" to pretend the math didn't exist?

Was that them being terrible at math, or them knowing that they were selling overpriced goods (00's houses, 90's tech stocks, probably college degrees) to folks who didn't know the math?

Big Finance knew it was hustling rubes, and then was able to ride the Gub'mnt Gravy Train when it became unsustainable.

That distinction is irrelevant to the current discussion if the outcome of both scenarios is 'unmathy'

If they ignore the math for whatever reason I would call that being bad at math.

plenty were personally enriched. the personal financials checked out from all angles.

The financial crisis was not a result of bad mathematics. Investments are made because they promise to return dividends. But there is always a chance that they might return lower than expected dividends, or none at all. This can be because the market didn't grow as expected, wages rose above expectations, a tsunami wiped out your factory or an array of other factors completely beyond your control. The best mathematicians in the world cannot predict how many coca cola bottles will be sold in a year.

Not so! One can indeed defend the claim that poor mathematical modeling of the statistical properties of collateralized debt obligations (CDOs) was the underlying cause of the bottom falling out of that market.

In brief, models were constructed of the complex behaviors of packages of loans - CDOs. These models, trained under benign market conditions, did not account adequately for correlations that might make all their component loans default at once.

You can elaborate the story with a lot of context and granular detail, but the core of the crisis did have a strong element of "bad mathematics" -- bad mathematical modeling.

For more, see: https://www.maths.ox.ac.uk/system/files/attachments/1000332....

and references therein.

Your point directly contradicts the conclusions of the paper you linked.

The paper concludes that while there were deficiencies with the modelling method (as there are with any model), input manipulation was at greater fault than inherent failures of the model itself.

"These results support the arguments of Donnelly & Embrechts[4] and Mackenzie & Spears[12], that Li and the Gaussian copula were not to blame for the Crisis...Instead it appears that the gaming of the model beyond its original assumptions, the outsourcing of CDO risk management to credit rating agencies, and the failure to perform holistic risk assessment seem far more to blame."

"The simulation results in this paper show that it is more important to focus on parameter estimation than copula choice. This leads to the observation that when it comes to mathematical financial modelling: in order to avoid a disaster, the cooking is more important than the recipe."

The paper is pointing at one aspect of the modeling (estimating the covariances of the copula), versus another aspect (the copula concept itself). That’s a detail that was very important to the author of the paper, but not to my point.

My point is that mathematical models were indeed being used and followed in this case, and that the issue really was with overextension of the model, and not just generic volatility of any market, as claimed by the GP comment.

Completely agree that the crisis wasn't caused by generic volatility, but any mathematical limitations pale in comparison to the human failure of manipulating ratings due to a conflict of interest caused by private rating agencies. That is what the paper you linked concludes, versus your initial claim:

>poor mathematical modeling of the statistical properties of collateralized debt obligations (CDOs) was the underlying cause of the bottom falling out of that market.

The model is hardly to blame when falsified inputs yield poor results.

I'm choosing to include "protocols for setting parameters for the mathematical model" into the "mathematical modeling" line item - please note that is the phrase I used, twice.

I'm not "blaming the model" - probably everyone recognizes that all models have limits.

I call your attention again to the point of my original comment - the GGP comment was claiming that the best mathematicians in the world could not have foreseen the kind of conditions that caused the 2008 market failure. I'm arguing that it was possible, and that it was clear (mostly in retrospect) that the model assumptions were being violated most promiscuously.

In fact, the real reason I chimed in is that I think this crisis was a really awesome example of the power that quite abstract mathematical constructs have over our lives. I felt that point was missed in the generic comment about "who could have known" that kicked this thread off, and I sort of wanted to rescue that underlying mathematical issue.

You are framing it as an exercise in foreseen likelihoods and the pill falling on red rather than black in 2008, but there are many counterexamples that say that is not the whole story. Read the Black Swan, or watch Margin Call, for example.

  Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"
Ah yes, because as 2000, 2008, and 2019 have shown us, financial firms are infallible when it comes to maths and economics.

2000/2008 didn't happen because someone did basic accounting math incorrectly.

I think you could argue that the rating agencies did the math incorrectly, at least in 2008.

They did the math correctly, it was just different math than what they were supposed to be using.

The incorrect ratings were intentional and designed to look like they were correct so that no one would find out. It's easier to make sure no one finds out the number is wrong if you know what the correct number is and how to tweak factors here and there to influence it.

This was an incentives issue. They were paid by the companies they rate. So in order to not lose market share they had to certify junk.

I would argue that they happened exactly because the brokers who made up those financial institutions understood the math perfectly well: They make huge commissions on CDO and other deals. They sell the bad debt to some other shmuck and walk away with cash in their pocket and someone else holding the risk.

That's why it keeps happening. They get rich and get away with it every time.

At least 2008 had nothing to do with being good or bad at math. In fact, it kind of happened because of some rather fancy math. This article has been posted on HN multiple times:


I would call misapplying mathematical tools being bad at math personally. If you said that because you are intergrating revenue back into investments and are showing nx growth you'll get quadratic growth in exchange for cutting growth in half I would call that being bad at math. An uncommon form of it but still bad due to it being a clear failure to model the underlying domain. They did the same thing really by not taking common cause failures into account at all, thinking one can build low risk out of high risks, and more that an ounce of critical thinking could have saved them from.

I think that's a pretty broad definition that wouldn't find much support. I think the words you used later, "critical thinking" or lack thereof, are much more apt.

> Ah yes, because as 2000, 2008, and 2019 have shown us

Were you trying to sneak in a comment about an impending explosion? :)

Also, if you've read any of the stories about digitization in financial firms, they are totally incapable of hiring their own geeks because it would displace very, very rich people who would have to do the hiring.

Do you have a link to any of those stories? My experience with financial firms is completely contrary to what you're saying here.

Those examples happened because of people with the wrong incentives doing math correctly, not because of anyone doing math incorrectly.


> Are financial firms likely to be bad at math?

No. But you don't have to be bad at maths to play exploitably.

Many years ago now I was a hand-to-mouth graduate student. New credit card companies wanted to attract customers so they offered an easy approval card with 0% finance for 18 months. Need to use some of your new credit on existing debts? Rather than figure out all the specifics they just included a cheque book with the product, just write a cheque to pay any debts and it goes on your 0% balance.

Everybody I knew took out a card, write the full credit amount on a cheque, paid it into a fixed term savings account.

Account term ends, you pay off the 0% card, keep the interest, cut the card in half and you're done. Free money.

The people who ran those new card companies knew this might happen, they just didn't guess it would happen often enough to ruin them. Not our problem. A few years later the deals on offer explicitly did not have a way to cash out. Lesson learned.

