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Robinhood Is Set to Raise at Least $200 Million in New Funding (bloomberg.com)
153 points by jason_zig 31 days ago | hide | past | web | favorite | 182 comments

Robinhood has more customers than ETrade https://www.investors.com/news/robinhood-app-has-more-custom... and I bet it's growing much faster too, so no a 7 billion dollar market cap is not insane when ETrade has a market cap of 11 billion.

The problem with Robinhood, like many startups, is an issue of profitability and monetization. They've been switching up Robinhood Gold to try to get more customers to sign up. I'm sure that's where a lot of their effort is being put as they approach "have to IPO" valuations.

This low dollar amount round is also an indication that while they are still burning money, they may not be burning as much as they may have in the past. If I were to guess, turning on self clearing was a big part of that.

From your source: "However, a Robinhood spokesperson said not all 4 million accounts are funded. The brokerage did not disclose total assets under management, average account size or typical starting balance."

They did not disclose the metrics that are important. You would need AUM information to effectively support your statement.

OK, let's just be super conservative and say only 50% of Robinhood's accounts are funded. So they are valued at 3,500 per funded account. Let's assume you're right and that ETrade's accounts are all funded. So they would be valued at 3,081 per funded account.

Would you pay 13.5% more per account for a company that's growing at least 5x, if not 10x as fast? I know I would in a heartbeat, all else being equal.

Now, not all else is equal, so you can make an argument either way, but I wouldn't call Robinhood's valuation "insane."

> OK, let's just be super conservative and say only 50% of Robinhood's accounts are funded

I mean, we're all just guessing here but 50% seems _super generous_ to me. It's really easy to sign up for a Robinhood account. I'd love to know what the real numbers are :)

Yeah, and of those accounts that are funded I'd guess that many don't have more than $100. Personally I know my Robinhood account only has a couple of bucks in it and I just haven't bothered to close it. I use TD Ameritrade and M1 Finance for the bulk of my actual shares.

Just curious, why don't you though? I thought Robinhood would be more economical

If you're buying non-trivial amounts of stock and holding it, paying a couple dollars a trade isn't a relevant concern.

> If you're buying non-trivial amounts of stock and holding it, paying a couple dollars a trade isn't a relevant concern.

What becomes more relevant in that case?

Also I thought the fees are more like $7 rather than $2... have they decreased?

I use an old school brokerage and haven't paid trading fees in many years, and most of the ancillary fees have also evaporated over time. The race to the bottom was going on long before Robinhood.

But the OP's point is correct: even with trading fees, the cost is below the noise floor. Brokerages can make quite a bit of money off of how they structure trade execution, so the top-line trade cost isn't everything.

I was reading an article recently about Charles Schwab from the point of view of an investor in SCHW and it argued that Robinhood is not that great of a threat, because Schwab already makes most of their money from things other than commissions. Therefore if they have to cut commissions to zero to compete, so be it. Brokers can make money from loaning stock to short sellers, and from interest on customer cash balances. Not to mention selling order flow - getting paid by markets to give them customer orders to execute. Schwab is trying a tactic where they encourage you to use an automated "robo-advisor" that tells you how to invest, and the advice includes a significant portion of cash, which allows them to collect the interest.

Yes, commission has decreased, there has been a fee war going on lately and as a result fees have been going down substantially across the board for the major players. Fidelity doesn't even charge for wire transfers anymore.



Huh, I Googled ETrade fee and saw $7 as of 2018 so didn't think they'd be lower. Cool! Guessing they must've lost a lot of customers to Robinhood...

Do I trust this brokerage to exist in 10 years? 20? Are they going to be convicted of fraud? If I have a problem, is there a phone number that I can call to speak to a knowledgeable agent that can solve my problem?

A sampling of things that differentiate brokerages for me, price per trade is so far down my list since I buy rarely but hold for a long time.

Wait, if the brokerage goes broke do your stocks go away with it? I thought your stocks belong to you? What could (legally) happen to the stocks?

With normal brokers, your stocks are protected by SIPC insurance in that case. It plays a similar role to FDIC insurance on your bank account. This should generally apply to Robinhood too. They state that it does.

The reason I would have some doubts is they were talking recently about providing checking and savings features like a bank, only tied to a brokerage account, and they said cash therein would be SIPC insured and the SIPC had to contradict them publicly and say "nuh-uh".

This doesn't indicate your stocks aren't safe per se, but it suggests that Robinhood may not always verify that something is 100% ok with regulators before doing it, or think about all the implications, and some day we might find out "oops" they didn't do something crucial that traditional brokers do, because they were being disruptive, moving fast and breaking things.

Another point is that while Robinhood Financial appears to be a more or less normal broker that is a member of FINRA and SIPC, Robinhood Crypto is not. This isn't exactly surprising, but again, it could make a person slightly nervous that there could be drastically different consequences someday to trusting different entities that are all called "Robinhood". Maybe people will get used to trusting both of them and someday there will be a new "Robinhood XYZ" and it will not be regulated the way people expect. Or what if when Robinhood Crypto is hacked and loses their customers assets, it turns out there is some linkage that causes problems for Robinhood Financial, even though it wasn't supposed to work that way.


Order execution. If you're buying a lot of stock, then small differences in the executed price start swamping the trade fee.

Oh whoa interesting. Do you mean for market price trades? In what way does the choice of exchange affect the execution price?

Even market price trades still require a counterparty’s inverse order to execute the trade against. Thus the exchange that an order is routed to affects execution price because it depends on the available orders on the exchange, on both sides of the transaction: when and what price your order executed depends on both (e.g. if you are buying) orders placed by other buyers on the same exchange (higher bids will execute first) and the volume of sellers (if your buy order completely fills a sell order at a given price, the price will slip against you because your order will partially fill at the next higher priced sell order).

To avoid this effect one can use a limit order instead of a market order (you are setting the price instead of ‘taking’ the market price), but then it may take longer for your order to execute, and it may not execute at all if the price moves away from your limit price.

