What is the appeal of Robinhood

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gavinsiu
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What is the appeal of Robinhood

Post by gavinsiu »

I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
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Re: What is the appeal of Robinhood

Post by edgeagg »

Gambling?
nalor511
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Re: What is the appeal of Robinhood

Post by nalor511 »

gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
alex_686
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Re: What is the appeal of Robinhood

Post by alex_686 »

In part they gamify the stock trading experience, lowering newbie anxiety.

In part because their native environment is a phone app and low dollar amounts.

I don’t think that there is anything particularly bad about them.

GameStock was a bit of a aberration. They are fundamentally a mid-sized brokerage firm which is modestly capitalized. They then had a sizable part of client base act as a mob. This caused stress on the firm’s operations. This is akin to people being trampled to death at Wal-mart’s Black Friday sale as everyone mobs the door.
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Lookingforanswers
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Re: What is the appeal of Robinhood

Post by Lookingforanswers »

If you're really interested, open an account and play around with. That's what I did a couple of years ago when it started making headlines. It's easy to build a portfolio and looking around to see what all the fuss is about. I put $500 in my "portfolio," and started buying individual stocks and a few whacko ETF's. I didn't day-trade, I just bought some stocks to see if I am the kind of person who would enjoy trading with some "fun" money (normally I just own boring Bogleheadish index funds).

Here's what I learned:

- Robinhood is a *great* app. By far the most user friendly, fun, and entertaining personal finance app I've ever used.
- The way it lets you buy fractional shares, buy and sell in a hurry, and track stocks is unparalleled in my experiencce.
- And: I am a *terrible* stock trader. I closed out my account after a few months after losing about 10 or 15% of my initial investment.

I wish the numbskulls who manage apps for traditional brokerages (I'm talking about you, Vanguard) would do the same and at *least* look at how user friendly their app is. I wish the big boring folks would at least learn from the ease of use (even if they want to skip a lot of the hype-y and gamey parts of the app).
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Re: What is the appeal of Robinhood

Post by secondopinion »

gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Back in the day, stocks/ETFs had trade commissions; it was a game changer for me when I could buy them with essentially no cost (there is payment for order flow). This is how I started investing in stocks. I closed my account recently because I do not need it anymore, as bond trading is nonexistent and commissions vanished elsewhere.

They continue to disrupt and I hope they continue, but I rather have my money elsewhere.
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PersonalFinanceJam
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Re: What is the appeal of Robinhood

Post by PersonalFinanceJam »

Agree with the comments above about being easy to use. I don't use it myself but was curious to take a look. It made the buying stock (or ETF) process easy. They were one of the first to offer fractional share buying so there was no worrying about number of shares or order types. It was just buy whatever dollar amount of water stock you wanted. It was easy to figure out how to do so without reading a tutorial.

Lots has been written about the gamification aspects but frankly I think those concerns are a bit over done. The benefit and the problem from my point of view was the ease of use. Easy to get started but also easy to find yourself in over your head and not realize until it's too late.
naquoae
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Re: What is the appeal of Robinhood

Post by naquoae »

Lookingforanswers wrote: Wed Mar 13, 2024 5:16 pm - The way it lets you buy fractional shares
This is the part I first heard why they were popular as well. It makes them more accessible to people who don't have large amounts of money to invest at a time.
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Re: What is the appeal of Robinhood

Post by veggivet »

Most of the activity on this board recently about RH involves the very generous 3% unlimited tax-free bonus they are offering. (Truly tax-free in the Roth IRA, and tax deferred in the T-IRA, unless you use it for a QCD.)
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Re: What is the appeal of Robinhood

Post by calwatch »

For any serious trader the interface is inferior, the charting is laughably bad and beaten by basic Yahoo charts. But they charge zero for options trades (only regulatory fees), which none of the major brokers have matched. Their education product is geared towards people with average intelligence who are new to investing, so may seem basic to many of us long time posters here. If they are going to shovel thousands in free money for a bonus (not just the 3% retirement, but the 1% on taxable accounts which expired in January), I am going to take it.
the_wiki
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Re: What is the appeal of Robinhood

Post by the_wiki »

One might go the other way and ask what the appeal of a big old-school broker is if you just want to make a few stock/ETF trades? By making it free, simple, and streamlined they got a lot more people interested in investing - for better and worse.

