Robinhood Gold | Hacker News Reader

Robinhood Gold

blog.robinhood.com

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> Pre & After Trading Hours: Once reserved for institutional investors, extended trading hours let you trade before the opening bell and well after the closing bell — an extra two and a half hours of access, every day.

Pre/post market trading is different than normal hours. The liquidity is totally different and generally done with only limit orders. If you don't understand what those are, you shouldn't be doing it.

> Additional Buying Power: Gold Buying Power is money that we lend to you to buy stocks, giving you the equivalent of a line of credit for the stock market. You get up to 2x your buying power so you can invest more, and keep any profits. More information on our Help Center.

This is called a margin account. It's interesting that they don't call it that.

> Bigger Instant Deposits: Take advantage of Instant Reinvesting, which lets you access proceeds from a stock sale immediately, and Instant Deposits, which eliminates the three day wait period for funds to transfer from your bank into Robinhood.

Again, this is called a margin account. The way it works is rather than waiting for the prior trade to settle (i.e. the counter party to the trade provides the cash and you deliver the stock), your broker spots you the expected proceeds so that you can trade as if you already have the cash.

Scrolling down is the details, terms, etc. I can't tell if making it a different color so you don't notice it's there is intentional or just stylistic choices by their designers.

Going to their help pages[1] I found this:

> Do I get charged interest on top of the monthly charge for using Gold buying power?

> No! You will not get charged interest or fees in addition to the fixed monthly charge of the tier you selected.

I'm genuinely curious how they have the capital to do this. Can I open an account and use double buying power to purchase a money market ETF?

[1]: https://support.robinhood.com/hc/en-us/articles/213262686-Ro...

They don't call margin "margin" because they market their app to people who don't know what they're doing. People who know what margin is will understand what they mean by "extra buying power", but an investing novice with $500 will have no idea what "margin" is.

That said, it's scary to think they're giving margin to people who don't know what margin is - I hope they try to properly educate them on the risks involved.

I think even novice traders know what margin is. I'd prefer they just use the correct nomenclature.

I have an account with Robinhood and have much more than $500 in it. I don't think the assumption that most of their users only put small amounts is entirely accurate. I like Robinhood because I can lower my dollar cost average buy buying small little chunks on the way down commission free.

RH's headline feature is "free trading," a feature that mostly appeals to people who are investing smaller amounts (for whom an $8 commission is significant). Their oversimplified interface is consistent with this targeting of novices. I'm saying it as a generality - of course it's not completely black and white.

That said, RH does have several problems - notably their unreliability on days of high volatility and their poor customer support - that generally deter bigger investors from using them over a traditional broker.

They call it margin accounts in their FAQ about how they make money though

https://support.robinhood.com/hc/en-us/articles/202853769-Ho...

AIUI they're just doing a margin account that charges a fixed interest for a certain level of maximum lent cash (subject to normal margin limits on top). For $1k _maximum_ loan at $6/mo that works out to around 7.2% interest, which is fairly normal - but you're getting a raw deal if you don't borrow all of it, since you'll pay this interest even with zero dollars lent.

Wow. Thanks for clearing that up. That's a pretty novel (and shady) way to obfuscate real margin interest rates.

It honestly wouldn't surprise me if we discover Robinhood marks up the spreads in their stock quotes to charge customers hidden commissions.

I'm personally planning on going with Schwab for my long term investing when I move to the US in a few months. They have a pretty good selection of commission free ETFs (SCHB has a lower expense ratio than even VTI at 0.03 vs 0.05), so if I stick with those I can get unlimited commission free trades with a much more reputable broker. And you can't beat the convenience of being able to do all your banking with your brokerage account.

I wish they also did Forex though. Going to miss those $1-2 Forex trades I had with my Canadian Interactive Brokers account. If Interactive Brokers starts offering banking products I'll probably be tempted back.

Re marking up the spread:

That is against the law and not really possible the way the market works (market forces push down spreads bc there is value to liq providers to capture order flow. Brokers have to display best quote). You are guaranteed a crack at the best bid/offer. See: reg NMS

Thanks for the correction. The practice definitely sounds shady enough to be outlawed, but the finance industry has countless similarly shady practices that are constantly being abused because they lie in legal gray areas. Glad to know this is not one of them.