>their core strategy, which is spending what would otherwise be a marketing budget on keeping commissions at zero, making money on the other ways

"Making money others ways" aka stripping their clients of financial privacy by selling their clients' investment-decision data: "Robinhood Is Making Millions Selling Out Their Millennial Customers To High-Frequency Traders"[1] If your investment brokerage firm's strategy is to use you as a sucker, no marginal gain in interest rate is worth it.


Yes HFT buys trade flow from robin hood because they make more money executing against it but that's not actually to the detriment of the people on the robin hood app. The main way HFT firms make money is by making a market, they offer to buy and sell stocks cheaper than anyone else and get paid by people crossing the spread and sometimes exchange fees. The reason robinhood trade flow is valuable to HFT firms Isn't because they are trading against "dumb" millennials but because they know millennials aren't likely to move the market playing around on their smartphone. HFT firms can collect a small rent sitting in between millenials trading with one another without the risk of being on the wrong side of a trade that materially moves the price of a stock.

Matt Levine does great write ups on this stuff, would highly recommend: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...

The stock market is a zero sum game. If HFTs are making money then someone else's is losing it. The other traders who's trades are closest are the most likely losers. HFTs will tell you what a great liquidity service they provide but they are doing nothing more than using the equivalent of insider information to skim the cream off the top.

This is a facile analysis. If you believe HFT internalizers are taking money from retail traders, try to outline the series of orders that results in money from the retail trader's pocket going into the HFT's pocket, and precisely how the retail trader could have made that same money on their own.

The reality is that market makers price non-retail flow more conservatively (ie: costing traders more) because they have to anticipate informed large block trades wiping them out. Since they don't have to do that for retail flow, their cost basis for those trades is lower, and they can (and do) split the proceeds of that reduced cost with brokerages.

It's overwhelmingly likely that any other brokerage you use does the same thing, and simply doesn't tell you or pass any of those savings on to you.

>The stock market is a zero sum game. If HFTs are making money then someone else's is losing it.

But who's that "someone else"? It's not the robinhood customer, because they're getting at least the best price on NMS[1]. So what's the issue? Would you rather pay $10/trade so your trade gets posted directly to the exchange and the profit goes to some random investment bank or daytrader rather than the HFT firm?

[1] https://en.wikipedia.org/wiki/Payment_for_order_flow#Legalit...

NMS regulations do not apply to "odd lots" (orders <100 shares). This likely constitutes 99.9999999999% of trades done on Robinhood (and most retail trading, to be fair).

In 2018 people like to scream about “selling their data” way too much.

In 2018 I'm still not being paid for my data.

The stock market is not a zero sum game. I don't know where people get this idea that because every transaction involves two sides, the sum is therefore zero. Every transaction in the "real economy" also has two sides, and we all know that grows. The stock market grows too. There are even indexes to track how well it is growing.

The “real economy” runs on a fiat (inflating) currency system that is effectively not zero sum. The stock market is a closed system that currencies feed into - at the end of the day it’s still a measure of a fixed amount of value and thus zero sum.

> The stock market is a closed system that currencies feed into

Currencies feed into the stock market, but it's not a closed system. If you think a company is undervalued in the stock market, and you buy shares, that raises the price of shares for that company. With a higher share price, that company can borrow money (by issuing shares) at better terms, and spend that money on growing more than they could have if they had not borrowed that money.

If the stock price is too low, the company may buy back shares of its own stock (thus enabling future borrowing). Alternatively, investors may buy up a majority of the stock of that company, thus acquiring control of that company, and either try to force the company to do a thing they expect to be profitable, or liquidate the assets of the company (which will then be distributed to shareholders in proportion to how many shares they hold).

So basically the stock market moves money to the companies based on how effectively they could spend borrowed money / how valuable they would be if liquidated.

Currency is a tool for measuring economic value, it's not the basis of economic value.

This is why fiat currencies are so useful: you can change the length of the "ruler" to accommodate changes in the thing you're measuring, so the value of the increment remains stable.

No, companies create excess value and grow. Tesla pre Model 3 is a very different company than Tesla post Model 3. A drug company is very different if they've patented a new wonder drug. New companies come into existence and offer shares via an IPO.

Investing in the stock market is literally investing in the collective appreciation of the value of the companies that make up it.

But there's stocks on the other side that represent real things that increase in value. E.g, compare Google 20 years ago with Google today and see if you think it's more valuable.

Stocks are not zero sum. In theory, their value is based on future income. Information about the future is what most affects stock prices, because it changes expectations around future income. Even with no transactions in a stock, offer price can continue to rise because of these expectations, and it represents real increase in wealth to people who own the stock, no transactions necessary. When offer price rises enough to tempt someone to sell then you have an estimate of the market value.

But the zeroes that the HFTs are taking is from the old-line manual market makers, not sellers or buyers.

Here is my understanding. Let a<b<c be small numbers. Some investor thinks a stock is worth x+c. They put in a limit buy order at x. Some HFT firm sees this and thinks well if they want it at x, I want it at x, and puts in their own order at x (+a fees to robin hood). Millenial comes and wants to sell their stock.

Normally the investor would get the stock since they placed their order first. But since the HFT firm is paying for the order they get it instead. If things go well the HFT firm can sell to the investor at x+b, if things go poorly they cut their losses and sell at x.

The investor that didn't get the order and has to buy it from the HFT firm at x+b is the loser.

The money that funds this dance comes from the millennial who sold a stock worth x+c at x, but that would have happened regardless.

I can't speak to the accuracy of your claim, but Matt Levine recently wrote about another factor, payment for order flow [0]:

>They want to buy stock for $99.99 and sell it at $100.01 and clip two cents on each trade. If their orders are random—if sometimes people buy and sometimes they sell, with no pattern—then that works out well for the market makers. But their big risk is what they call “adverse selection”: Sometimes, when a customer buys 100 shares at $100.01, it then buys another 100 shares at $100.02, and another 100 shares at $100.03, and keeps going until it has bought 10,000 shares and pushed the price up dramatically. The market maker who sold it the first 100 shares—and who is probably now short and needs to go out and buy those shares at a higher price—has been run over.

>[...] [I]f a market maker can guarantee that it will only interact with retail customers—if it can filter out big orders from institutional investors—then its risk of adverse selection goes way down. The way the market maker does this is by paying retail brokers to send it their order flow, and promising those brokers that it will execute their orders better* than the public markets would. [...] It can offer a tighter spread than the public markets—and have money left over to pay the retail brokers—because it doesn’t have to worry about adverse selection. If the retail broker is, say, one designed to let young people day-trade for free on their phones, then those orders are probably particularly valuable, because they are probably particularly random.*

[0] https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...