They are definitely the once who made trading free. The old brokers only followed that trend because they had to.
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Re: What is the appeal of Robinhood

Post by beyou »

nalor511 wrote: Wed Mar 13, 2024 5:06 pm
gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
Yes, some brokers and banks need to "buy your business" and others do not feel they have to do so.
Vanguard and Fidelity get LOTS of new customers without any bonuses. Yes I know you can ask at Fidelity but they do not advertise bonuses.
If I was to switch, it would NOT be to Robinhood, unless they developed all the same capabilities as Fidelity or could sell me all the same products I can buy at Vanguard. Not gonna happen anytime soon. Took many decades for Fidelity and Vanguard to develop what they have. A snazzy app isn't going to replace that.
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Re: What is the appeal of Robinhood

Post by nalor511 »

beyou wrote: Wed Mar 13, 2024 6:05 pm
nalor511 wrote: Wed Mar 13, 2024 5:06 pm
gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
Yes, some brokers and banks need to "buy your business" and others do not feel they have to do so.
Vanguard and Fidelity get LOTS of new customers without any bonuses. Yes I know you can ask at Fidelity but they do not advertise bonuses.
If I was to switch, it would NOT be to Robinhood, unless they developed all the same capabilities as Fidelity or could sell me all the same products I can buy at Vanguard. Not gonna happen anytime soon. Took many decades for Fidelity and Vanguard to develop what they have. A snazzy app isn't going to replace that.
Many buy-and-hold investors have a chunk they're happy to transfer around for bonuses, and that's the only chunk RH gets considered for, along with whoever is paying.
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Re: What is the appeal of Robinhood

Post by nisiprius »

Probably because it is unintimidating. The whole approach is "you can do it!" It makes inexperienced investors feel empowered. In effect they say "We let you buy crypto, we let you trade options, we give you free money so you can make your first transaction minutes after you create your account, we don't make you sign forbidding legal documents say that you are a sophisticated investor and totally cool with losing more money than you have. If you can work a slot machine, you can work RobinHood."

Banks used to resemble Greek temples and communicated a message that money was a serious, solemn business. Now they resemble check-cashing storefronts and communicate a message that banking is informal, goofy fun. Redneck Bank's slogan is "Where Bankin's Funner," and their landing page is currently showing a grinning horse wearing a green hat with a shamrock.

RobinHood is the same thing applied to investing.
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Re: What is the appeal of Robinhood

Post by beyou »

nalor511 wrote: Wed Mar 13, 2024 6:11 pm
beyou wrote: Wed Mar 13, 2024 6:05 pm
nalor511 wrote: Wed Mar 13, 2024 5:06 pm
gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
Yes, some brokers and banks need to "buy your business" and others do not feel they have to do so.
Vanguard and Fidelity get LOTS of new customers without any bonuses. Yes I know you can ask at Fidelity but they do not advertise bonuses.
If I was to switch, it would NOT be to Robinhood, unless they developed all the same capabilities as Fidelity or could sell me all the same products I can buy at Vanguard. Not gonna happen anytime soon. Took many decades for Fidelity and Vanguard to develop what they have. A snazzy app isn't going to replace that.
Many buy-and-hold investors have a chunk they're happy to transfer around for bonuses, and that's the only chunk RH gets considered for, along with whoever is paying.
You have to leave your chunk at RH much longer than at other brokers, and also subscribe to their paid service to get this outsized bonus.
No thanks, I don't want to make a multi year commitment to get a bonus. Frankly I wouldn't do it even without the long commitment but that commitment is a deal breaker to me.
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Re: What is the appeal of Robinhood

Post by UpperNwGuy »

nisiprius wrote: Wed Mar 13, 2024 6:19 pm Probably because it is unintimidating. The whole approach is "you can do it!" It makes inexperienced investors feel empowered. In effect they say "We let you buy crypto, we let you trade options, we give you free money so you can make your first transaction minutes after you create your account, we don't make you sign forbidding legal documents say that you are a sophisticated investor and totally cool with losing more money than you have. If you can work a slot machine, you can work RobinHood."

Banks used to resemble Greek temples and communicated a message that money was a serious, solemn business. Now they resemble check-cashing storefronts and communicate a message that banking is informal, goofy fun. Redneck Bank's slogan is "Where Bankin's Funner," and their landing page is currently showing a grinning horse wearing a green hat with a shamrock.