I mean, Theranos, so on more thought, YMMV!

> I can't tell if making it a different color so you don't notice it's there is intentional (...)

These sneaky bastards! Putting it below the footer. This looks like a pretty dark pattern, and it's effective. I absolutely missed that before you called it out!

>> Additional Buying Power: Gold Buying Power is money that we lend to you to buy stocks, giving you the equivalent of a line of credit for the stock market. You get up to 2x your buying power so you can invest more, and keep any profits. More information on our Help Center.

> This is called a margin account. It's interesting that they don't call it that.

This is just my guess but the phrase "buying on margin" probably doesn't test well among barely financially literate people like me. Without a formal education in economics, one of the things I've read is that buying on margin during the roaring twenties magnified the effect of the great depression (if it wasn't one of the causes outright). I am not affiliated with Robinhood. This is just a guess.

I'm sure it tested way better when they focused on saying you get to keep up to 2x the profits, and quietly failed to mention, oh hey, you might also have to eat up to 2x the losses.

I haven't really looked at Robinhood before just now, but I've got to say, between this bit of verbal sleight-of-hand and the dark pattern with the fine print, they don't strike me as being a particularly scrupulous operation.

Margin accounts are so dangerous. Most brokerages make you go through a rigorous process to make sure you're qualified to handle margin trading. The fact that they let average joes do this seems incredibly alarming.

Most brokerages make you go through a rigorous process to make sure you're qualified to handle margin trading

If by "rigorous process" you mean "check this checkbox to acknowledge that you read the PDF we sent", then yeah, that pretty much mirrors my experience.

I know that robinhood is trying to improve things (I guess) but just remember folks that somewhere around 80-90% of retail traders lose money. https://news.ycombinator.com/item?id=12339076

Well, now they can lever up and trade in less liquid markets. Intellectually, I like democratizing market access, but I don't see how this ends well.

What is improvement exactly, better ux?

At the most basic level, retail traders are paying 8 bucks every time they enter or exit a position, which leads to reasonably significant underperformance versus not having to pay trade commissions on Robinhood.

Is that an $8 commission fee per stock trade or an $8 loss on the bid/ask spread?

If the former that is definitely the high bar. there are many places (discount brokers) that offer low comissions on stock ttandes more in the 1 dollar range.. or even pennies, that arent 'disruptors'.

I think if you are trading often enough thay $1 commission is a problem you'e doing it wrong. Presumably we are talking about folks that are not pattern-day-traders.

That's an $8 commission.

I know Interactive Brokers offers less, but they also charge $30/month prorated against your commissions. What other discount brokers charge pennies or $1?

FWIW it's $10 per month, and waived if your account has over $100k in assets: https://www.interactivebrokers.com/en/index.php?f=4969

Ok, Looking around now the fees are higher for stock than i remembered.. so excluding IB yeah the cheapest I know of is optionshouse/tradeking at $5 for stocks.

So when exactly can we UK people use Robinhood?

I wonder if the whole Brexit thingy had any effect in delaying the operation. But the expansion to Australia was more than a year ago, so probably there is something else going on.

I signed up when they announced but I never heard back from them. I just assumed they gave up on Australia.

I live in the US and I wasn't able to sign up... Good luck.

When Robinhood was first announced a few years ago, I was excited that the retail brokerage industry was becoming more accessible for a number of reasons. Most obviously, we live in a capitalistic society, and inherently those who are able to make an equity investment (whether it be in a home, a small business, a startup, or a publicly listed company) are giving themselves a better chance at long-term financial freedom if they are also able to properly diversify their investments.

