Robinhood stock trading app valued at $1.3B with big raise from DST
techcrunch.com
techcrunch.com
Traditional brokerages have a customer acquisition cost of around $400 to get someone to deposit at least $100 in an account.
They've got a million users and continue to grow quicker and quicker. For a small multiple of traditional CAC they are already close to their >$1B valuation just in terms of user acquisition.
It's not easy to get funded brokerage accounts, especially funded accounts by millennials. Their current user base might not be worth much, but the average age of a brokerage account in the US is over 20 years. That means that Robinhood's AUM is only going to grow as their user base gets older and has more money.
Frankly, the current brokerage houses have been dumping hundreds of millions into marketing to try to acquire millennial users without a ton of success. TD Ameritrade alone spent $300 million last year in ads, a lot of that targeted at the millennial market.
Robinhood is a user acquisition strategy for the millennial market and they'll get bought for $2-3 billion within a couple years by one of the existing brokerage houses.
Irrelevant, because for someone who knows what they are doing in the stock market paying $10 or $0 per trade is not going to save them any money.
Dangerous, because it promotes more trades for the “unsophisticated” investor and encourages leverage = very dangerous situation.
Bottom line, if you do not know what you are doing, don’t do it, buy and hold is not a strategy and sooner or later will leave you very disappointed, especially if you are leveraged on top of that. Just ask the investors in the Japan asset price bubble when they’ll see the top again – looks like never in their life time...
To be able to invest successfully you need to spend the time and educate yourself like in any other profession or hobby and the first step is to go to eBay and search for historical stock market data, you can buy 20 years of data for less than $100 and you can test all your ideas for free and without losing a single penny...
Good luck!
The second to last paragraph seems to me to be quite dangerous. I'd wager it is quite likely a person would see a pattern that really isn't there.
At least, it's worked reasonably well for me for the last 20 years.
No one advocating buy-and-hold recommends buying one thing.
My back tests and analysis are showing that I am not OK with buy and hold, because I don't want to stomach 50% draw downs or to wait 15 years for the NASDAQ to bounce back...
I am not that risk tolerant and I might need to sell some of my investments for medical, travel, even early retirement...
That's why I like to buy when the market goes up and sell when it goes down and be cash during crises like the dot com bubble and 2008 financial crisis... you can always buy them back on the way up when the trend changes...
Do you have personal experience buying data from ebay? Why would you do that?
http://www.ebay.com/usr/artinvest389
I did test random samples from the data against other data providers and I am using it every day an yet to find errors or mistakes...
Sounds like fun for those that like technical analysis.
Use your imagination, with data like this you can test value investing, arbitrage, trend following...
For any type of investing test you'll need to know the price of the security on any given date in the last 20 years...
Your comment is very perplexing in content and tone.
That said, I think I might not have conveyed my original question well enough - what I actually meant was 1) is the data accurate? (you sort of answered this by saying you compare it to presumably licensed sources) and 2) what actually led you to searching for financial data on ebay? (you didn't answer this, other than "it's cheap").
I'm basically wondering how you did the mental calculus that concluded ebay was a good place to check before you verified the data was alright.
If it was not, I would have notify the seller, eBay and PayPal and get my money back...
Before this data, I was using Quntopian, but the huge limitation there is that you cannot test on the whole market, you cannot download their data, etc...
Anyway, I am trying to give an honest advice here and to prevent people of losing money because they don't know what they are doing...
I think it is very noble of you to weigh your needs against the needs of others. Charity and how you should exercise it is a very interesting subject, and there are many many ways to do it optimally. See Givewell, Watsi, Mindsmatter etc. Since you are reading this, I assume you are doing reasonably well in life, so, and this is my personal view btw, you do need to give something back to those in need. However, don't let that prevent you from investing in your own education - it will very likely enable you to do more.
Not having capital isn't the same as being unsophisticated. I could do all the right research on which stock I want to buy, but if I only have $100 to invest at the end of every month $10 fees would dig into my earnings very quickly.
Assuming that people without large amounts to invest are stupid says more about you than it does them.
EDIT: you also don't need to spend $100 for 20 years of stock data. Plenty of services, such as Quantiacs/Quantopian/QuantConnect allow you to test your strategy against historical data for free.