RobinHood is the same thing applied to investing.
Exactly so! My oldest daughter, who is a millennial, uses Robinhood for these very reasons. She is not impressed by the Greek temple image of Vanguard, Fidelity, and Schwab.
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Re: What is the appeal of Robinhood

Post by StevieG72 »

nalor511 wrote: Wed Mar 13, 2024 5:06 pm
gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
This!
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Re: What is the appeal of Robinhood

Post by Bill Bernstein »

RH deserves the gratitude of investors everywhere simply for triggering the major brokerage firms rush to zero commissions several years ago.

I'm curious if anyone on the forum has used it for a simple BH 3-fund portfolio, putting cash balances into a low-cost short-duration MMF equivalent such as SGOV.

RH wouldn't be too happy, I imagine, to attract a large number of folks who did so.
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Re: What is the appeal of Robinhood

Post by nalor511 »

Bill Bernstein wrote: Wed Mar 13, 2024 6:32 pm RH deserves the gratitude of investors everywhere simply for triggering the major brokerage firms rush to zero commissions several years ago.

I'm curious if anyone on the forum has used it for a simple BH 3-fund portfolio, putting cash balances into a low-cost short-duration MMF equivalent such as SGOV.

RH wouldn't be too happy, I imagine, to attract a large number of folks who did so.
Yes, many of us hold set-and-forget ETF portfolios there now
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Re: What is the appeal of Robinhood

Post by TRC »

I would never trust my money with RobinHood. Especially after they locked the "buy" option in the app for GameStop during the frenzy.

DFS Superintendent Harris Announces $30 Million Penalty on Robinhood Crypto for Significant Anti- Money Laundering, Cybersecurity & Consumer Protection Violations

https://www.dfs.ny.gov/reports_and_publ ... Part%20200)%2C%20Money

Popular investing app Robinhood became the focus of the controversy after it decided to freeze trades for GameStop on Jan. 28.

https://www.cnet.com/personal-finance/i ... ntroversy/
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Re: What is the appeal of Robinhood

Post by alex_686 »

TRC wrote: Wed Mar 13, 2024 9:02 pm Popular investing app Robinhood became the focus of the controversy after it decided to freeze trades for GameStop on Jan. 28.

https://www.cnet.com/personal-finance/i ... ntroversy/
Let us be fair to Robinhood.

The correct price for GameStop was infinite- or a price functionally as high.

That isn’t a valid price. As such, the price would continue to go up until the weakest link broke. That weak link was Robinhood. If not them, it would have been another broker.

They stopped trading GameStock because by regulation they couldn’t trade it anymore. As a result of Lehman Brother’s collapse brokers need to post collateral in case they go bankrupt in order to minimize counter party risk. Normally this is a nominal amount but because of the insanity around GameStop it was probably around 100%. Robinhood, a midsize brokerage, ran out of capital to post collateral.

Instead of freezing trade orders do you suggest that they violate capital requirements?

Note, I work in risk management and a fair amount of my time is spent with counterparty risk. I question some of the decision that Robinhood made to get to thus point- specifically self clearing- but once they got there they had to shut down trading. Only choice they had.
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Re: What is the appeal of Robinhood

Post by gator15 »

I have accounts with Fidelity, Vanguard, Schwab and Robinhood. The first three I’ve had for over 10 years and the Robinhood account I’ve had since 2019. I can’t recall why I opened an account. I think it was because I could buy fractional shares. I’ve kept the account because of ease of use and the ability to see everything that appeals to me immediately upon opening the app. This includes your overall balance, the dollar amount and percentage your up/down for the day. With one tap you can also see how your portfolio has performed for the last week, month, year and year to date. Scroll down to the stocks you own and you can see the same info. You can also create a watch list of the stocks which interest you. Maybe the other brokerages offer these options but I prefer Robinhood. Robinhood is the only account I check daily. It’s not for everyone but I really enjoy it.
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Re: What is the appeal of Robinhood

Post by madbrain »

The 3% bonus is the only reason for me. It really adds up in a 7 figure portfolio.

I do not find the RH app or website to be intuitive at all. They are actually very confusing to me compared to Etrade or Merrill. And the features are far fewer.
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Re: What is the appeal of Robinhood

Post by billaster »

Bill Bernstein wrote: Wed Mar 13, 2024 6:32 pm RH deserves the gratitude of investors everywhere simply for triggering the major brokerage firms rush to zero commissions several years ago.
But they did that by literally cheating their customers on Payment for Order Flow. The SEC fined them $65 million for stealing from customers and lying to them. As the SEC pointed out, Robinhood made a big deal out of zero commissions, but were silently making it up on the back end from PFOF fees -- unusually high payment for order flow rates -- as the SEC says. From 10 to 100 times normal payment rates. And they lied to customers promising on their FAQs that they were getting "execution quality matched or beat that of its competitors."