Robinhood still provides a great service to those who have a relatively small amount of money to create a diversified custom portfolio, but I would highly recommend against Robinhood Gold in today's interest rate environment. If you are 25 or younger, which is a core demographic of Robinhood, you are much better of with Interactive Brokers for any type of margin account. The UI/UX leaves a lot to be desired, but you will likely save a lot of money. Let's say that you have $2000 to invest and want to borrow another $1000 for a total investment of $3000. Since you understand the importance of long term investing as well as diversification, let's assume you are going only going to make 10 trades per year (if you are making more than 10 trades per year with a $3000 account you should seriously reconsider your investment strategy). For simplicity, let's also assume your portfolio balance maintains a $3k balance. Each year you will pay:

Interactive Brokers: (max($1 x trades per month, $3) * 12) + 1.9% * $1000 = $55 per year

Robinhood: $6 * 12 = $72

Of course, this is a very specific comparison, but I encourage you to look at the total cost of a margin account for your specific situation:

https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...

https://www.interactivebrokers.com/en/index.php?f=1595

I would also highly discourage anyone from trading outside of 9:30 AM to 4PM ET unless there was major news on a specific company (up to 4:15PM for the most actively traded etfs given the futures market keeps the bid/ask spreads tight).

Finally, I would encourage you to read more about the systemic risks ETFs pose to the market before deciding to use them as an investment vehicle. They provide great utility to small investors, but also contribute to liquidity risks that are still not fully understood/tested.

Robinhood is great. I'm hoping they will go forward with a public API, and perhaps allow options trading soon.

I think the margin accounts (gold) is the first step toward allowing Options trading. Excited for this to happen as well. Glad to see a company finally doing a more subscription based model for stock trading instead of the pay per trade rubbish to date.

I would not want to trade options on a platform that:

1) Doesn't allow limit orders

2) Goes down with even modest spikes in intraday volatility

3) Markets and caters to "uninformed" flow

I imagine they'll only allow long options or impossible-to-break spreads to limit their risks, if they actually go this route (as evidenced by the severely limited margin given with RH Gold).

> 1) Doesn't allow limit orders

They certainly allow basic limit orders for buying and selling in my experience, though not the fancier types (conditionals, etc.).

Interestingly they promised shorting when margin accounts are available. I don't see shorting on that list.

https://twitter.com/robinhoodapp/status/581924425244655616

Subscribed to Gold yesterday, I don't like trading on margin but after hours is nice.

How and why do you trade after hours without limit orders?

Execution on RH is already pretty poor, this seems like a recipe for disaster.

> Execution on RH is already pretty poor, this seems like a recipe for disaster.

Can you explain this? I like Robinhood for the free ETF and index trades. Haven't really noticed any issues in the year I've been using it.

The article recommends only trading after hours with a limit.

Edit: Sorry, I saw that in the help center, https://support.robinhood.com/hc/en-us/articles/214681903-Ex..., "That means your execution price can vary more than during core market hours, so we suggest using limit prices".

From my underatanding, they are using the same exchanges than other low cost brokers. It has been confirmed with my experience using TradeKing in parallel of RobinHood (same spreads and same speed of execution.)

I haven't tried trading after hours yet, but it had happenned to me that I wish I had the option in the past.

The actual orders are handled by Apex Clearing. Apex sells this client flow to a mix of Citadel, KCG, and a few others [0].

[0] - https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...

RH needs to make money somehow.

I love Robinhood. The idea of trading on credit gives me the heebie jeebies though.

You're worried about 20k credit line for trading? Look into margin trading and leveraged ETNs or ETFs, or naked options trading if you're feeling adventurous.

Yes, the financial world offers an interesting variety of ways to blow yourself up if you don't know what you're doing.

Think of it as acquiring technical debt. Can help you grow faster, but need to monitor it carefully to prevent eventual trouble.

It's not technical debt, it's just debt debt. Can help you grow twice as fast, but you can lose twice as fast, too.

Using technical debt as a metaphor for debt is... I wish I could use the "100" emoji here.

http://www.theonion.com/blogpost/im-like-a-chocoholic-but-fo...

For the love of Turing, please stop trying to apply this buzzword to everything.

Does anyone know of any brokerage that allows me to buy shares from an individual (after exercising them from $STARTUP)?

Why would you need brokerage for that?

Let's say if I wanted to buy shares from a competing company to hedge my bets. I imagine they wouldn't want to sell to me directly.

Perhaps an exchange.

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