I agree with your point that buy and hold can be a valid strategy, I just don't think that example is fair and Buffett it basically a meme in these threads now.
I think you may have misinterpreted the OP's point about sophistication - I don't think he was trying to be condescending to those with comparatively little to trade with. His actual point is valid - if you are optimizing for commissions first and foremost, you're probably doing something wrong (as an active trader). Robinhood is a platform that, by design and mission, differentiates itself on the lack of commissions, not on superlative features or strategy availability. This means that if you choose Robinhood as your platform for trading (as opposed to, say, Interactive Brokers), you're likely optimizing on commission/fee avoidance, because that's all they're really got to offer that's unique.
Commission and fee avoidance is great, sure, but optimize for that within the context of a larger strategy. It's very important to reduce fees because it can make an otherwise unprofitable strategy profitable, I agree! But you should really start by getting to the actual strategy first, and Robinhood's business directive might encourage potential investors to prematurely optimize on fees, when that is honestly not the thing that typically prevents people from being successful in the market. The thing that typically prevents people from doing well is the lack of real alpha.
If you do have a viable trading strategy with a good Sharpe ratio, the commissions will not stop you from being successful. Conversely (as one example), if you are using the commission-free trading as a way to explore strategies that you think are viable, but which are actually just risk-overloaded returns attributable to chance in disguise, then yes the commissions will eat you alive - but that's because you don't really have a working strategy in place.
Except in the regulatory framework we live in worldwide.
Everything else is smoke and mirrors and unicorns...
There is no way you can turn $1000 into anything significant without insider trading information...
All of this marketing around the miracle of investing small amounts (if you invested $100 into the market 20 years ago it'd be worth $1M today!) is just that, marketing. It's a way for brokerages and mutual fund salesmen to get more people into the game.
The brutal reality is that you need at LEAST $10K to ever see an appreciable return from the market. Investing $500 is a waste of your time unless you go into it with the understanding that:
A) You might make $50 a year from it
B) You're going to make an effort to actually learn about the stock market, fundamental analysis, etc with the aim of better knowing what you're doing when you have a bigger bankroll to invest.
I think the way it's being promoted is a bit dangerous though. It seems like they're promoting to the exact market that really, really shouldn't be flipping stocks (and promoting use of margin to do so). Interactive brokers is what, a few bucks a trade anyway?
Something aimed at a similar market that I like a lot more is 'acorns'. It just rounds up any transaction you make to some number, and invests the difference in one of a few ETFs. I think it promotes a much healthier view of investing for the average young joe/jill.
IB Commission is $0.005 per share, with a minimum of $1 total. The problem with IB for regular folks is a bunch of monthly fees if you don't have enough activity each month.
https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...
I have an IB account, but even setting that up to trade properly requires owning a company. I did wake up early and trade the US options market a little while ago & that was pretty great. Might play with some algorithmic stuff I have that works on the ASX, but on the US, just need a load more data.
Except Austrian tax laws, which will make me close all that anyway...
Retail brokers typically end up making ~$0.001 per share + commission + fees + interest on cash balances + financing spread from margin lending and stock loan
Robinhood makes $0.001 per share + fees + interest on cash balances + financing spread from margin lending
I'm skeptical Robinhood will ever be able to become profitable. They're great for the consumer (except for their heavy marketing of margin lending), but I don't see them attracting the power users they need to make the business model work.
If you do use Robinhood:
1) Build a well diversified portfolio (30+ companies) 2) Don't use leverage 3) Don't trade on a daily/weekly basis
This is sensible but Robinhood doesn't have fractional shares (it would cost something if it did), so you're really raising the bar on minimum investments here. If you just bought one Vanguard ETF and did nothing else, that'd be a great plan.
If you want to avoid commissions, Schwab & Fidelity have commission free ETF's - just buy and hold.
My first year after graduating (and dabbling in stocks/ETFs) I had a painful time filling it out manually on H&R Block. Last year, Robinhood's integration made it so easy that I was both simultaneously pissed that I'm pretty much locked into Turbo Tax and amazed that it's so nice with all its integrations (e.g. also works on Lending Club, Wealthfront, etc).