So, yes, it's a lot easier to pioneer zero commissions when you are cheating your clients on the back end to finance it and lying to them about it.

https://www.sec.gov/news/press-release/2020-321
https://www.washingtonpost.com/business ... stigation/
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Re: What is the appeal of Robinhood

Post by billaster »

And if Robinhood has not demonstrated to your satisfaction just how crooked they are, you may be surprised on how they got into the banking business.

When they decided to offer banking to clients with checking and savings accounts, they promised clients that their accounts were insured by the SIPC because their brokerage was insured by the SIPC. They said so in the same FAQs they used to lie to clients about payment for order flow. This seems to be a pattern of lying to customers.

Of course the SIPC does not insure banks. The SIPC insures that brokerage assets will be held safely in custody. Bank deposits are exactly the opposite because they are loaned out at risk to other parties. They can only be insured by the FDIC if the institution qualifies and pays the insurance premiums. And the SIPC rapidly jumped on them to disabuse them of their fantasy, telling with no uncertainty that the SIPC would not be insuring Robinhood bank accounts.

These ignorant fintech bros thought or pretended to say that the SIPC insured their bank accounts. Either they are too ignorant to run a financial institution or they are too crooked, or both.
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Re: What is the appeal of Robinhood

Post by Bill Bernstein »

All true.

But that doesn't negate the fact that without them we wouldn't have today's world of commission-free ETFs.
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Re: What is the appeal of Robinhood

Post by billaster »

Bill Bernstein wrote: Wed Mar 13, 2024 11:40 pm But that doesn't negate the fact that without them we wouldn't have today's world of commission-free ETFs.
You have no way of knowing that. There had been a trend to lower and lower commissions for many years and could be zero today regardless of Robinhood. And even before Robinhood, brokerages like Vanguard offered lots of free trades to Flagship customers so the trend was inevitable.

And the whole thing was a lie. Robinhood didn't provide zero commissions. They only pretended to on the front end while secretly charging their real "commissions" on the back end. And they got away with it for so long because they were taking advantage of naive investors who wouldn't even know how to check if they were getting good pricing.

[Unnecessary comment removed by admin LadyGeek]
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Re: What is the appeal of Robinhood

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).

New investors should know that Bill Bernstein is William Bernstein.
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Re: What is the appeal of Robinhood

Post by Glockenspiel »

nalor511 wrote: Wed Mar 13, 2024 5:06 pm
gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
So I could transfer $1,000,000 to them, get the $30,000 bonus, and then transfer back to Vanguard two months later?
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Re: What is the appeal of Robinhood

Post by nalor511 »

Glockenspiel wrote: Thu Mar 14, 2024 12:20 pm
nalor511 wrote: Wed Mar 13, 2024 5:06 pm
gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Because Vanguard/Schwab/Fidelity will not pay you a 3% bonus on unlimited IRA/Roth transferred balance (promo ends 4/30/2024)
So I could transfer $1,000,000 to them, get the $30,000 bonus, and then transfer back to Vanguard two months later?
The hold period to avoid clawback is 5yrs. It's right in the terms. They're not stupid.
Last edited by nalor511 on Thu Mar 14, 2024 12:25 pm, edited 1 time in total.
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Re: What is the appeal of Robinhood

Post by Lyrrad »

calwatch wrote: Wed Mar 13, 2024 5:27 pm For any serious trader the interface is inferior, the charting is laughably bad and beaten by basic Yahoo charts. But they charge zero for options trades (only regulatory fees), which none of the major brokers have matched. Their education product is geared towards people with average intelligence who are new to investing, so may seem basic to many of us long time posters here. If they are going to shovel thousands in free money for a bonus (not just the 3% retirement, but the 1% on taxable accounts which expired in January), I am going to take it.
I’ve been transferring to take advantage of the 3% bonus. They’ll probably get about 2-3% of the bonus amount back from me in fees, order flow, and net interest over the next five years. (That said, I’ve been satisfied with ETF order execution so far.)

I can see the appeal of the app, though it has some missing and confusing features. I don’t like the banner ads that keep coming back to sign up for securities lending, margin and other services. The graphs also don’t make much sense if you’re trying to look at your balance over time if you deposit or withdraw.