That's not true. When Robinhood (or any other retail broker) sends orders to a 3rd party to be filled, there is no way for that 3rd party to see who is sending the order other than it's coming from Robinhood. Robinhood maintains their own book customer orders; the FIX protocol that the orders are coded in doesn't even support that kind of granular info.

There are valid criticisms of payment for order flow but privacy isn't one of them.

Aren't all orders eventually public anyway? I get that the liquidity that "market makers" claim to create is not really that beneficial to society, but as long as you're not trying to use robinhood to compete with the high speed traders, I don't see a problem with it.

Not doing so or at least in a condescended form is kind of operating a fraudulent exchange. It is kosher to bundle 50 buy orders of 1 stock into 1 order or visa versa - get a bunch of little orders that adds up to a cheaper option. If it doesn't work out refund and inform that it failed to go through. If they asked for 1 share at $25 and you legitimately give it to them it isn't fraud. It is another to say "buy" Tesla shares for people when you really shovel it into another investment and work out what they owe when you think they will just go bankrupt and Theranos is the way of thw future....

> Aren't all orders eventually public anyway?

no. most orders are not executed on the public exchanges, but by internal matching via your broker and a market maker. (also most exchanges only support trades in multiples of 100 shares.)

Exchanges handle odd lot orders nowadays. Maybe some brokers or dark pools do not, but they are not exchanges (their quote is not protected, or they show no quote).

I believe all customer trades/executions on actual securities should eventually be publicly visible, though there may be a small delay for them to "print to the tape".

All the big banks and Visa and MasterCard sell your transaction data to marketers.

That's an extremely poor article. Anyone can throw a hot take on SeekingAlpha; that doesn't mean their take is worth anything.

1. I don't know why the title mentions "millenial" customers in particular, because every brokerage does this across all demographics,

2. This activity is not "selling out" customers. If you believe that customers are "suckers" because their order flow is sold to high frequency traders, you have a very fundamental misconception about high frequency trading and its role in market making,

3. There is no codified definition of, or law protecting, "financial privacy" in the sense of order flow. This data isn't connected to you as an individual, just as you can't see which individuals or companies are placing bids and asks in the order book just because you can see the amounts and prices. All trades in the market are publicly reported regardless of whether or not your order flow is sold.

It never ceases to amaze me how the term "high frequency trading" can compel people to pontificate about things they clearly don't understand. You'd think we'd have collectively moved on from the Flash Boys misconceptions by now. Yet here we are, with an article talking about high frequency traders as some kind of financial boogeyman in 2018.

privacy has nothing to do with it as all trades are reported anyway.

Why does everyone keep referring to checking accounts as "loss leaders"? They are more like "income leaders" - the banks are funding themselves at basically 0% and then earning the spread on whatever they invest in....

The banks incur lots of operational expenses processing transactions, paying for an ATM network, handling customer support calls, dealing with fraud, etc.

That is nothing compared to interest expense on CD's or other interest bearing accounts. Checking accounts are one of the most attractive sources of funding for banks (notwithstanding maturity mismatch).

+100%, deposits are the cheapest and most reliable source of funding. no comparison to wholesale funding by a large stretch - anyone ever heard of Northern Rock?

But also, worth asking oneself "Are search engine companies likely to be bad at searching?" and "If geeks could make a search engine, is a $50 million revenue search engine company incapable of hiring their own geeks?"

Checking accounts are loss leaders for the big banks(10 billion in deposits or more) because of the Durbin amendment which caps interchange rates of debit cards to 0.05% compared to exempt debit cards which rate is around 1.5%.

(Hijacking top comment for visibility)

Why/how is Robinhood now showing how far along I am compared to my friends on the waitlist? I dont believe I ever enabled any social sharing, and Robinhood's access to my contacts is shut off.

I do not feel comfortable sharing (and especially not broadcasting!) my financial decisions with people I am connected to on social media. This is pretty upsetting to me.

1 - I have no specific information

2 - just because you didn't share doesn't mean your friends didn't

Another thing to remember is they can change the rates later and many people will leave their money there anyway.

Source: I still have some money in a ~0% online savings account that I opened because it was 5% at the time.

Still, 3% is not just a little loss, it's a big loss. This is into the low end of the reward checking range which comes with lots of strings attached. It doesn't matter if they think they're targeting millenials, once the word is out it will be exploited to the extreme, and it's either going to end in a few months or there will be severe capacity limits so that you can't just park money there. You can bet on that.

Their primary revenue stream was, once upon a time, net interest income, but these days due to the extremely low interest environment and alternate sources of funding the revenue stream is more weighted towards fees

There are still banks who are trying to do this. You can rephrase it as, "lending money to winners." Even better if you can lend money to an underdog winner, enabling them to borrow even more in the future. Community banks are now left with only the underdog borrowers, as the low hanging fruit is swept up easily by the megacorporation banks.

Metacomment: geeks who believe they have outmathed a financial firm should ask themselves "Are financial firms likely to be bad at math?" and "Are financial firms incapable of hiring their own geeks?"

This is the POV of my wife, who manages underwriting: Community banks are having problems hiring the "A-Students" and "B-Students." This means that employees either make more mistakes, or need more rigorous support through custom software, which community banks can ill afford, and where the big megacorporation banks can handily outcompete them.

I'm not sure it's even this complicated. They want people to use Robinhood to trade. People need to have cash in their account to do so. Rather than having to wait a day to transfer money they can incentivize you to store your money within Robinhood so that there's no friction to you making more trades.

Similar to YouInvest and Chase.

Things might be very different in the US, but interchange is nowhere near 2.5% for a debit card in Australia. Maybe that's what is levied to the merchant (or more) but by the time it gets back to the issuer, after merchant service fees and on-charged scheme fees it's more like 0.5% for a debit card.

I could be mistaken but business models built on interchange (I think) have been the downfall of a number of 'neo-banks' from the last 5-10 years. More recently I've seen people adopting a commercial-classified card (or other) for these types of plays for the sole reason of it attracting a higher rate of interchange vs a typical consumer debit card.

How did you reach your $60 estimate for debit card interchange revenue?

My rough calculation based on the data here[0] suggests it would be at least 60% lower than that:

$200 x 12 months = $2400 txn value $2400 / $35 = 69 transactions 69 * $0.35 = $24 interchange fees

What am I missing?

[0] https://www.federalreserve.gov/paymentsystems/regii-average-...

I imagine that the demographic they are supposedly going after for debit cards is the same demographic that takes advantage of great credit card deals. I don't see debit cards becoming fashionable as the go-to charge card for reasonably well-off millennials that are eligible for great credit cards. Those that aren't eligible for these credit cards likely have inconsequential amounts of savings anyway...