Used Turbotax this year and it slurped my Vanguard data without issue. They also support EJ so I bet if I still had that it would be much more straightforward.
Included are Robinhood, Schwab, Fidelity and TD Ameritrade among others.
My only problem doing taxes has been using a robo-advisor called Hedgeable which sometimes decides to buy and sell GLD and bitcoin for you. Turbotax will not help you with non covered securities!
(Hedgeable's pretty good, by the way. By far the more moral out of the two companies I just advertised.)
This used to be true, but these days your brokerage has to do all the hard work for you (like calculating basis). They send you a 1099-B; you copy numbers. It's almost exactly as much work if you make one trade a year on your birthday or daytrade across ~100 stocks.
Most of the brokers do this now. Also, Schwab just lowered stock trade commissions to $4.95. Not to sound like a shill, but Schwab bank also has zero fees (no ATM fees, no foreign transaction fees, etc...) if you open (don't even need to fund) a companion brokerage account.
I think companies like Vanguard have pushed down expense ratios and now the likes of Robinhood have pushed down trade costs through competition.
I haven't used Robinhood, but welcome new fintech companies who lower the barrier of entry toward financial health for the average consumer. Good for them, and I hope they use this money well.
But Robinhood's free. You can do $6 of trades in a year, still learn about stocks and not necessarily lose anything. Very hard to complain about that.
I think a little literacy is needed, since if you're lucky enough to have savings buying CMF+VXF is a much better deal than keeping it in a bank account.
Right now equities are priced very highly
Most of the traditional brokers also offer commission free ETFs like VTI and VOO. I would argue it is much better for new investors to be buying VTI over thinking about getting rich buying penny stocks.
The barrier is already pretty low:
- Max out your 401-K (and collect your company match, if any).
- Invest in low-cost index funds from Vanguard.
- Pay off your credit card debt, if any (since you probably won't make 20+% a year on your other investments).
- Don't buy lots of stuff you don't need.
On average, you'll get much better results this way than by trading stocks.
Edit: Also, as the tax base gets smaller, I can see some of the tax advantaged accounts people have money in become not so tax advantaged. The money to replay all this debt (including infrastructure, environmental, and policy debt) has to come from somewhere, and I'd bet it's both from inflation and savings. Or someone hits the reset button with a revolution or war.
That's not because there is a high bar to investing, it's that most people are financially undisciplined. I see it all the time, people get a bonus and the very first thing they do is go buy a new car. Literally one of the worst things you can spend money on is a car, and a new one makes it even worse. Many people carry CC debt, which is absolutely crazy. Keep in mind I'm not talking about people who are struggling just to put food on the table, but people who should be able to save, but instead do really stupid things with their money.
2. If you only have $25 left at the end of the month, you shouldn't be investing in stocks at all. You should be putting your $25 in a savings account for emergency expenses.
Still, I'm predicting margin calls in someone's future.
The guy was posting around about consumer law and how he should be able to get a refund.
That's someone having a laugh at the expense of a bunch of fools who think they're so much smarter than him.
All brokerages offer margin and typically this is how they make their money, not commissions.
From what I've read in this thread that seems to be Robinhood's target market.
Is there any risk related to avoiding the 3 day settlement?
Many amateurs using robinhood do so knowing they could loose their investment. So long as they don't loose more they'll hopefully be fine.
The broker first contacts the investor to allow them to deposit more money to bring up their equity percentage; if thet doesn't work, they sell the borrowed assets to get the percentage up.
One feature of margin loans is that you are required to have assets to cover them. A relic of the great depression, IIRC.
Does the broker have any recourse to credit bureaus or courts?
(Actually, I'm not sure what would happen if the stock went to zero instantly and was the only asset in the account.)
But, I guess one of the reasons I never tinkered with algorithmic trading was the cost per-transaction. So, maybe it's a good thing this didn't exist when I first read about algorithmic trading, as I might have actually tried it.
2) They have very valuable order flow, which they sell. Almost all of Robinhood's customers are unsophisticated investors. Trading firms pay a lot of money for unsophisticated trading flow as there's room to "skim off the top".
3) Add in the typical "successful VC-backed startup" premium.