They have five years to convince me to stay.
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Re: What is the appeal of Robinhood

Post by StartedAt22 »

The appeal of Robinhood is the accessible UI. That's it. This manifests in different ways for people, but it makes investing in the stock market much more digestible for new investors or "newbs". Not to say it isn't predatory, because it is.

But the reality is, for someone like me, I began investing in 2017. Robinhood was the first brokerage account I opened up. I've used E-trade (it was GARBAGE in 2017), Schwab, Fidelity, NewportGroup (now Ascensus), and probably a couple others. None of them are as sleek as robinhood. I understand that doesn't make much of a difference for seasoned investors (and bogleheads) - but it does help attract the newbies.

Honestly, Robinhood has worked exceptionally well for me - I buy the same boring funds every month, and log in on spreadsheet day. That's it. It is also the fastest way for me to proxy market performance on any given day.

The UI is the appeal. Period. Whether RH's driving force for designing the UI that way was morally sound or not, is a different discussion.

Ever shown a new investor the ToS interface? That gets people to pay 1-2% AUM pretty quick because "woah this stuff is crazy complicated!!"
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Re: What is the appeal of Robinhood

Post by madbrain »

StartedAt22 wrote: Thu Mar 14, 2024 12:26 pm The appeal of Robinhood is the accessible UI. That's it. This manifests in different ways for people, but it makes investing in the stock market much more digestible for new investors or "newbs". Not to say it isn't predatory, because it is.

But the reality is, for someone like me, I began investing in 2017. Robinhood was the first brokerage account I opened up. I've used E-trade (it was GARBAGE in 2017), Schwab, Fidelity, NewportGroup (now Ascensus), and probably a couple others. None of them are as sleek as robinhood. I understand that doesn't make much of a difference for seasoned investors (and bogleheads) - but it does help attract the newbies.

Honestly, Robinhood has worked exceptionally well for me - I buy the same boring funds every month, and log in on spreadsheet day. That's it. It is also the fastest way for me to proxy market performance on any given day.

The UI is the appeal. Period. Whether RH's driving force for designing the UI that way was morally sound or not, is a different discussion.

Ever shown a new investor the ToS interface? That gets people to pay 1-2% AUM pretty quick because "woah this stuff is crazy complicated!!"
I have seen the ToS interface. Yes, it's complicated.
So is Etrade Pro. I just don't find the regular Etrade interface to be "garbage". And I have used E-Trade intermittently since the late 1990s.
You should see the interface for some of the brokers in France if you want complicated.
IMO, the RH UI is very poorly organized. It may be easier to a newbie, but it is certainly not a selling point. As they add features over time, the UI will likely become more cluttered.
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Re: What is the appeal of Robinhood

Post by SmileyFace »

For the younger crowd:
Fidelity, Vanguard, Schwab, etc. sound like old stodgey places. Geeze - places Dads and Grandads use.
Etrade sounds like the 90s - electronic-trade - yeah - that was new once upon a time.
Robinhood sounds cool and woke. Like someplace where I can win against the rich.
:wink:
Believe it or not - a name can sell.
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Re: What is the appeal of Robinhood

Post by placeholder »

beyou wrote: Wed Mar 13, 2024 6:05 pm Yes, some brokers and banks need to "buy your business" and others do not feel they have to do so.
Vanguard and Fidelity get LOTS of new customers without any bonuses. Yes I know you can ask at Fidelity but they do not advertise bonuses.
Back in the day fidelity was a big bonus generator and I got thousands from them over the years and most major custodians have had bonus programs either in the past or currently so I think you're off target.
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Re: What is the appeal of Robinhood

Post by LifeAquaticTenenbaum »

UI, point blank. A lot of companies have figured out you don't need a great product, you just need to make it look cool.
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Re: What is the appeal of Robinhood

Post by placeholder »

I'm pretty agnostic about custodians and with etfs it doesn't matter very much where you hold them so I tend to follow the money meaning who gives me bonuses to transfer assets and right now robinhood has a very tempting offer for iras.
billaster
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Re: What is the appeal of Robinhood

Post by billaster »

SmileyFace wrote: Thu Mar 14, 2024 6:13 pm Believe it or not - a name can sell.
Shouldn't it be called doohniboR. I mean they are actually taking from the poor and giving to rich fintech bros.