I can only speak for myself but I don't have more than ~$20 in Robinhood because the ETFs I buy are commission free at Fidelity and I simply prefer to use Fidelity. Fidelity is a better experience, I use websites on a desktop, I don't really use "apps" very much and last I knew Robinhood was only an "app" and didn't have a web interface. I basically only signed up for Robinhood for the $10 referral.

EDIT: apparently they have a web interface now.

Most online brokerages have at least a set of low-fee ETFs that you can trade for free.

TD Ameritrade offers free trading on most ETFs and M1 Finance offers free trading on all stocks and ETFs.

Yeah, but it used to have $1000s in it.

I have a Robinhood account. They gave me a free share of some stock to create an account. I just have that one share.

I don't even have the app installed on my phone.

Is it not safe to assume that VCs wouldn't be investing huge sums of money it they weren't convinced of the metrics?

It is safe to say that VCs wouldn't be investing huge sums if they didn't see a remote chance of a huge takeoff; they are VCs, not value investors.

i would not say it is a safe, honestly.

No, I wouldn’t. Because I’d guess that etrade’s average account size is likely 25-50x that of Robinhood. I don’t think encouraging young adults to gamble beer money on the stock market is a long term viable business model.

You are missing the point. The number of accounts is not an important metric. I am not saying your conclusion is false, just that you do not provide relevant facts to support your claim. Assets under management is much more important, and not necessarily strongly correlated with number of accounts.

Oof. 50% funded? I’d go for 5% and feel I’m closer to the mark.

50% is “super conservative”?? By what reasoning? How is that more appropriate than 5% or .5% or .05%? Either you have a justification for that estimate or you’re just making something up, which doesn’t mean squat.

etrade does serious business too. Some actual companies, like Apple, use them to give employees stock.

50% is not super conservative. My guess is 10% is closer to the actual number than 50%.

"a 7 billion dollar market cap is not insane" is already a soft statement, I think enough info is present that you can say the valuation isn't impossible.

Read that more carefully. 4 Million accounts, not all are funded. How much are funded? We don't know because they didn't say. I have an unfunded Robinhood account for the stock quotes.

E-trade is a public company so all its numbers are GAAP. Their account numbers are funded. So it's not an apples to apples comparison. Plus they are profitable, so the valuation numbers make Robinhood look even worse.

GAAP is so overrated. It's 2019. The goal is to acquire users, not to make money. Unprofitability is sexy. In all seriousness this might as well be 1998 and I just hope they go public before the next big market swing down so I can short it.

They could make a fixed fee robo-advisor service for example, and start competing with businesses like wealthfront.

Personally I think this whole robo adviser thing is just bs. It's a marketing gimmick at best, not much real value

Automatic rebalancing of a custom portfolio is a value. I wouldn’t bother otherwise myself. Tax loss harvesting gives you a tax deduction also.

This is what Acorns is

At E-Trade you can actually make money off the customer. Customers pay for a service. At Robinhood they get paid by the liquidity providers. And margins continue to shrink there

The no commission model RH is providing is awesome and if they found a way to sustain that business model, great. The amount they have saved me (an avg trader with 25-50K) is well worth them selling my trade data to other firms. Sometimes their system is a bit glitchy. I'm sure as time goes by things will get tightened up. I mostly trade derivatives. If I open a 4 legged trade with 400 contracts that would cost me $300 in commissions on my old broker (TD Ameritrade) to open and an additional $300 to close it. Totally free with RH.

They're selling your trades not your trade data. They sell the orders you place to HFT firms which arbitrage them and kick back a commission to Robinhood to fund their business. It kinda costs you, actually, you just don't see it. [1] With low trade volumes/order sizes you may end up ahead but I don't have data to back that up.

[1] https://seekingalpha.com/article/4205379-robinhood-making-mi...

> It kinda costs you, actually, you just don't see it.

Except not: see Matt Levine's explanation: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...

The conclusion:

> So by selling its customers’ orders to market makers, Robinhood is actually stealing from two sets of “the rich”: Rich market makers like Citadel are paying it directly for the orders, while rich hedge-fund managers are getting worse execution on public stock exchanges so that Robinhood customers can get better executions off those exchanges. Big institutions are paying to subsidize free trades for Robinhood’s customers. It feels pretty Robin-Hood-y! If I were Robinhood I would advertise that!

A market maker will never buy orders without making a profit. What they pay RH is nothing compared to what they make on the spreads.

The profits MMs take here aren't zero sum between you and the MM, because there are other participants in the market. An MM can profitably quote a more generous spread to a retail trader, because retail order flow isn't going to wipe out their book and expose them to inventory risk.

Essentially: you are cheaper to make a market for than a giant fund is, and you, Citadel, and Robinhood can split the savings.

Why would they pay for the order flow and create smaller spreads which makes them less money? They have no reason to do so. I don't see what you mean by savings - if they're making less money, how does that translate into savings for anyone?

> Why would they pay for the order flow and create smaller spreads which makes them less money?

Competition. Why does Coca-Cola spend money on advertising, driving up their costs and (seemingly) ensuring they make less money? Retail order flow is essentially free money for the market maker who gets it, and they compete with each other to obtain it. That competition shows up in a mixture of tighter spreads (ie, better than the "best price" for the customer), and payment for order flow. And payment for order flow, in turn, shows up as some mixture of lower fees or higher margins for the broker.

At a big picture level, retail orders are valuable, and that value will be split between the market maker, the broker, and the customer, with the exact split depending on a number of factors.

> I don't see what you mean by savings - if they're making less money, how does that translate into savings for anyone?

Keep in mind, market makers make money by being extremely efficient at buying stocks when people want to sell, and selling them when people want to buy, minimising the stocks they hold at any given moment, making a tiny amount on every transaction, and making it up on volume. If the incoming orders are "uninformed", ie, it's just a dentist in Milwaukee daytrading his retirement account, then this is very safe. If the incoming orders might be "informed", ie, it might be the first indication of a fundamental shift in the value of the stock, then this is not safe, because every trade could just be noise, or it could be the start of some hedge fund shifting a billion dollars into or out of the stock.