I'd say more shady. If you use less than the margin amount that they allow you, that fee looked at as an interest rate can be rather usurious.
Schwab can't copy $0 commissions without removing their reporting tools; I expect the companies will be comfortably able to coexist.
I haven't thought it through that much, but it feels like a lot of sound trading strategies (which were previously impractical due to high transactional costs) can be made to work on Robinhood.
*Maybe arbitrage is the wrong term, but zero cost of trading would mean more efficient trading strategies. No?
Some things you could perhaps do on Robinhood that aren't feasible with other retail brokers include:
a) Tiny, tiny position sizes, even on small accounts. 1% position sizing? What about 0.1%?
b) Not incurring a transaction fee if your system decides to immediately exit a position after entering it due to adverse movement in the time it took to fill the order.
Potential concerns might be:
1. Order execution speed. Sending orders to retail brokers via the internet can only be so fast, but it'd be interesting to benchmark Robinhood vs IB for example.
2. Order execution capability. There's no public API, just Quantopian integration. My other post in this thread touches on that.
3. Order execution quality. RH sells order flow. How much this matters is probably beyond my knowledge. I'm inclined to think that it wouldn't matter too much, and is more likely to adversely affect competing HFT firms who are in competition against the order flow buyer(s) than it would people trading at even the upper bounds of retail frequencies.
4. How many trades is too many? Will Robinhood shut you off at some point? Another post suggested RH is paid a fixed amount per share in their order flow dealings, so if that's the case then maybe Robinhood wouldn't care. Certainly as soon as they have a public API there's going to be people making a lot of trades, barring any artificial limitations.
Of course, if your margin account balance is below $25,000 you'll be subject to pattern day trading restrictions and unable to execute such a system since Robinhood is purely stocks. I loathe PDT rules to the core of my being and believe they actually increase risk for short-term traders, but that's a rant best saved for another time.
This problem is that if all of the uninformed flow is internalized then I have to quote wider on the lit exchanges because all of my fills are going to come from informed traders. This is bad for the market as a whole.
I have no affiliation with Robinhood and think that they're bad for the markets, but what you listed is FUD.
Can you be more specific? I believe you are talking about a market order. Unless you have full access to all order books you can't really know whether you were filled at the best price of all lit exchanges. AFAIK brokers have a duty for best execution - still I'm pretty sure that you get poorer execution on Robinhood than on other brokers: They route your orders to just 4 firms. Though the "loss" might be insignificant for the average retail investor trading very liquid instruments.
Adding further to my point: If you compare price improvements between Schwab (http://www.schwab.com/public/schwab/nn/legal_compliance/impo...) and KCG (https://www.kcg.com/access-performance/execution-quality) (one of the 4 firms) you can see Schwab achieves better execution for SP500 firms. Two Sigma and Citadel are both worse as well. You get what you pay for.
No, I am not talking about both limit orders and market orders. I am talking about nearly all orders that a retail trader would use. As an institutional trader, you would sometimes use orders that will be filled at worse prices than the lit market. Retail traders do not typically have a need for those orders.
> Unless you have full access to all order books you can't really know whether you were filled at the best price of all lit exchanges.
This is true, but the person filling your order does have a responsibility to ensure that your order is filled at the lit exchange price or better. If you find contrary evidence,the regulators would possibly be willing to pay you a lot of money for it.
> Though the "loss" might be insignificant for the average retail investor trading very liquid instruments.
Compared to trading on a lit exchange, you should not be experiencing a loss and you are possibly experiencing a small gain.
You might be experiencing a small loss compared to trading through a broker that sends your orders to HFT firms, but does not accept payment for order flow. I would be interested in seeing data on that, but I would very surprised if that were true.
According to your Schwab link, if there is no fill improvement on Robinhood then you are better off using Robinhood for orders under 500 shares because commissions are $4.95 and the fill improvement is less than that. Is that your interpretation as well? Do you have a link showing that Robinhood customers do not get any fill improvement?
I don't think the KCG link is relevant as they do not have retail customers. This means that KCG's customers are going to be more informed than Schwab's customers so you can't afford to give them as much fill improvement.
I'm still struggling with your definition of a lit exchange price. Are you referring to the NBBO? The price you get largely depends on the order size, so the NBBO only applies up to a certain order size. Also the NBBO might not even be up-to-date.