The average account at Robinhood is a naive investor with an account balance of less than $5,000. Robinhood's primary means of revenue is encouraging lots of trading by these unsophisticated investors. Almost half of their revenue is Payment for Order Flow -- the more you trade the more they make. It has been well established by numerous studies of individual investors that the more you trade the lower your return performance. So these guys are taking from the poor and giving to the rich.
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Re: What is the appeal of Robinhood

Post by SmileyFace »

billaster wrote: Thu Mar 14, 2024 8:44 pm
SmileyFace wrote: Thu Mar 14, 2024 6:13 pm Believe it or not - a name can sell.
Shouldn't it be called doohniboR. I mean they are actually taking from the poor and giving to rich fintech bros.

The average account at Robinhood is a naive investor with an account balance of less than $5,000. Robinhood's primary means of revenue is encouraging lots of trading by these unsophisticated investors. Almost half of their revenue is Payment for Order Flow -- the more you trade the more they make. It has been well established by numerous studies of individual investors that the more you trade the lower your return performance. So these guys are taking from the poor and giving to the rich.
Agreed - the naive are lured by the name.
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Random Musings
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Re: What is the appeal of Robinhood

Post by Random Musings »

billaster wrote: Wed Mar 13, 2024 10:52 pm But they did that by literally cheating their customers on Payment for Order Flow. The SEC fined them $65 million for stealing from customers and lying to them. As the SEC pointed out, Robinhood made a big deal out of zero commissions, but were silently making it up on the back end from PFOF fees -- unusually high payment for order flow rates -- as the SEC says. From 10 to 100 times normal payment rates. And they lied to customers promising on their FAQs that they were getting "execution quality matched or beat that of its competitors."

So, yes, it's a lot easier to pioneer zero commissions when you are cheating your clients on the back end to finance it and lying to them about it.

https://www.sec.gov/news/press-release/2020-321
https://www.washingtonpost.com/business ... stigation/
That's why I would not consider them for my brokerage needs.

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Re: What is the appeal of Robinhood

Post by beyou »

placeholder wrote: Thu Mar 14, 2024 8:04 pm
beyou wrote: Wed Mar 13, 2024 6:05 pm Yes, some brokers and banks need to "buy your business" and others do not feel they have to do so.
Vanguard and Fidelity get LOTS of new customers without any bonuses. Yes I know you can ask at Fidelity but they do not advertise bonuses.
Back in the day fidelity was a big bonus generator and I got thousands from them over the years and most major custodians have had bonus programs either in the past or currently so I think you're off target.
"back in the day" is not now. Fidelity no longer has to do that because they now have a superior product to RH and many others, it is not even close.
What does ancient history have to do with today ? I think you're off target.
And Vanguard does not do it today, and AFAIK never did have to buy business.
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Re: What is the appeal of Robinhood

Post by placeholder »

beyou wrote: Thu Mar 14, 2024 10:46 pm
placeholder wrote: Thu Mar 14, 2024 8:04 pm Back in the day fidelity was a big bonus generator and I got thousands from them over the years and most major custodians have had bonus programs either in the past or currently so I think you're off target.
"back in the day" is not now. Fidelity no longer has to do that because they now have a superior product to RH and many others, it is not even close.
What does ancient history have to do with today ? I think you're off target.
And Vanguard does not do it today, and AFAIK never did have to buy business.
Fidelity does offer bonuses just not publicly for example a contact email I received recently from them said:
P.S. We have cash rewards for bringing assets into Fidelity. Simply reply to this email and I will send our reward tier's!
So your point is not particularly persuasive as most custodians have had them at one time or another and some like merrill edge still do so it's not a marker for much at all.
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Re: What is the appeal of Robinhood

Post by Billionaire »

Bonus schmonus, I was just on the RH website and I could never do business with a company that has such a IMHO childish/poorly designed web design. Maybe if I was buying a box of candy.
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Re: What is the appeal of Robinhood

Post by JoeNJ28 »

Their UI is hands down the best unless you want to actively day trade which BH discourages anyway so shouldn’t matter. Then again I also don’t mind the vanguard UI (ducks) must be an age thing.
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Re: What is the appeal of Robinhood

Post by hudson »

gavinsiu wrote: Wed Mar 13, 2024 4:52 pm I have seen a few post about the Robinhood and have heard about it mostly in association with the Game Stop Short Squeeze. What is the appeal of Robinhood out of curiousity? Why would one go with Robinhood instead of say Schwab, Vanguard, or Fidelity?
Why would anyone go to Robinhood? inexperience?
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Re: What is the appeal of Robinhood

Post by nisiprius »

alex_686 wrote: Wed Mar 13, 2024 9:21 pm
TRC wrote: Wed Mar 13, 2024 9:02 pm Popular investing app Robinhood became the focus of the controversy after it decided to freeze trades for GameStop on Jan. 28.

https://www.cnet.com/personal-finance/i ... ntroversy/
Let us be fair to Robinhood.