The NBBO (National Best Bid and Offer) is the best available price for "mixed" order flow, that captures the risk to the market maker that, if they fill the order, they might be about to get run over by a bus. The more they can get order flow which is safer than that, the more they can afford to beat that "best price". They do this because they believe that, on average (and after adjusting for risk), they will be making more money, not less.

This is all pretty concrete, nothing here is new, every broker does this, and it's all very well understood. If the current best ask is $X, and you can promise that you're an uninformed idiot who has no clue what's going on and just wants to buy 50 shares, then you can find someone who'll give you a better rate than $X. If you're Bridgewater and you want to buy 50 million shares, you won't.

Keep in mind that some MMs have contracts with exchanges that require them to always be in the market, and pay them for each share bought/sold.

So that MM will in fact buy orders that may on the face of it be a loss.

A market maker sets a bid (the price at which they buy) and an offer (the price at which they sell).

The offer will always be higher than the bid, and they make the spread between the bid and offer price.

If buy and sell orders are roughly balanced, they will not lose money. The idea behind purchasing flow such as Robinhood's is that the traders are random noise traders, with a balance of buys and sells as such.

There is another kind of market maker whose job is to provide liquidity by always staying in the market. The exchange pays them some fraction of a penny per share bought and sold.

What effect would the proposed sales tax on trades we see proposed occasionally have on Robin Hood's model? Here's the most recent version: https://www.cbsnews.com/news/bernie-sanders-taxing-wall-stre...

In this case, the proposed tax is meaningless because it's fantasy headline legislation (it exists solely as vote-stirring propaganda) that has no shot at passing. The never-passing proposal will have no effect on Robin Hood's business model.

I was under the impression that pretty much all retail brokerages (especially online discount brokerages) sell your trades (i.e. "payment for order flow") so I'm not sure if this would create a material difference whether you went with RH or some other retail brokerage?

Every other brokerage that sells services to normal people also does this.

Nothing is ever free. Robinhood sells order flow, meaning your trades are executed by a real market maker but with slower fills, larger spreads and more restrictions on trades.

> Robinhood sells order flow


> meaning your trades are executed by a real market maker but with slower fills, larger spreads and more restrictions on trades.

Incorrect. Retail customers who have their orders routed like this obtain instant execution at prices at least as good as, and sometimes better, than the best available price on public markets, and in the case of Robinhood, they also pay zero fees.

In other words, everything you said is wrong. They don't get slower fills, they get tighter spreads, and lower fees. This is strictly good for the retail investors.

The good news is that the broker isn't screwing them.

The bad news is that the reason for that is because the broker doesn't have to screw them; they're uninformed noise traders buying and selling in basically equal measure. The traders buy at $1.001 and sell at $0.999 as much as they want until they're blinded out by the spread, which the broker keeps.

The "savings" being passed along is just a reduction in the portion of the spread that the broker would normally use to protect itself against informed traders.

Most retail brokerages sell order flow to internalizers, so if you're paying fees to trade, you're probably not getting anything back for that money.

Sure, there's only a few companies that control all the flow but paying fees usually results in smaller spreads and faster execution. It also seems to result in better software and support. Maybe not everyone needs it, RH is good if you just buy and hold, but I wouldn't say fees are for nothing.

I don't understand why you believe paying fees "usually" results in smaller spreads. Most of the brokerages you pay trading fees to are doing what Robinhood does, because retail order flow is made to be internalized, and firms like Citadel do a better job of it --- for customers --- than the firms that run the brokerages do; the job of a typical brokerage is to make a pretty web UI, keep some servers running, staff a bunch of brick-and-mortar locations, and answer the phones, and the job of actually executing trades is specialized in a different direction. More likely, the firm you're paying trading fees to is handing your order off to an internalizer, getting rebated for it, and pocketing both the rebate and the trade fee.

It's from my experience and I've heard the same from many others. Maybe better spread is from better speed, and maybe the speed is a result of better software platform. The fees are also negotiable though, and responsive support is good to have and helped when I needed it.

If it was that simple then I find it strange that these brokers don't offer free starter accounts to new users to compete against Robinhood. They must know something we don't about the real value of the company and how much competition they're adding.

"If it was that simple then I find it strange that these brokers don't offer free starter accounts to new users to compete against Robinhood. They must know something we don't about the real value of the company and how much competition they're adding."

Or it just may be an example of how changes don't happen instantly. If they lose enough customers, they may cut commissions, even to zero. As long as it isn't a big problem, they won't.

It seems to me that a lot of brokers are providing an increasing number of commission-free securities, and you also see promotional deals where a new account of sufficient size gets several hundred free trades.

Be sure to use limit orders! It feels like the execution price of their market orders can be looser than expected at times.

Doubly true if it's outside market hours. Unlike every other broker Robinhood doesn't (always) warn you when the markets are closed. I've had fills come in dollars off the last trade simply because the market order was placed before or after hours.

Most places I’ve seen won’t allow you to place market orders after hours, only limit orders.

Fidelity let's you do it, they just warn you.

Yes. It's amazing how many people don't know how to use limit orders, though entirely unsurprising since RH is a very beginner friendly platform.

Robinhood also makes it harder to use limit orders than other brokers. I suspect it's because they receive more payment for order flow when it's a market order.

Wow, that's an extremely immoral dark pattern if true.

There is no way that Robinhood is worth this much money. I admire them, but $7 billion for 2 million customers is insane. I'm assuming they are targeting being the "Financial Amazon" for millenials, I'm just not convinced even if they achieved it it's worth this much. Stock trading is a dying business, and after the next stock market crash or recession, they will lose the majority of their customers. Moving into financial services might make sense, but I don't think these founders have the acumen to do this, as exhibited by their embarrassing attempt recently with their "checking and savings" account.

What Uber's IPO has shown is that VC funding is far too overly delusional. They buy their own bullshit about how growth trumps all but investors want profits and you won't see the real reaction until it starts trading for real, like Uber and Lyft. Until then, all you see is VCs talking their book and lazy tech writers repeating everything they say without actually thinking about it. So, sure some investors were stupid enough to invest $200M at $7B valuation, but I doubt Robinhood will grow into such lofty valuations that are reflected by the markets unless something drastically changes. 2M customers simply isn't enough.