Regarding regulation: "In deciding how to execute orders, your broker has a duty to seek the best execution that is reasonably available for its customers' orders" - usually this means you should have a better or same price as the NBBO - up to a certain order size. If you are happy with the NBBO then you are right and I wouldn't worry too much - however if I recall correctly the NBBO is usually pretty wide and has plenty of other caveats (eg: http://www.nanex.net/Research/IsNBBOIgnored.html).
> According to your Schwab link, if there is no fill improvement on Robinhood then you are better off using Robinhood for orders under 500 shares because commissions are $4.95 and the fill improvement is less than that. Is that your interpretation as well?
Do you mean price improvement? I seen no mentioning of fill improvement on the Schwab link. But yep, seems about right.
> Do you have a link showing that Robinhood customers do not get any fill improvement?
> I don't think the KCG link is relevant as they do not have retail customers.
Robinhood lists KCG, Citadel and Two Sigmas as their market centers - so that's the best information I could find regarding price improvement for Robinhood customers.
You still haven't shown evidence that price improvement is worse on Robinhood than on Schwab by an amount that exceeds Schwab's commissions. We both agree that for under 500 shares ($15,000 on a $30 stock) Robinhood is better even if there is 0 price improvement.
I've already explained in my previous response why you can't compare the KCG statistics to the Schwab statistics. I will repeat it again and rephrase it in case I was unclear. KCG does not have retail customers so their price improvement statistics are not comparable to Schwab's price improvement statistics. Retail customers get more price improvement because their flow is less toxic than institutional flow.
> Robinhood lists KCG, Citadel and Two Sigmas as their market centers.
I'm not really sure what this is referring to. Schwab routes to UBS, Citadel, KCG, G1X, and Two Sigma.
They also offer an API they call Kite Connect [1].
They have trading accounts with ISA. It's not free but the fees for mutual funds, ETFs and most products are fairly reasonable.
However if you intend to do daily trading, I suggest you reconsider before you loose a lot of money. It's not that the fees are higher than the gains (they are), it's that it's very risky and good way to lose a lot of money.
Also, since they're not yet live I can't vouch for them, but here's an example: https://freetrade.io/
The Robinhood iOS interface is really excellent, though they provide way less technical tools and analysis than my traditional online brokerage. However this is to be expected since Robinhood is targeting non-pro/power users.
Trade execution time and preference has actually been solid on Robinhood, though untested in a highly volatile situation where liquidity could be an issue for non-institutions and professionals.
Shameless plug (I've posted it before), but here is a blog post I wrote on leveraging capital using Robinhood Gold (margin) for those who are interested:
https://justink.svbtle.com/leveraging-capital-using-robinhoo...
1. Robinhood Gold interest is 6%. Interactive Brokers is 2.4% [1]. Why do you think there is such a massive difference, and would anyone benefit from paying it?
2. Your analysis works on ten years of data from 2007 to 2017. Did you know that is a very positive period and that shifting it by a few years would completely change the analysis? [2]
I'm not surprised you stopped using it. I am surprised you would encourage us to use it.
[1] https://www.interactivebrokers.com/en/index.php?f=interest&p...
I've used IB (and don't use robinhood). The IB GUI is a fucking trainwreck. If design had ethical obligations the way bridge engineering does, IB's designers would be in prison. It is bad. And it's still one of the better trading interfaces. Ever seen a bloomberg terminal?
That jump from 2.4 to 6% is effectively a "regular people can make sense of this without wanting to kill themselves" markup. No different from the markup any other SaaS company puts on "run this 10 line script periodically". One can sell convenience.
> Ever seen a bloomberg terminal?
I helped build it. Sorry.
I tried to buy some index funds and couldn't even really figure out how to log in after creating my account :( Trainwreck is an understatement.
One of our next updates should include linking to your brokerage + support for buying and selling shares. IB should (hopefully) be one of the supported brokerages.
To answer your question: currently it's probably a bit cumbersome to insert significant amounts of holdings. That said, one of the next updates should have both CSV import (for your historical data) + brokerage integration. You should be able to link your account so that transactions / holdings / etc automatically get imported.