Lol. When small banks start offering high interest retail accounts, it means they need deposits fast.

You should have put a disclaimer that you work at a competing fintech company.

Why is there a disclaimer necessary? I don't read any specific bias against Robinhood

They may expect it - but I could see plenty of savvy investors using at as a short term cash deposit, hell I would (if I was in the USA) its 2x what I get in the UK

Cant see this lasting long

Great summary @patio. I was just telling some friends about it..simple bank, offers 2% on checking with certain balances met, and I experienced similar to example above.

Just to add a 3rd question to balance the other two: "Are financial firms able to change the way they've operated for decades (centuries?) easily?"

Your question seems to be implying that you believe financial firms are more stupid than greedy. In contrast to Hanlon's razor, I think it's usually fair to assume greed over stupidity.

You are just wrong. Being unable to overcome bureaucracy or organizational tech debt is not a matter of stupidity, and various actors up and down the hierarchy can have misaligned incentives that ensure it remains contentious and political.

Furthermore, many boutique investment business exist for purposes of client services and plausible deniability on part of the client’s board.

I’ll give you a concrete example from when I worked in an asset management company. One client was a large pension fund for a state’s retired firefighters.

We showed them time and again a variety of enhancements to the basic portfolio construction product they bought from us, particularly in line with their overall goal of balancing investment in certain sectors across different asset managers to reduce risk.

They were not interested, not even on the basis of paying reduced fees for a simpler process. We also talked to them at length about why using a concentrated benchmark for that product (SP500) was a bad idea. Again, not interested.

After some months where our performance was pretty flat in that portfolio against SP500, pretty much as we told them we predicted it would be, they fired us.

In the client exit interview with two members of their board, they basically told us that each year they have to fire a certain number of the asset managers they do business with, in order to appear proactive and justify getting bonuses for taking action.

They obviously didn’t say this directly, but it was clear enough. They ended the call by saying they would be super excited to review re-investing with us later the next year, presumably at which time they have to do musical chairs with which asset managers they hired & fired to look proactive again.

Internally, some of my older mentors on the portfolio management team badically said this was the business. Nobody cares what math you use for investing at all. Everybody just uses super stupid linear regression based on outdated factor models from 40 years ago, all using the same data from the same big data vendors.

As long as you have hilariously over-credentialed PhDs selling linear regressions based on momentum or price-to-earnings, the clients are happy because you are cover-their-ass hire & fire insurance to them, nothing more.

It would not be hard at all for skilled amateurs to outperform these shops.

Wow. Thanks for sharing the story. They were literally setting up a strawman to beat down.

I never implied that. Stupidity has nothing to do with the inertia that comes with big organizations and institutions.

Of course they're greedy, but sometimes it's easier and more "natural" to make more money by rising fees, as opposed to deeply changing a modus operandi.

Hence ACH. Greed and stupid combined.

Why is a question like this being downvoted? It seemed honest and in good faith – what is it that leads to organizational ossification and stagnation. It might be different factors in different industries.

Because HN is learning some bad habits from its mother site with regards to the purpose of votes.

Can we get some more details? I don't understand.

my experience with this is that its not whether they are able to - but the cost benefit of abandoning legacy service lines that are still hugely profitable but maybe not be growing (or actually shrinking)

So if you do just park $249,384.70 there, are they going to just let you withdraw interest of $616.05 each month without any risk or fees?

If RobinHood's MBAs are about to learn a lesson of what a fatwallet/slickdeals effect is.

Hopefully, they've already added some fine print, or will shortly. I've seen other banks be successful with this high interest strategy but every one of them requires 12-20 debit transactions per month in order to receive the high rate.

If Robinhood allows users to simply park their money, they could be in for a world of hurt.

My thoughts exactly. This looks like a good deal for people who would alternatively invest in money market funds. I bet they have an account cap or tiered rates.

Excellent and coherent comment.

I just spent 3 months in London, and it's crazy how Monzo seems to have taken the market. Almost everybody seems to be paying with a Monzo card, regardless of age.

Asking around, I consistently heard that Monzo's competitors like Revolut are going to be a future case study in scaling before great product/market fit. I don't know how many people have Revolut accounts, but nobody seems to be using their cards in public.

Little details really add up. For instance, Revolut didn't have contactless support for a while, which meant people could not use it on the Tube. Monzo made their cards pink, which creates a physical network effect.

The US seems to have a wave of startups trying to reinvent checking accounts right now. I wonder which, if any, will take the market:

- Varo (https://varomoney.com) - Product and brand don't look very polished and they haven't launched Android support, but they are doing the "hard thing" of getting a bank charter (rather than having a partner bank, like all of the others).

- Robinhood (https://robinhood.com) - Already offers investment products, so they can get a lot of users quickly. Unclear how good the product will be. (For example - can they support contactless payments with a clear card?)

- Chime (https://chimebank.com) - Seems to have the most mature and polished product. The killer feature they advertise is "get direct deposits faster", which doesn't seem world-changing to me.

My benchmark is Charles Schwab Bank, which offers no fees on any ATM, anywhere. It's what many millennials that I know use. But, it's a bad product and not very user-friendly. Simple tried to reinvent banking, but they never seemed to go beyond polishing the UI. I'm curious to see what the future holds, particularly as some foreign banks expand to the USA!

> My benchmark is Charles Schwab Bank, which offers free ATM fees on any ATM, anywhere. It's what many millennials that I know use. But, it's a bad product and not very user-friendly.

Why do you say it's a bad product? I use Schwab as my main account and it works great for me.

Schwab is excellent. Their "high-yield" (lol) investor checking/brokerage account is a good offering due to no minimums, unlimited foreign ATM fee rebates, unlimited checks, etc. Their customer support is amazing. Three rings and a human picks up the phone.

My direct deposits go there, but I moved all my investments over to Interactive Brokers since Schwab doesn't offer (to my knowledge) portfolio margin and Schwab's margin rates are usurious.

FWIW, Schwab does have portfolio margin, although I have no idea what the rates are.

Good to know, but AFAIK portfolio margin doesn't give you different margin _rates_ anywhere... Schwab is almost 10% starting vs IB's 3.6% right now

Just out of curiosity how do you employ margin in your personal investment portfolio?

I have risk management parameters for all the positions in my portfolio and for my portfolio overall. I use the kelly criterion to size my trades (beta-hedged intra-sector constituent spread trades). Margin is just additional capital I can allocate and get a slightly smaller return on. I'm about 1.5x leveraged on equities and 6x on forex right now.

I love Schwab's checking account product because it's highly functional. But, I don't think that it has mass-market appeal. It appeals to a rational buyer, not an emotional one.