Charles Schwab is currently worth ~57 Billion

TD Ameritrade: ~29 Billion

E-Trade: ~11.5 Billion

Fidelity Investments is privately owned, so harder to value, but is probably worth 50-75 Billion

All of those are more than just brokerages. They all have consumer banks (in the case of TD Ameritrade, a decent-sized one). Schwab manages their own mutual funds. Fidelity is one of the top providers of 401k services in the US (and also manages their own mutual funds).

Each of these companies is far more diverse than Robinhood, and their valuations are not comparable.

What prevents Robinhood from diversifying? They've figured out how to get a lot of customers fast. They're executing extremely well, IMHO, and that means they have many growth options. A team that can deliver a constantly improving product quickly for a huge customer-base is kind of unstoppable.

And, it is irrational to compare startup valuations to established companies. They're not the same category. If they were, we'd look at F and GM and wonder why anyone would ever invest in TSLA (though, that's maybe not a great example because I suspect F and GM are better investments than TSLA right now, but not because they are more diverse or whatever...but, because there's a lot of risk built into TSLA due to sloppy management). But, it's easy to find examples of old companies beating new companies that seemed to be stronger investments. Google vs. Yahoo, Amazon vs. Borders, etc.

Robinhood may be the biggest provider of 401k services in ten years. Or, they might partner with storefronts to offer banking+ services. Or, they might just keep bringing in new small dollar customers and eking out tiny profits by being more efficient; there's plenty of room at the bottom. Those other guys charge ten bucks a trade (or more)! You can bet all the people tucking away $100 from each paycheck don't want to lose 10% of it to fees right off the top. McDonald's doesn't make a lot of money from each customer, but they have a lot of customers.

I have an Ameritrade account that I've had for 25 years (well, it was Datek back then), and I have a Robinhood account. I stopped automatic withdrawals to Ameritrade a year or two ago, and now all my trading happens on Robinhood. It's just a lower-friction experience. If Robinhood goes public, I'll consider buying, because it's a good and novel product in a market with a lot of money changing hands.

On the other hand, I just closed my Robinhood due to their dishonest Savings "and" Loan debacle. Not that I don't think my money is safe (they are insured), but that they are pushing any and all areas to grow as much as possible.

Supported by this new big round raise.


> And, it is irrational to compare startup valuations to established companies.

Uhh, hate to break it to you but startups don't get "special valuations" because someone calls them startups. That's just not how it works. There's a little thing called "comps" that are used when companies get valued and no banker says "oh thats a startup so their valuation is different".

Source: M&A guy.

"Uhh, hate to break it to you but startups don't get "special valuations" because someone calls them startups."

Is this condescending tone necessary?

I was suggesting growth plays a large role in why startups are valued differently than established businesses, and I don't see how you can argue that a rapid growth company will be valued according to the same metrics as a company with very low growth.

> And, it is irrational to compare startup valuations to established companies. They're not the same category.

Is it necessary to be so matter-of-fact and imply that people aren't being rational (and thus inferior to your clearly rational point of view ). You're not wrong, the tone isn't necessary but I guess I was just following your lead.

You're not wrong about that, it was more dismissive than it should have been, though I'm not sure how else to express the idea I had in mind. Perhaps I should have instead said something along the lines of, "I value rapid growth startup companies very differently from established slow-growing companies." without expressing an opinion on whether that's reasonable or not. I'd guess everyone here can make an assessment about how growth is factored into company valuations.

I'm not aware of any connotation of "matter-of-fact" meaning "rude".

Yeah I jumped ship from TD to Robinhood recently too. Ever since TDs commission free ETFs went to shit.

Interactive Brokers ~23 Billion. So between the 5 companies and Robinhood the latter would take ~4% of the market cap.

It's not that much, but I feel you.

I think the target market is the problem; older people have the money, and they're not moving from the places they know and trust.

If Robinhood is playing the long game they are looking to capture the young market now so they are the first stop when the money comes pouring in.

Yes, the long game.

It's very hard to prove that someone is doing the wrong thing when you invoke the term "the long game".

Give it time. Millennials are now the largest generation in the country. Soon enough, they will have the most money.

Every generation will eventually "have the most money". The question that matters is "when?". Will they get the most money because they've earned it or because all prior generations have died off enough for them to inherit it.

I can't think of any mechanism by which wealth owned by the rich (i.e. old) can skip a generation.

The only way this proves to be false is if we eventually discover the secret to healthful immortality and end up with a generation that never dies, and therefore never bequeaths its wealth to younger generations. The longer people live, the longer it will take younger generations to inherit the wealth of older generations.

The only other way this proves false is if there is a massive wealth destroying event such as war, revolution, ecological collapse, etc. such that there isn't much wealth to inherit.

"I can't think of any mechanism by which wealth owned by the rich (i.e. old) can skip a generation."

The IRS can!

See: https://en.wikipedia.org/wiki/Generation-skipping_transfer_t...

Fascinating. Thanks for the link.

That said, I was talking about a generation collectively across all of society, not a specific family.

Isn’t that the problem? That the millennials are not accumulating wealth at the rate of the boomers?

They're not, but when the boomers start to die (we'll they've already started but as the pace picks up), they'll be leaving a lot of wealth to the millennials.

I think most of the boomer money will pass down to GenX and the xennials. Millennials are another 15 years out.

VCs don't have a 30 year time horizon. The way compounding interest works means assets are heavily skewed toward older workers.

Young people get old and accrue wealth.

I still have my Ameritrade account from 25 years ago (then Datek, which was, at the time, revolutionary), so I'm not even the obvious consumer of Robinhood services since there was friction for me to stop using Ameritrade and start using Robinhood, but I switched all of my investment activity over to Robinhood a year or so ago (still have some stock at Ameritrade, but I don't actively trade there).

Company valuations are based on the next 10 years rather than now.

> older people have the money, and they're not moving from the places they know and trust.

Their money is moving, because old people—at a higher rate than young people—become dead people, whose former money is then controlled by someone else, often younger.