Just shoot me an e-mail if you have other specific questions. I'd be happy to answer them.
I agree that the UI is terrible but keep in mind that IB is very very specifically targeted at active stock traders and institutions, not regular people. The UI starts to make slightly more sense if you're trading a lot.
For an example of a good UI though, I'd look at TD Ameritrade, which has a pretty decent one.
I understand what you're saying here, and you're right. Large parts of IB's complexity come from accomodating the crazy stuff you have to do when you want to unload millions of shares without tipping off algos.
However..
The implication that "active stock traders" and "regular people" are mutually exclusive is one of the things holding finance software back.
So 2008, the great recession was a very positive period? Ok, here are QQQ returns starting at 2003:
2003 - 49.61%
2004 - 9.49%
2005 - 1.23%
2006 - 6.81%
No, 2007 to 2017 is claimed as a positive period.
CAGR over the period you list above is 15%. Over 2007 to 2017, it's 10%, not so far off, and over a 10 year period rather than a 4 year period.
I'd want to get paid more than 9.74 - 6 = 3.74 percent to ride that rollercoaster.
a) The only manual order entry method is via the mobile client. There's situations where rapid order entry could definitely be a lot less painful, e.g. limit orders on high-volatility stocks. I've read that some people run multiple instances of the RH client, with one instance running on a desktop system using an android emulator. Not exactly ideal, though supposedly there's an actual web/desktop client in the works. I'd gladly make my own if there was a public API.
b) Robinhood Gold is nice—its simplified presentation is very elegant. However, if they're going to aggressively market relabeled margin accounts to often-clueless retail traders, they need to explain things better. Preferably an entire page with visual explanations and examples of what can happen in different scenarios; stupid-simple stuff that's unambiguous. I can see a lot of people not fully understanding the FAQ on their site, and just thinking "Oh, more buying power!". The current explanations are decent, but it could be a lot better given their target audience.
c) No public API. It's a planned feature that hasn't arrived yet. While Quantopian[0] integration is nice—and definitely better than nothing—it isn't for everyone. I've seen unofficial APIs that send HTTP requests to their private API based off of sniffed traffic from the mobile client (no thanks).
d) No short selling. There's no way to hedge your downside risk or otherwise trade a beta-neutral system on Robinhood currently without using another broker. If the market tanks, most RH users will get wrecked. Especially if it happens fast and they sit there fumbling with order entry.
Overall I love Robinhood, I just wish they'd roll out essential features faster, or at least provide better estimates than "the near future".
-
As an aside, if there's any algo traders here that use Robinhood and Quantopian together, I'd love to hear your experiences.
From what I've seen, Quantopian doesn't seem to be suitable for trading at a frequency below minute bars, so I figured it might be possible to use Quantopian as an order conduit for an external system—allowing that external system to in effect place orders on Robinhood as a stop-gap until Robinhood has a public API.
It's a side project and I'm not a Quantopian user, so I haven't yet evaluated the technical feasibility of such a setup.
Obviously I could just move to IB, but I really appreciate Robinhood's engineering ethos. While I'm sure IB's APIs are solid (and they're far more fully-featured), their platform does have a lot of legacy cruft[1] that gives me pause.
The great depression was largely the result of massive numbers of everyman speculators entering the markets with reckless amounts of leverage. Robinhood vastly lowers the barrier for gambling with money you don't own. There's a reason you can't buy lottery tickets with credit cards.
The Great Depression is a lot more complicated than Black Thursday... (inflationary monetary policy during most of the roaring 20's, contractionary policy during the market crash causing bank runs).
There are much better options for high-risk (reckless) trading, like 500x Forex accounts, "binary options", and lots of other nonsense enabled by offshore jurisdictions.
For an easy example of how reckless/risky these alternatives are, look at FXCM/Alpari/etc after the 2015 EURCHF action.
500:1 leverage sounds so crazy I wouldn't be surprised if it's used as a money laundering vector.
Next, forex markets are so heavily traded they have a virtual guaranteed stop. That is, if you set the order you will get it filled no worse than that price.
The only way a broker gets hit is a sudden currency drop, like the Swiss franc did a few years back.
Well. You can.
Not sure what you were trying to say.