The opportunity here for a startup bank is to replace credit card spending in the USA. The potential earnings are huge if you can get consumers to spend on a debit card instead of a credit card (because the rake is higher).

To make a checking account capture the spending market in the USA, it needs to feel premium and focused - like the Amex app. The spending analysis needs to be great, the card needs easy control in the mobile app, and it needs to inspire confidence. It also needs to feel like a trusted, approachable brand.

Schwab makes most of their money on investments. I don't foresee them trying to give mass-market appeal to their checking account, separate from the investment account.

A case study in this field is Marcus, a savings app from Goldman Sachs. If Schwab spun out their checking account into a separate sub-brand with branding that appeals to millennials and had a spending-focused mobile app, I could see them doing really well: https://www.marcus.com/us/en/savings

> I love Schwab's checking account product because it's highly functional. But, I don't think that it has mass-market appeal. It appeals to a rational buyer, not an emotional one.

Isn't that the wrong perspective on a financial product? I agree that good design is important, to a degree. Once a certain level is hit, you're not going to gain/lose very many customers based upon the UI.

I don't think anyone should favor one bank over another for emotional reasons Also, I'm not sure design differences qualifies as "emotional"; I think a better word would be "design" or "aesthetic".

If Bank A offers you a 4% interest rate on a loan and Bank B offers you a 4.1% interest rate on a loan, I think most people would pick Bank A over Bank B (assuming fee structures and customer service is more or less equal). Even if Bank B has a beautiful UI as opposed to Bank A's equally functional but okay looking UI.

A coworker looked over my shoulder as I was signing up for Robinhood checking today, saw the American flag debit card and literally yelled, "I NEED THAT CARD!". He signed up using my referral code, you have to learn that you're not the normal consumer.

> Even if Bank B has a beautiful UI as opposed to Bank A's equally functional but okay looking UI.

If only those were the options. I'm considering dropping one of my banks after their mobile-first aesthetic redesign that made their website drastically less functional. (Less information density, more clicks to accomplish anything, extreme non-obviousness of how to access various features.) It's been a year or two, and functionality remains significantly degraded compared to their old website.

By "emotional" vs. "rational" the parent is probably referring to the type of investor/trader that would use a Schwab account, meaning someone who understands the risks they are taking on and won't flinch when the market goes sideways. Nothing to do with UI or product design.

> The opportunity here for a startup bank is to replace credit card spending in the USA. The potential earnings are huge if you can get consumers to spend on a debit card instead of a credit card (because the rake is higher).

I think the converse is true. Card issuers earn 1 percent points higher interchange rates on credit cards (2.60%) than debit cards (1.60%).

Once the bank has more than $10 billion in assets, they legally have to reduce their debit card swipe fees to 0.05%.

What incentive would I have to use a well branded debit card over a credit card that gives cash back?

I could see an effective marketing campaign making debit a social signal.

Being able to make a large purchase on debit means you can afford it right now-- just as dropping a stack of $100 notes would signal.

In contrast, paying with credit can be a pose-- you look like you can afford the $1000 purchase, but it hides the dark secret that you'll be paying for it well into the next decade.

I think it's also about control and understanding your spending.

I use Scwhab "high yield" (lol) as my primary checking account. I find it worthwhile due to the simple requirements/no worry of random fees, and because I can walk up to any crappy atm anywhere in the world and just get money without thinking about it. My experiences with customer service have been positive. But their approach to security is an absolute joke. They're an online-only bank, that stores your password in plaintext (and don't allow your passwords to be more than 8 characters/have any non-alphanumeric characters), regularly asks you to type your social security number over the phone, and have such poor fraud detection that I have their IVR memorized to just get them to leave me alone because they have cried wolf so many times.

My experience as well. Schwab customer service compared to my other checking is consistently and notably better.

For me the killer is no foreign transaction fees. If Robinhood allows world wide ATM + no foreign transaction fees I'd switch in a heartbeat. I dont use Schwab for equities, I use Robinhood & Wealthfront

Same here, they also have very good service. 24/7 chat assistance and I haven't waited for more than 30 seconds to be connected to a customer service representative.

I'm also using Schwab as my main account and for the most part enjoy it. It's not as (seemingly) simple and intuitive as the other products philip1209 mentioned, though. It's a well-established bank/brokerage firm, and it shows in the UI.

In America, I don't think contactless matters that much currently.

It's really a crap shoot if any specific retailer supports contactless, no major metro system that I know of support direct debit / credit contactless cards and no major bank or credit card company issues contactless cards.

If you want to use contactless in america, you add the card to apple / google / samsung pay and use your phone for NFC payments. I get a feeling that america will do a 'leapfrog' in contactless and go directly to smartphone only contactless cards than ever issue a contactless card in the mass market.

Cashier was shocked when I used my contactless card in middle of SF. She nearly screamed "WHAT DID YOU JUST DO???". Meanwhile even in smallest villages of Europe no one bats an eye anymore. America is bizarre!

I just flew through 4 different airports in the last week, and every single one of them, the payment device had a chip reader, but all of them were blocked with a piece of cardstock instructing the person to swipe.

Why? (I think they're all run by the same company, HMSHost, who, AFAICT as a traveler, has a monopoly on airport food.)

This is a perfect example of how bonkers/stupid banking is in the USA. If the retailer allows you to do a chip/pin transaction (much more secure than a magnetic stripe) THEY are liable for any fraud. Whereas a magnetic stripe transaction (super insecure) places all liability on the payment processor. So there is a perverse incentive to stick with old crappy technology. https://qz.com/717876/the-chip-card-transition-in-the-us-has...

And in Berlin the cashier eyed me suspiciously when I tried to use Google Pay. He was totally expecting the payment to not go through

Yeah America is fairly bizarre in what is advanced and what is from 30 years ago. But you do get things like generous rewards cards, no exchange fee international ATM & credit cards on many accounts and so on. Not to mention cheap consumer goods.

In Canada we had none of that.

It was deployed in the US 10+ years ago but few merchants upgraded to terminals that supported it so contactless died off.

In New Zealand a lot of retailers added contactless, but are now removing it again as supposedly the fees charged by Visa/Mastercard are rather high.

> no major bank or credit card company issues contactless cards

Citibank's Costco Visa card is contactless

Most Amex US cards are now issued with contactless.

Chase is about to add it to all their cards.

That must be very recent. I had contactless cards on half my cards in Canada a decade before hand in comparison.

I clearly missed the boat on that one, when did they start doing that? Mine is still swipe + chip only.

Capital One cards all seem to have it, too.

I just got a Capital One card a month or so ago and unless I'm completely misunderstanding the graphics, it is contactless. I think they qualify as a major credit card company.

I've already switched to Apple Pay anyway.