Interactive brokers actually publishes its numbers every month. Currently at a mere 630k accounts. But a whopping $150 Billion in Client Equity, and the other metric this industry uses is DARTs or daily average revenue generating trades, which is close to 800k. Robinhood probably sells most of its flow to HFTs at lower than what IB charges on commissions and IB is valued at 3x or $22B


I'd imagine Robin Hood will sell insurance, their own funds, mortgages through a broker i.e. everything that those people need and would get anywhere else.

'RobinHood' is just a portal for sales to a generation.

Also, FYI, this name 'RobinHood' i.e. a brand created to make people think somehow they are 'good' (and all of their 'occupy wallstreet we wanted to do somethiong' BS) is laughable rubbish and kind of stain on a generation. Robin Hood is the same as anything else in a different config. Nike is not somehow 'moral' because they take some arbitrary stand on their billboards. They still pay people pennies to make shoes. It's a sad statement to think any of this marketing actually works. It's fine to 'want to do good' but if people can't understand that it's only 'talk' ... well, very naive.

The thing that is odd about Robinhood is how it's a myth that has evolved pretty dramatically in how it is popularly interpreted and understood.

Previously it was about a world where the productive class had their wealth usurped by the taxman and a man who took that money back to give it to those that produced that wealth.

Now it's interpreted as a story about a man that takes from the rich and gives to the poor. There is no longer any consideration for who generated the wealth in the first place.

Nowadays, your wealth still goes to either the taxman involuntary by threat of licit force by the state or to voluntarily people that provide you goods and services that you deem beneficial. The difference is the Robinhood now steals from the latter instead of the former.

These are always really interesting comments because it shows exactly what happens when one is reductionist- up to the point where it agrees with their pre-existing views. Taxation is theft- they're taking your private property! The legitimacy of property rights, however, is rarely questioned.

A common response is that property rights are obviously necessary- that society couldn't function without them.

The same argument, though, applies to things like taxation! "Obviously, we need some taxes just to keep society running- roads, water, firefighting..." isn't an uncommon argument from more centrist types, and that tastes exactly the same as "property rights are necessary for civilization".

The fact is, the moral authority of "I can kill you if you try to use this object, or enter this area of the world, which I call 'mine'" is just as worth questioning as that of "I can kill you if you try to use this object, or enter this area of the world, which I call 'mine'- unless you're authorized by a democratically elected, representative government, and we as citizens have collectively agreed that each of us must contribute towards the common good."

If taxation is theft, then killing somebody to defend or retrieve your property is cold-blooded, probably premeditated, murder.

And a little afterthought-

> your wealth still goes to either the taxman involuntary by threat of licit force by the state or to voluntarily people that provide you goods and services that you deem beneficial

This voluntary-involuntary distinction is just sort of asserted without a lot of examination of the actual situation.

You're starving. Somebody else has bread for sale. You can buy the bread for an inflated price or starve. Is this voluntary?

Perhaps it is- even though in practice you had no meaningful choice, in that particular situation the best outcome for you comes from paying almost any sum for that bread. There's an argument there that you chose to buy it willingly, rather than starve.

You also have an option not to pay taxes! If you pay, you do so willingly. Yes, you'll wind up in prison, but- the best outcome for you comes from paying the taxes. You had a choice- you decided to purchase your freedom. This was voluntary.

In fact, assuming a rational actor, in this shallow definition, practically everything they do is voluntary- if a spy is being tortured and gives up some information, they did so willingly- after all, they could have continued to suffer. If you're being held up at gunpoint, you choose to hand over your wallet- you make the rational choice that losing some cash and having to cancel your credit cards is preferable to being shot.

Now consider one last situation- You're locked in a room, starving. There is some bread on a table. You go and try to eat the bread, but are stopped by a man with a gun. He will kill you if you eat it, he says, unless you pay him first.

Your options are to die by starvation, get shot, or pay money. Is your choice to continue to live and to pay the money a voluntary one?

And did you notice that this is the same situation as the first one?

"The legitimacy of property rights, however, is rarely questioned." To be fair it's questioned a lot.

In Canada, we made a new Constitution in the 1980's and the 'left party' was going to veto it if we included the specific rights to private property. Trudeau caved and so we don't have constitutionally protected rights to private property in the sense we might want. Though I don't think it's pragmatically much different from most nations.

To be a bit more clear, I was referring to specifically from a conservative, capitalist perspective (which makes sense, since capitalism does sort of require capital to be property.) Libertarian arguments that killing somebody who is taking your property violates the NAP, for example, are rare birds.

I'm not against taxes. Tariffs and excise taxes that pretty directly support the commerce enabling activities of the state are totally fair. Income taxes in particular are theft.

> The same argument, though, applies to things like taxation! "Obviously, we need some taxes just to keep society running- roads, water, firefighting..." isn't an uncommon argument from more centrist types, and that tastes exactly the same as "property rights are necessary for civilization".

FWIW there are a large number of places that to this day have an all-volunteer fire department, and there are places with private water companies and private roads. (And having an all-volunteer police force in the same spirit of a volunteer fire department is a thing more places should have -- and avoid all the trouble we get when the police think they're different than regular people.)

Of course, the places with private roads tend to have the road maintenance company end up looking a lot like a local government, in the sense that you either pay your share of the road maintenance or you can't use the only road to your home, which is coercive. But there is still a highly relevant difference in that the road maintenance company doesn't force you to buy into their social insurance programs and pay for their military excursions even if you don't want to. And if you decide you want to be a hermit who never leaves home and doesn't need roads, you don't go to jail for not paying for them.

The difference is the level of coercion that actually exists. Nobody is going to refuse to pay a reasonable road maintenance fee for their own local roads, because the value vastly exceeds the cost. But if the road company tried to claim that in order to use the roads you would have to give them your sons to die in their wars, you would tell them to eat sand and pay the cost of building new roads so you don't have to use theirs. Which, even though very expensive, puts an upper bound on the level of coercion you have to put up with.

That doesn't exist with a government. Even if their demands are completely unreasonable, they have the capacity to make your alternative worse.

> Your options are to die by starvation, get shot, or pay money. Is your choice to continue to live and to pay the money a voluntary one?