The correct price for GameStop was infinite- or a price functionally as high.

That isn’t a valid price. As such, the price would continue to go up until the weakest link broke. That weak link was Robinhood. If not them, it would have been another broker.

They stopped trading GameStock because by regulation they couldn’t trade it anymore. As a result of Lehman Brother’s collapse brokers need to post collateral in case they go bankrupt in order to minimize counter party risk. Normally this is a nominal amount but because of the insanity around GameStop it was probably around 100%. Robinhood, a midsize brokerage, ran out of capital to post collateral.

Instead of freezing trade orders do you suggest that they violate capital requirements?

Note, I work in risk management and a fair amount of my time is spent with counterparty risk. I question some of the decision that Robinhood made to get to thus point- specifically self clearing- but once they got there they had to shut down trading. Only choice they had.
They could have been more conservative about the amount of collateral they were prepared to post. You say that the correct price for GameStop was infinite, the weak link was Robinhood, and "if not them, it would have been another broker."

But it WAS them. It was Robinhood that was the weak link, not someone else. Not the traditional brokerages. And it was a combination of insufficient collateral, a strategy of attracting the profitable "betting"-oriented clientele, and a UI that intentionally encourages "betting" behavior. Because of their intentional business strategy, they needed more collateral than traditional brokerages, but had less.

And it was only Robinhood (and Webull) that broke in the sense of freezing all Gamestop trades:(Source):
Robinhood and Webull were two of the brokers to halt the purchase of GameStop stock on Thursday, along with the shares of other companies including AMC and Koss Corporation.... Other brokerages have imposed more moderate restrictions. For example, Charles Schwab and TD Ameritrade have restricted certain options trades, and since Jan. 13 the brokerages have prohibited customers from using GameStop shares as collateral for margin loans.
According to Spencer Jakab in The Revolution that Wasn't (emphasis supplied)
By ensuring that its customers wouldn’t buy more of the main meme stocks, and by indirectly forcing some to sell or to put up more cash if they had purchased those stocks using margin debt, Robinhood reduced its immediate collateral call to $700 million. It still had to draw down its entire credit line from banks and later that day quickly raised $1 billion from its investors. It would raise billions more in the coming days. Competitors such as TD Ameritrade and Interactive Brokers were forced to enact restrictions too, but they didn’t face a similar need to raise money. This was further evidence that Robinhood’s customers were those most likely to have been pushing up the meme stocks and to have been doing so by using margin debt.
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Re: What is the appeal of Robinhood

Post by alex_686 »

nisiprius wrote: Fri Mar 15, 2024 7:27 am They could have been more conservative about the amount of collateral they were prepared to post. You say that the correct price for GameStop was infinite, the weak link was Robinhood, and "if not them, it would have been another broker."

But it WAS them. It was Robinhood that was the weak link, not someone else. Not the traditional brokerages. And it was a combination of insufficient collateral, a strategy of attracting the profitable "betting"-oriented clientele, and a UI that intentionally encourages "betting" behavior. Because of their intentional business strategy, they needed more collateral than traditional brokerages, but had less.
What do you mean by “ more conservative about the amount of collateral they were prepared to post”? If you traded a share of Apple you need to post a dollar or so in collateral. If you traded a share of GameStop you had to post something like $100 to $600 in collateral- they joys of having a volatility of over 100. The formula is black and white. The collateral is in cash. What was Robinhood’s poor judgment on collateral?

Note, moving from t+2 to t+1 should reduce collateral needed by about 1/3.

Next, on why large traditional firms did better. It was because they were large. Collateral is based on net positions. Larger firms tend to have a more neutral position thanks to the Law or Large Numbers. They have a more heterogeneous mixture of clients. A metaphor. 6 people jumping left will tip over a small rowboat but not a cruise liner.

So let us walk your implications forward. Large firms are safer in this context. They have heterogeneous clients. They can raise capital cheaper than small firms giving them another edge. Ergo we should only have large firms. a oligopoly of a few to big to fail firms.