> I consistently heard that Monzo's competitors like Revolut are going to be a future case study in scaling before great product/market fit. I don't know how many people have Revolut accounts, but nobody seems to be using their cards in public.

Monzo is a licensed bank in the UK, and Revolut is not.

Still, Revolut has about 30% more customers in the UK than Monzo, and about 3x more in total, since it's available in the entire EU. And, unlike Monzo, which is still losing money, Revolut has been profitable since February 2018.

That's because Revolut does much more than Monzo. It provides multiple premium account types, virtual credit cards for online payments, business accounts with open API access, credit, insurance, and soon – fee-free stock trading like Robinhood.

True. Revolut got its banking license in Lithuania, not in the UK. That's why people in London might prefer Monzo.

> Simple tried to reinvent banking, but they never seemed to go beyond polishing the UI.

Simple closed my account with no notice or recourse, because they failed to notify me that I needed to update some information.

I honestly can't believe I trusted my money to people so incompetent at even the basics of business.

> he US seems to have a wave of startups trying to reinvent checking accounts right now. I wonder which, if any, will take the market

Square's Cash App + Cash Card is taking the lead here, IMO. Card, direct deposit, ATM usage, p2p payments, rewards program.

They've been the #1 app in finance all year on the Apple store, and were #1 in all free apps for a little while this past week. They are massively popular in the south, but the rest of the country may catch up, but I sort of wonder if silicon valley is gonna miss the rise since its out of sight for the time being. For growth and reach see for example:

Graph over time: https://trends.google.com/trends/explore?date=all&geo=US&q=c...

States where cash app dominates so far: https://trends.google.com/trends/explore?date=today%201-m&ge...

If Cash App introduced brokerage services it would be over for Robinhood.

I got a cash card, got a generic undefined activation error and no reply from support. I eventually just shredded the card.

When I talk to friends for p2p payments, people mostly use venmo, then messenger & apple pay and nobody uses square cash.

Same. I send money over Messenger all the time to feiends and family. Southeastern US here.

I have everything in Fidelity which seems like it has the same benefits as Schwab, but also with the trading availability and zero fee index accounts (not sure if Schwab has this too).

I had simple for a while and the UI was great, app is best of the ones I've seen but they never had anything else (they recently created a savings account) and no checks got annoying to deal with.

My Bank of the future would have these features:

- Full brokerage account with available trading and zero fee index funds

- Free checks

- Free wiring/ability to send money to other people's bank accounts

- Really good app (like simple's)

- Decent interest like Robinhood has here without having to separate things into a savings account

- No fees

- Credit card to rival Chase Sapphire Reserve or AMEX Platinum with tightly coupled integration into the existing app software.

- All ATMs are free (rarely use, but nice to have and Fidelity does it).

- Ability to get loans

Fidelity has nearly all of these things with some negatives:

- App is not that great/UI is bad

- Their credit card is bad and not well integrated into their software

- Interest is poor

Haven is a new startup that's has a pretty cool approach to helping people do the optimal thing with their money (like an automated r/personalfinance), but I'd rather just be able to do it directly with the people holding the money.

They have quite a few zero fee index funds.

> Simple tried to reinvent banking, but they never seemed to go beyond polishing the UI.

I'd take another look at Simple. I've been with them since the beginning and their recent enhancements are fantastic! Expenses tied to your pay schedule that automatically set money aside, same with goals. and then the big one for me was an interest bearing savings account, yielding 2%.

See more here:



Honestly, Simple botched the transition from Bancorp to BBVA. I switched all of my direct deposit and bill pay back to the big banks, closed my account, and never looked back.

I wouldn't be surprised given their investor docs mentioning America, their £1bn valuation, and their current growth rate, if Monzo launched in the US in the next 12-18 months.

They are a definite contender for your list.

I think folks are overthinking this.

The math itself doesn't matter. Have you seen recent Robinhood commercials popping up on TV? Their whole business is to encourage folks that should not be day trading to day trade.

Having your money parked there just facilitates knee-jerk-reaction and follow-the-crowd trading.

> Their whole business is to encourage folks that should not be day trading to day trade

Trading for most people used to be deliberately obtuse. $7.5 commission per trade is criminal for most people, so is charging $50 a month to get a weekly email with basic technical analysis, but that's literally been the bread and butter of retail investing for decades and no one bats an eye to how deliberately ridiculous it all is.

Robinhood drops all the barriers from buying stocks, gives you a warning before they even let you touch options, and they are the evil here? This is like saying venmo is dumb because it lets people wipe out their checking account quicker than writing a check; don't blame the company for idiotic users. Robinhood doesn't even let you day trade more than 4x in a given week unless you have 25k in your trading account, just like every brokerage.

> Trading for most people used to be deliberately obtuse.

When Robinhood initiates options trading by asking you, "Do you think the stock is going to go up?" on a phone interface, they've decided that trading is now just for morons.

Why wouldn't trading be for morons? Should we also limit loans to people who have a specific minimum IQ or do we live in a free society?

Maybe not based on that metric, but is it really unreasonable to limit loans to people who have demonstrated that they have the ability to understand the terms that they're agreeing to?

Idk if we should, but we do. Generally getting a loan includes this thing called the credit approval process. If one is unable to responsibility manage their personal finances they have a good chance of being limited in their access to loans.

Maybe they'll introduce binary options soon.

Imagine on iOS you randomly gets a pop up "do you think gold spot is gonna be above 1250 in 2 hours?" -> long tap the notification directly place an order

Hahaha, I love this comment because when I'm trying to buy options it always makes me chuckle how they allow these type of people to trade naked options

You can't buy a naked call/put.

Naked, covered, and cash secured are terms used to describe how you are covering your downside when you are selling options.

When you buy an option, your downside is always the cash you spent on the option, so you don't have different types of purchases. When you buy you are just buying an option.

As for Robinhood, they don't allow for selling of naked options, only covered and cash secured.

Interesting, thanks!

People just like to have options, I guess.

The average person is more likely to lose money day trading than gain (especially considering the time sink). It's basically boring slow gambling wrapped in the guise of The American Dream.

The average person shouldn't day trade. I buy stocks and basically hold them for years. I've picked some losers and I've picked some winners... but overall my return over the last ~5 years is 19%.

Buying stock with dividends helps even more, now you get money back to invest into more stock :-D

If you just bought s&p or brk (arguably conservative choices) you'd have earned 60%.

Such is the name of the game :-) I have invested relatively little, I just enjoy playing and seeing if I can "win".

Everything else is in index funds.

And by not day trading you're not gambling? Let's just call it betting. What stance are you promoting that is "not betting"?

Stocks are traded everywhere in the world. What’s this have to do with The American Dream!?