You're ignoring the possibility of buying food from someone else. The anti-government argument is fundamentally an anti-monopoly argument. If there is a private monopoly on food then that's just a de facto government which has seized power by controlling the food supply. But if there isn't a monopoly then no one can point a gun at you and force you to pay an arbitrarily large amount of money for necessities, because you can turn around and buy it from any of a hundred others who charge more reasonable prices. Or produce it yourself if you're so inclined.

Oh, I'm not so much arguing for taxes as I am rather rather sort of trying to examine the general libertarian argument that taxation is theft.

I don't even know what my politics are- not "i don't know what to call them" but "I honestly don't know what policies to advocate in general", though they're somewhere to the left of center.

> If the road company tried to claim that in order to use the roads you would have to give them your sons to die in their wars, you would tell them to eat sand and pay the cost of building new roads so you don't have to use theirs. Which, even though very expensive, puts an upper bound on the level of coercion you have to put up with.

This theory sounds good, but I've always seen no guarantee that this can happen in practice, for roads specifically. Space is finite, and roads owned by the fun new road startup can't cross those from the old evil monopoly- they don't own that land, and they're sure not going to get permission to use it to build their own roads! Tunnels are also right out (since if you own the earth under your land, so does the road company). You'd be left in a situation where no land vehicle could access your land - only aircraft. This is, probably, a very expensive situation.

So, while it sounds possible initially, at least for me when I consider the logistics of it, "build your own private roads competing with the other ones" works only in rural areas, and only for point-to-point, relatively short connections. If the Interstate Highway System was owned by an evil organization, could you build your own highway system? Probably not; at some point you'd just have to cross land owned by them.

How do you see this problem being solved in practice? Again, there's something silly about the whole thing, but I can't figure out how it'd play out myself.

> You're ignoring the possibility of buying food from someone else. The anti-government argument is fundamentally an anti-monopoly argument. If there is a private monopoly on food then that's just a de facto government which has seized power by controlling the food supply.

This is interesting, and seems somewhat valid. It does produce a sort of silly conclusion that if you meet a starving man and are his only source of food- say, you're up in the wilderness and he's a lost hiker- you now have seized government power, which doesn't make much sense.

My point, though, was less just "private monopoly bad" but "coercion can and does exist in capitalism in practice". Specifically, there are items for which demand is nonzero and extremely inelastic- an antivenom for the rare Hypothetical Scenario Snake's deadly bite is the only thing that can save you, and a monopoly or cartel could easily form in the pharma industry for such a thing. Given current IP law, which is essentially in the business of granting monopolies... that'd do it right there. But assuming IP wasn't around, you'd almost certainly wind up with a price-fixing cartel.

Now, everybody knows cartels are unstable- it's basic game theory. But there's a stabilizing influence- the "cartel game" is not played only once. Rather, it's more like the iterated prisoner's dilemma. As a group of pharma companies fix prices on drug after drug, they come to know each other better- undercutting the cartel, they know, would mean losses for them both, and they can develop trust that they won't themselves be undercut.

And specifically in pharma, where investments in manufacturing can be quite high, the threat of a startup who isn't trustworthy, entering the game is low.

All considered, these make the pharma industry, in the absence of regulation, prime for cartels to form. And these cartels would have, economically, no incentive to set prices for life-saving drugs lower than "whatever your life's worth to you".

So- in this sort of situation, if there were two people selling antivenom, both asking an exorbitant price, and the startup costs keep any competitor out (and remember, the potential new entrant knows quite well that they need to undercut the cartel to succeed, which means they'll be in a race to the bottom with two more-experienced competitors, which means they'll...probably not have a good time)... is the man bitten by the snake coerced to pay, or is his choice free? And have the pharma companies formed a government here? Does it govern anybody besides snakebite victims?

I'm quite interested to hear your reply- especially the stuff around how anti-government is fundamentally anti-monopoly. I often see the state defined loosely as "a legitimized monopoly on violent force", and I've always figured the critical part there was the "violent force". But is there some connection to monopolies in general? (Of course, the monopoly on violence itself isn't quite what we mean here- they're not "the only seller of violence", they're "the party whose violence is accepted by society"- it's not an economic thing in that context.)

That's a disingenuous interpretation which just bakes in your desired framework. What actually changed is that abstraction increases the disconnect between making money and generating wealth. Much of that parasitic "taxman" class now claims to be in the private sector.

No, 'Robin Hood' was never about that.

Robin Hood long predates any kind of even basic economics.

Even those concepts you site a little tricky in 2029.

It's about as complex as a Tranformers or Fast and Furious film: ugly authoritarian tax guy takes money from people and treats them like crap, Robin Hood fights back. That's it. It's the ultimate in populism.

no ethical consumption under capitalism, and all that

What Uber's IPO has shown is that VC funding is far too overly delusional

VC investors were perfectly logical. The people who get in early on a Ponzi scheme often make out like bandits. It’s the people who bought in the public market who were the bigger suckers.

> Stock trading is a dying business, and after the next stock market crash or recession, they will lose the majority of their customers.

Is there historical evidence to back this up on older brokers?

We've been in a ~10 year - largely unprecedented - bull market where you could throw darts and make money. Recessions usually destroy the returns of index funds and broad ETFs that millennials have been sold on. When the market's rising tide isn't raising every ship, picking ships becomes important.

If anything a recession should increase the number of retail traders because their index ETF is getting destroyed, but there are a handful of companies or positions that are flourishing. In the past, at least we've had advisors who while glorified salesman you can at least call and will get you to calm down. Now we're going to have a generation of retail investors watching their investments tank 20% across the board with only Robinhood support to tell them to calm down? Is that going to be enough to stop them from liquidating their ETF and taking a more active role investing in recession-safe companies?

Do you have any cites of any 10 year period when more than 50 percent of managed funds beat their respective indexes?

Beat, net of fees. The goal of almost any managed fund is to extract the maximum amount of depositor money via fees. If you beat the market, raise your fees. If you don't, say it's because your investments are counter cyclical and lower risk, and keep charging your fees.

"Stock trading is a dying business."