Does this make the system safer? I don’t think so.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: What is the appeal of Robinhood

Post by beyou »

placeholder wrote: Fri Mar 15, 2024 2:05 am
beyou wrote: Thu Mar 14, 2024 10:46 pm
placeholder wrote: Thu Mar 14, 2024 8:04 pm Back in the day fidelity was a big bonus generator and I got thousands from them over the years and most major custodians have had bonus programs either in the past or currently so I think you're off target.
"back in the day" is not now. Fidelity no longer has to do that because they now have a superior product to RH and many others, it is not even close.
What does ancient history have to do with today ? I think you're off target.
And Vanguard does not do it today, and AFAIK never did have to buy business.
Fidelity does offer bonuses just not publicly for example a contact email I received recently from them said:
P.S. We have cash rewards for bringing assets into Fidelity. Simply reply to this email and I will send our reward tier's!
So your point is not particularly persuasive as most custodians have had them at one time or another and some like merrill edge still do so it's not a marker for much at all.
Then why doesn't Fidelity advertise it ?
Because clearly people open accounts every day without them.
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Re: What is the appeal of Robinhood

Post by nalor511 »

beyou wrote: Fri Mar 15, 2024 10:32 am
placeholder wrote: Fri Mar 15, 2024 2:05 am
beyou wrote: Thu Mar 14, 2024 10:46 pm
placeholder wrote: Thu Mar 14, 2024 8:04 pm Back in the day fidelity was a big bonus generator and I got thousands from them over the years and most major custodians have had bonus programs either in the past or currently so I think you're off target.
"back in the day" is not now. Fidelity no longer has to do that because they now have a superior product to RH and many others, it is not even close.
What does ancient history have to do with today ? I think you're off target.
And Vanguard does not do it today, and AFAIK never did have to buy business.
Fidelity does offer bonuses just not publicly for example a contact email I received recently from them said:
P.S. We have cash rewards for bringing assets into Fidelity. Simply reply to this email and I will send our reward tier's!
So your point is not particularly persuasive as most custodians have had them at one time or another and some like merrill edge still do so it's not a marker for much at all.
Then why doesn't Fidelity advertise it ?
Because clearly people open accounts every day without them.
Fidelity was small once, and needed to advertise those bonuses. Things change. If you want big bonuses, you have to shop around with the littler guys, and trust in SIPC. If you don't trust in SIPC, then there are bigger guys who won't pay you such a big bonus. Life is full of choices.
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Re: What is the appeal of Robinhood

Post by billaster »

nisiprius wrote: Fri Mar 15, 2024 7:27 am
alex_686 wrote: Wed Mar 13, 2024 9:21 pm
TRC wrote: Wed Mar 13, 2024 9:02 pm Popular investing app Robinhood became the focus of the controversy after it decided to freeze trades for GameStop on Jan. 28.

https://www.cnet.com/personal-finance/i ... ntroversy/
Let us be fair to Robinhood.

The correct price for GameStop was infinite- or a price functionally as high.

That isn’t a valid price. As such, the price would continue to go up until the weakest link broke. That weak link was Robinhood. If not them, it would have been another broker.

They stopped trading GameStock because by regulation they couldn’t trade it anymore. As a result of Lehman Brother’s collapse brokers need to post collateral in case they go bankrupt in order to minimize counter party risk. Normally this is a nominal amount but because of the insanity around GameStop it was probably around 100%. Robinhood, a midsize brokerage, ran out of capital to post collateral.

Instead of freezing trade orders do you suggest that they violate capital requirements?

Note, I work in risk management and a fair amount of my time is spent with counterparty risk. I question some of the decision that Robinhood made to get to thus point- specifically self clearing- but once they got there they had to shut down trading. Only choice they had.
They could have been more conservative about the amount of collateral they were prepared to post. You say that the correct price for GameStop was infinite, the weak link was Robinhood, and "if not them, it would have been another broker."

But it WAS them. It was Robinhood that was the weak link, not someone else. Not the traditional brokerages. And it was a combination of insufficient collateral, a strategy of attracting the profitable "betting"-oriented clientele, and a UI that intentionally encourages "betting" behavior. Because of their intentional business strategy, they needed more collateral than traditional brokerages, but had less.
What's nutso about Robinhood is that their average client is a first time investor with an account balance of less than $5,000. And then Robinhood hooks up these naive investors with margin leverage and option trading. Of course they blew up when GameStock happened. Robinhood is a shady brokerage known to steal from its clients. It's not surprising that they would have marginal capital.
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