The American Dream is to accumulate wealth, and often involves looking for a way to get rich quick, some people think they can do it by day trading. There's a certain American stereotype of playing stocks to become wealthy.

There are cultures where they don't dream about accumulating wealth?

Less than the extent that Americans do? absolutely. In many ways they're obsessed with it. Look how much the gambling industry makes there.

Macau's gambling revenue dwarfs Las Vegas's. None of the top 10 biggest money making casinos are in the United States.

" Their whole business is to encourage folks that should not be day trading to day trade"

Also using the ridiculously upside down moral convention that they are somehow 'the good guys defeating the system' i.e. 'Robin Hood'.

"We wanted to do something after occupy Wall Street, you know. Something real. So, how about, get all the young people to, you know, put their money into Wall Street" is basically their 'storyboard motivation'. Which the CNN interviewer accepted without a hint of skepticism.

It's amazing how many times I've seen people post losses in excess of $20,000 on r/wallstreetbets.

The people in r/wallstreetbets usually understand that they're making stupid bets. OTOH, r/Robinhood is full of completely irresponsible traders -- trading in illiquid securities, dumping tons of money in penny stocks, triggering PDT restrictions and getting stuck with unwanted positions, not understanding bid/ask/mark (usually blaming RH or the "market maker" boogeyman for changing the price on them), buying OTM weekly options (known informally on wallstreetbets as "FD"s...), complaining about tons of "glitches" that are actually just them losing money through ignorance, and (one that has always confused me) blaming all losses on some mysterious "market maker" boogeyman who kills all of their trades.

If it was 1996, these people would be speculating on Beanie Baby portfolios hedged with Charizard cards.

To be fair, RH does sometimes have problems. They blew up the other morning and screwed over a number of people by closing their accounts for the day while they tried to figure out how their system credited them with options sales at 10-100x actual value. RH has definitely got bugs, and if I were serious about playing the market I'd go with IB or TW, or just about anyone else.

That number of people is quite large. Between FB groups, reddit and Twitter comments it definitely exceeds the hundreds.

I was locked out for 29 hours with expiring strangles that would have had significant upside if closed at the right time, lost everything put into them by the time I could get back in.

Never received communication about the lock out or being allowed back in.

They have no phone support and during that whole period not a single email was responded to.

To imagine this company as a bank is one of the most ridiculous concepts ive heard of.

Given the millennial user base, they probably were.

Eh, they're actually going for both millenials and younger. A lot of their advertising is in YouTube ads and YouTube podcasts, which is definitely aimed at a younger audience than millenials.

It's one of my favorite subreddits for that reason. Though there are definitely some people that do seem to have a very legitimate gambling problem and I feel bad for them and their families.

There's one guy on there who lost nearly a million bucks. And another one who I believe has lost more than that, and hasn't posted a single thing in three months, since he finally made it all the way to bankrupt. Makes you think a little, I wonder if he's still alive.

I did learn that options are super exciting and a great way to lose every last penny. I got lucky and came out ever so slightly ahead on my run through WSB, but I got out of it and now I'm back to normal stocks even with my play money.

Yeah, the younger crowd doesn't trade, not because "the maaaan" is keeping them from it, but because it's a very complicated way of making money, and they typically don't want to learn how to do it right. What this startup is doing is telling the younger crowd that it's the former, while also saying "Look how easy this is!" and deliberately oversimplifying complex systems.

It's not a matter of complexity, it's a matter of power, or rather, information asymmetry.

Buying stocks isn't really investing, it's more akin to gambling like Poker, with all other investors at the table.

Many of those investors have massive computers, R&D firms, brilliant minds, 'inside information', and relationships with those companies and CEO's.

So what 'millenial' is going to trade better than those?

Zero. Or at least in the long run.

The only way to 'beat the man' is to have more knowledge than Wall St. and that is extremely rare.

So what 'Robin Hood' does is sign up fish to feed to sharks.

It might make sense to put a chunk of savings in a broad array of stocks (some in bonds, some in gold, some in cash etc.) - but 'trading' against Wall Street is about as smart as playing Poker against the best in the world thinking you're going to win.

The real appeal from the users I have heard is lack of gatekeeping and minimal tolls which I suppose makes it essentially a knife with just a thin hilt as a handle - technically you can save money using it responsibly but most people just hurt themselves.

I’m still up 12% (although down from 30%) in this bull market. The trick to buy an array of better companies and to not sell/trade them. Every trade you make gives the HFT MIT quants an opportunity to take money out of your pocket! Hold at least 1 year for the substantial tax advantage, 2 years for gains to materialize (Peter Lynch’s Advice), or indefinitely as Warren Buffet has advised.

Also don’t touch or put more than 3% in options or crypto. 80% of traders lose money with options and crypto doesn’t usually generate interest or dividends. Also crypto taxes were absolute difficult nightmare for me last year.

> The trick to buy an array of better companies

Congratulations, you just reinvented the S&P 500.

Lol, I can't figure out if that comment is satire or not.

Which is why buying into funds that track the S&P 500 and holding for a long time is a valid way to go...

HFTs don't make money off of retail investors. Can't front run your trade if it can be filled with 1 order. HFTs pray on institutional investors who need to buy or sell large amounts of stock.

> Their whole business is to encourage folks that should not be day trading to day trade

Less cynically, it’s building a book of investors who have likely never lost money in the stock market.

It doesn't really matter; they're making the spread anyway, whether you make money or lose money.

Or Forex market. With carefuul activity Forex can make an 'easy' 20% per year. Stocks I would assume would give a 7-10%.

Knowing that RH gambles your money, it gives them plenty of profit :)

Well, every broker is incentivized to get its customers to trade as much as possible, ie, “make you change your mind often.” This is why brokers promote real-time news, information, focus on earnings reports, etc.

Even on the institutional side, the business is setup to encourage investors to change their mind as much as possible. More trading equals more soft dollars equals getting a larger budget for research. More trading/using more esoteric products means you’ll get more help from Cap Intro to raise money. It takes a lot of restraint to invest like Buffett.

Yeah. It's awful. They've been advertising on a pop culture podcast I listen to, with the host reading copy about how he buys stocks on Robin Hood. Seems irresponsible, especially for a podcast that isn't remotely related to finance.

> Their whole business is to encourage folks that should not be day trading to day trade

See also E-Trade's "Don't get mad, get E-Trade" commercials[0], which are clearly intended to give people the impression that stock trading will make them Super-Yacht rich.

[0] https://www.youtube.com/playlist?list=PLHVKU2qFM7q2HuTv5RCU0...

From what I understand Robinhood ban people who day trade.