On what planet?!


Professional fund managers are struggling more and more to find alpha, do you think it's going to get easier for the newbie retail investors Robinhood attracts?

I look at the individual trading industry like online poker. There are lots of people who lose money playing poker online, yet it is still a huge industry with new suckers joining everyday. People are addicted to gambling even if they have no edge and lose money. It is the same with trading. Just look at the subreddit /r/wallstreetbets.

Just follow the rules that Benjamin Graham set out and invest for the long term and don't speculate - which is what a lot on here think investing is.

I can only speak from personal experience, but I love Robinhood.

I am an amateur trader for pure hobby because of Robinhood.

Many years ago, I tried to create an etrade account and it was an insanely long process (it may have changed now). I don't even remember what I did after I got an invite from a friend, but I was up and running right away.

I started trading $300 just to see what it was like. The first three months, I learned a bit and lost some money. Fast forward 1 year to now, and I have around 54k in there and am up 16.05% - and that includes the crazyness of December. I have invited some friends and they all trade between $300 to 10k AFAIK. I am in no way rich, but I compare the performance of my retirement portfolio to what I do with a few ETFs, and honestly it has demystified the whole process. Before, I used to login to Clash of Clans when I had a few minutes to spare, now I spend that time browsing Robinhood. To me Robinhood was a game changer for this and many other reasons.

I'm trying to not be condescending, but I have a strong feeling that will change when the market eventually crashes.

I say this because I honestly don't see how anyone who is serious about financial planning can use Robinhood for anything besides "play market". Case in point: the graphs in Robinhood show no y-axis values. This is insane if you actually care to see how your portfolio has been doing. Yet this is obviously intentional by Robinhood, so it must be designed to obfuscate what is really going on.

When things really start to go south (which they inevitably always do) there is going to be a run on the bank at Robinhood.

So people will do that, but why would I just not sit out and keep stocks like my Berkshire or SP500 ETFs during it? Why would I just not double down and wait a few more years during those dips? Or am I not expected to do that because I bought it in Robinhood as opposed to having bought it in E-trade?

> I have around 54k in there and am up 16.05%

and where would you be if you'd just stuffed all your original cash into VTI and not fiddled with things?

15.52, according to Yahoo.

Does that include the dividend yield? (~1.8% iirc)

It does not. Otherwise it would be higher.

Oh, and I forgot that includes my mess ups of the first three months when I was learning. Otherwise I would be outperforming an ETF of the SP500 by 3% without doing much work.

You've got to think about more than just whether you're beating the S&P500 ETF at any given time. The point of the S&P 500 is that when a recession comes you're protected. The point is that the S&P500 is a diverse portfolio of companies so that whilst it will be affected by a recession you aren't going to be over-exposed to the companies that are hit the worst. I suspect it's quite difficult for you to reproduce that kind of diversity in your portfolio manually. It's also very difficult for you to put a value on that risk - you've outperformed by a couple percentage points. But you're probably overexposed to some extent, those two things have value - but there's a reason why hedge funds spend millions of quants and still lose out to the market in the long run.

> and that includes the crazyness of December

You mean when the market dipped and completely recovered in two months? Hardly crazy.

Well, everyone in my family thought I was crazy for constantly looking at Robinhood during Christmas to snatch good deals.

+1 on easy sign up. Robinhood was the third platform I tried. The first one refused me for being on a work visa. The second had a very complicated process where I would have to send in dead-tree forms. Robinhood was just simple and easy.

Unlike the stereotypical Robinhood user, I buy and hold a 1-fund portfolio, and I think it works pretty well for that.

Are you actively trading ETFs?

They make me extremely nervous. Most people I know that use Robinhood seems to use it as they would play dices in Vegas. They have no ideas on the stock fundamentals or why and how the prices change. Most of them are playing a big amount of their savings too which is extra concerning.

What makes me even more nervous is that Robinhood seems to deliberately cater to those crowds of uneducated emotional day traders.

I said this before but they seem to become the "facebook of finance" with the same "break things and go fast" mission. I would never use them for any significant amount of money. That being said, I use them occasionally for options because the fees of traditional brokers are such a joke (20$ typically to sell and buy).

Those risks are present in the market in general, independent of robinhood. Should a platform be discouraged because its benefits don't discriminate between fools and people who know what they're doing?

I don't know what it's like in the US, but in most countries gambling is very highly regulated for good reason. Buying stocks on the stock market with little to no information is basically gambling, the difference is that you have no idea what your odds are, often the cash out terms are unclear and the broker has no financial restrictions on letting you bet more than you can afford.

In fact, I know in the US you need to be an accredited investor for some times of investment for exactly this reason - it is so easy to get ripped off.

The idea of beimg able to trade stocks quickly is appealing, however this is a slower version of say trading,which is as difficult as it can possibly get. Ability to buy and sell stock often is a death kiss for 99% of amateur traders.

That's an insane evaluation for 2m customers, most of which are probably playing with small "if-this-goes-im-too-scared-and-no-longer-a-customer" amounts of money.

Robinhood are also hilariously inept; See the box-spread fiasco and the checkings and savings account.


Robinhood wasn’t legally allowed to open checking or savings accounts, but no one said anything about checking and savings accounts. I mean, until the SEC and SIPC did. They said no.

woohoo, leveraged derivative trading democratized! /s

More seriously, I love the price pressure on brokerages, but I shudder to think what will happen to its users in the next recession.

Recession would be alright. What would cause trouble would be a market crash.

Maybe nothing. The next recession might be over 5 years away. Who knows if RH will even exist then.

This was such a good investment by Mickey and the Ribbit team: in 2013 Mickey told me that the history of retail brokerages points to fee revenue going to zero.

That the team went out and built a company for that reality is just stellar, and it’s fun to see insights like that turned into something real. Congratulations.

I'm still not completely convinced that a zero commission brokerage can be run profitably, although mad props to the team for executing.

People often focus on the HFT payments for order flow, but another important leg of the stool (along with stock lending, and the premium tier/margin lending) is the interest rate differential.