The SEC and FINRA (regulatory agencies) don't allow day trading for accounts with balances less than $25,000. If you exceed 3 (?) day trades in the past 5 days, your account is locked from day trading for 90 days (so if you buy a stock you will be unable to sell it that day). All exchanges enforce this rule, not just Robinhood.

I hope this gets challenged in court at some point. The rules went into effect on September 28, 2001 as a knee-jerk reaction to the dot bomb and 9/11:


The real story is that the plebes realized they could make 2% per day by day trading and selling short. I did this with my dad and we were up about $40k before 9/11 wiped out most people's gains (this was back when Apple stock was in the $12-20 range). Edit: my dad never sold short because he felt it was unsupportive of companies, but had he done it to balance each of the buy/sell targets I gave him, he would have been up $80k.

I remember being demoralized that I couldn't trade on margin because I would likely never be able to save $25k with my student loan and credit card debt. But if I read the rules correctly now, I don't even think you can sell short anymore unless you have $25k.

This keeps the real day trading profits back in the hands of the rich and I feel that it could/should be challenged as discrimination. Also it breaks the ZOI rule so doesn't sit right with me..

Day trading is not some magical way to profit. Most people who make money around day trading are selling day trading services. Few make money over the long term day trading, and even fewer (any?) are making 2% every single day (400% over the course of a year with ~200 trading days).

The rules were put in place to protect people from being lured into day trading by day trading service companies. The thought was to prevent people from spending their rent money thinking they were going to get rich day trading. Also, trading with small amounts of money pushes people into penny stocks, which is an even faster way for someone to lose all their money.

BTW, since the money is so easy you could always have traded futures which are exempt from PDT. https://www.tradingsetupsreview.com/futures-trading-best-opt...

A gain of 2% a day over 200 days actually compounds to 5148%, not a mere 400%.

True. I was trying to give some benefit of the doubt, since 2%/day compounded is obviously ridiculous.

Good catch, that could be some selective memory on my part. What I remember most is that it was very easy to make 2% on a good day, and we did that over the course of about 6 months or a year, trading about every other week and pulling the money out to sit idle on weeks that we were too busy to trade. I remember there were several times as many days that gained 5% (trading 2-4 times each day) than days that lost 5%.

One of the charts in etrade said we were up $40k over about a 4 month period and my dad had about $50k in play, trading on margin so working with about $100k. So the real return was more like 80% over 4 months, so I guess 240% for a year although I don't know if I'm doing that math right.

My biggest fear most days was honestly that there wasn't going to be enough volatility for the stock to move, meaning we threw away $7 to $28 on trading fees. I was moving furniture at the time and only made $80 on a good day so that was a lot of money for me then.

No day trader makes 2% a day without putting all their capital at risk. You can pick up nickels in front of steamroller till that one day it runs you over. I day trade for a living and consider an extremely good month making 5% of total capital in my trading account.

If you short high beta tech stocks on margin as you mentioned in your post, you'll get wiped out really fast. Go to Wallstreetbet subreddit and pull up the thread where a guy lost 1.5mm this year, he lost it shorting high beta tech stock that did a swing of 10% in the wrong direction forcing a margin call and a liquidation.

If you wanted to capture the downside of a stock, you can buy puts without a margin account. You should probably really understand the market better before you expose yourself to a larger risk than the money you put in.

"I hope this gets challenged in court at some point. The rules went into effect on September 28, 2001 as a knee-jerk reaction to the dot bomb and 9/11:"

The rules were approved in February 2001, so they can't have been a response to 9/11, kneejerk or not.

> The real story is that the plebes realized they could make 2% per day by day trading and selling short.

Can you please elaborate? I'm curious. Why was the money so "easy"? Simply because there were so many amateur traders?

Intraday trading is much less risky than holding a position overnight. A lot of movement happens in the first and last 30 mins of trading, and over lunch. You can exit unproductive positions quickly, whereas if you couldn't day trade you'd only be able to sit and watch how the cards are falling.

Can't you just set autosell conditions to do the equivalent of the function with less time sensitivity? If you can't handle a $10 drop cut out at a $5 and lock in savings if it rises by $15.

Well 2001 was before trading bots for one thing, so most stocks had a daily heartbeat that was easy to follow. Several days a week the volatility on AAPL was easily +/- 1% each day, so we just bought low and sold high. I averaged 2% per day roughly 4 out of 5 days per week, losing 2-5% on the occasional day I was wrong. Also it was easy to predict when people would sell their stock on Fridays before 3 day weekends for example, so we'd sell Thursday afternoon or whatever.

Also we bought right after the dot bomb happened on 9/29/2000 when most all the tech stocks fell by half or more in one day, so there was a constant upward trend where people wanted to start gambling in stocks again over the next year:


You can see the drop here, I can't figure out how to share, but enter something like 9/28/2000 through 9/30/2000 in the date range:


You have to remember that these events aren't random. I personally feel that they're controlled by whoever holds the purse strings, so a handful of extremely wealthy illuminati were getting nervous towards the end of the dot com and housing bubbles and made the call to pull the plug so they could re-buy after everything crashed (see: It's a Wonderful Life).

We're overdue for that with the mobile and web 2.0 bubble. The main difference today is that older folks like me remember the lean times so more startups today have pulled themselves up by their bootstraps and are somewhat immune to these market manipulations vs propped-up brands like pets.com in the 90s. But don't think for a second that crashes (or booms) like these with a 50% move in one day can't happen again.

As long as I'm on my soapbox, I wish that I could dabble in a little machine learning and look for correlations that tend to swing together or oppositely one another. No matter how much the bots tend towards noise, there are still markets that are connected that should be easy to spot. I don't know what else I would try though because I stopped following the market after the housing bubble when people started trading foreign currency and Bitcoin etc. I could have bought $20,000 worth of bitcoin when it was $10 so it's all just monopoly money to me now. I feel that chasing easy money is maybe distracting us from real human progress. But what do I know, I'm just the poor sap stuck in the universe where I never made it big hahah.

"Easy money"? It's called luck and luck is hard to come by.

Indeed these rules are yet another way to gatekeep wealth. They are essentially welfare for the already rich, who can buy their way out of regulation via the fact they already own money.

Who would challenge it? FINRA is a private organization, and I'm sure the SEC or FTC has no interest in trying to get them to change that rule.

If you pattern day trade with less than 25k in your account, yes. You will have trading disabled temporarily, but they won't outright ban you

Everyone does if you have less than 25k in your account and do more than 4 day trades in a 7 day period

It's all about the math. It is true they encourage unsophisticated people to go stock trading. But that's not how they do business.

They find gaps in the financial institutions' way of doing business and fill the space.

That is because they sell their order flow to the market makers. They get a rebate on every trade. I bet that is how they make a majority of their revenue.

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