If rates were going to 5%, that'd be one thing, but with rates at 2-2.5 and a couple of cuts being priced in, that's going to decrease profits there.

Also it's kind of hard to launch a 3% cash management account when the ten year is yielding 2.3%.

Pity the guys at WSB can't buy calls on this. https://www.reddit.com/r/wallstreetbets/

In recently started using Robinhood as an alternative to Ally (formerly TradeKing). Ally provided very little extra value to me in exchange for their transaction fees. And as a buy-and-hold investor, I don't really need much more than limit orders anyway.

What I do still need are better research tools, but my impression is that none of the consumer trading platforms provide anything very impressive on that front.

thinkorswim might be worth checking out for research/tools/charting/news. I believe it is free without a TD Ameritrade account if you do a "paper money" account. I think the only negative of that is the paper trading account is delayed a bit.

If you're a buy and hold investor why does it matter if your occasional transaction costs $10?

Because it's $10 that I could be using to buy actual stock and not gifting it to some broker for basically doing nothing.

I guess to me that $10 is a suggestion that they are competing on execution price instead of transaction fee.

Cuz that's all that's left to optimize. If you've got a spare thousand to shift into brokerage, 10 bucks is a hefty 1 percent fee.

I am trying to make a difference in the problem area you mention. Would something like https://CoinQuanta.com (Alpha version) / https://StockQuanta.com (unreleased) be helpful towards your research needs?

Very curious to know what you're thinking when you think of better research tools

I'm just starting on Youtube for that exact matter!

99% of American's don't understand the stock market. So I made a video with McKinsey and UBS to explain it in 10 minutes: https://www.youtube.com/watch?v=G6EoPlaPO5c&t=20s

How are the unit economics in favor of Robinhood? This has been tried before and failed. What's changed? https://qz.com/330015/robinhoods-free-stock-trading-app-and-...

They have very low cost of acquisition of customers. This is opposite to some brokerages like TDAmeritrade that recently pulled their marketing budgets because they saw literally no uptick from marketing spending.

But that's not enough to justify their valuations.

Revolutionary to young retail investors in getting them to save. Now someone do real estate lower commissions

It's marketed as "the way young people get rich", and it's got a heavy focus on cryptocurrency.

I don't know if I would call it revolutionary so much as potentially exploitive.

Isn't that just Redfin?

It was, until Redfin realized their customers like them better because they don't like talking to a human agent, so they raised their prices to be almost the same price as everyone else.

Redfin probably raised their rates because they're operating at negative cash flow on both levered and unlevered basis.

sounds like the perfect time for a new redfin to bring in some competition.

On the sell-side, our family has used revinre.com for several recent houses and paid 0% to a "seller's" agent, plus a few hundred dollars for them to send someone out and take better pictures than you're going to. I think they're just in Phoenix but presumably others will pop up.

I have a hard time rooting for their success when their marketing/brand/aesthetic is all about encouraging high risk behavior among younger retail investors...

I've learned a lot through Robinhood, trading from a couple of hundred bucks to about $15k (not all gains, a lot of it is deposited), I've gained confidence and knowledge as the platform has grown.

Not sure if $7B is valid but the company is disrupting the status quo of commission based trading.

In September 2018, Logan Kane, a contributor to Seeking Alpha, stated that Robinhood's payment for order flow generated ten times the revenue as other brokers receive from market makers for the same volume. Bloomberg has analyzed Robinhood's reports to the Securities and Exchange Commission (SEC), and calculates that Robinhood generates almost half of its income from payment for order flow. Robinhood's lack of transparency on this issue is troubling. Beyond that, payment for order flow is slowly being regulated out of existence, so a brokerage that depends on generating income by selling order flow to market makers will find itself in trouble within 5 years.


Just remember that you are trading in an upmarket. All your knowledge will be worth nothing in a downturn. It's a totally different game. Learned that in 2000 :-)

> All your knowledge will be worth nothing in a downturn.

If you're lucky.

What have you learned?

From the first dot com crash, I learned that a given stock can always drop another 10%. Until it hits zero, that is.

Move into spy and wait it out? The market always recovers.

They are the company who figured out the ways of selling their customers’ flow to hedge funds directly, so the latter could adapt their market making algorithms for guaranteed profit?

Stealing from the poor and giving to the rich, genius!

The only people I've seen who actually use robinhood are the people at reddit.com/r/wallstreetbets , who seem like a cohort of dilettantes.

They seem like that because none of them want to share any edge, but I might be generous in my assessment.

My tin foil hat theory is that this is a conspiracy to keep dumb money at the table.

It seems like a predatory business model. Robinhood encourages amateurs to compete with professional stock traders and charges them a fee for the privilege. I'd like to see numbers for how much money the median Robinhood user loses.

Which makes their name incredibly ironic.

They sell your trading data to large high speed trading banks in real time, so stock price movements are much more volatile than when you trade through other platforms.

They sell order flow itself, not data. The data is already public.

So HFT's can see my limit orders that haven't completed?

If you have an unfilled limit order which is resting on the book at a stock exchange, anyone with L2 data (available for single-digit dollars per month from InteractiveBrokers, among others) will be able to see it, though it won't be linked to you.

This is how order books work. If you don't want counterparties to see the fact that you want to buy or sell stock, your options include a) not telling a stock exchange to advertise your willingness to buy or sell stock by putting in limit orders, b) using a dark pool, or c) become more sophisticated with respect to your execution strategy, such as e.g. using repeated Immediate-or-Cancel orders, etc.

Yes, limit orders aren't local but sent to the exchanges like market orders except with an advertised price that they will accept.

This is called Level II data and goes beyond the simple bid, ask spread of Level I. The feeds are cheap and usually free if you have enough money in your account at any traditional brokerage.

In theory, your non-marketable limit orders show up in the order book at whatever exchange they got routed to.


I’m puzzled why you thought this comment would be interesting for the general reader.

I got a chuckle out of it. Maybe because it's Friday though...

I found it mildly amusing. Maybe you computer too much today?

The more users they have the easier it is to incentivize actual " accredited investors" to screw them in the market long term lmao. Unless of course they get users to sell more reflexively and schizophrenically...

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