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Comment by dawhizkid | Hacker News Reader

Something about Robinhood just makes me uneasy - clearly their main target market is the small retail investor who is sensitive to a $7/trade fee, but the low friction, mobile-first no fee stock trading experience they've created mostly serves to encourage bad investor behavior i.e. emotional, irrational day trading among people who can least afford it.

Now they are "democratizing" margin trading (Robinhood Gold), options trading, and crypto...no professional investor who actually knows what he/she is doing is going to be served well by a mobile trading app - this is a play for the mostly uneducated retail investor (and small minority of knowledgable retail traders) who has no idea what they're getting into when they buy a call option in X or trade btc on margin.

I remember seeing on their social a now deleted tweet that read "Trade fast, die young." Ugh.

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I think Robinhood does a great job of giving young traders the experience and knowledge of what actual trading is like before they're managing really meaningful amounts of money. College kids trading $500 on Robinhood are going to become 30 year olds who have a much better sense of how markets work and how emotion affects their own trading than college kids who are just instructed to give all their savings to mutual funds. I think RH has a niche and potential to really change things provided they don't do too much to incentivize dangerous behavior (like the deleted tweet).

Maybe, except the college kids who just give all their money to mutual funds will make more money. The day-traders won't "learn how markets work," they'll learn how to lose money by making dumb trades based on less information than their counterparties. They won't learn anything, aaaannnnyyyyything, of actual value.

College kid who started trading in RH a while ago here. After reading some basic investment books from authors like Peter Lynch, Taleb, and What Jim Paul, decided to get some experience in the markets. Invested a little saved and since then made a decent return, better than if that money was in a bank. So far, I'm doing better than the large-company mutual funds after 3 years, but as I've been reading, that's probably good luck.

It's been an interesting experiment that gave me incentives to learn more about financial markets, which I otherwise would not have touched. However, I started by reading and knowing a little bit, so I won't touch crypto trading until I know more.

> Invested a little saved and since then made a decent return, better than if that money was in a bank. So far, I'm doing better than the large-company mutual funds after 3 years, but as I've been reading, that's probably good luck.

The only thing you should be comparing yourself against is the s&p500, if you haven't beaten that, then you're down.

Also, the markets have been in an unprecedented bull run. Everything you've learned will be useless once the tide turns

Well, I don't think everything will be useless. Think it was John Maynard Keynes who said "The market can stay irrational longer than you can stay solvent." While that quote concerned shorting a bubble, I'd say the principle holds for determining when a bull market will turn, as well.

While I'm 'beating' the S&P by 10% over my puny 3.2 year life, I gained more value from feeling the urge to trade during downturns, but resisting, seeing bad investments fade away (thanks, SolarCity), and effects of global events, such as Brexit and Trump USA. I would recommend trying stocks to people who can afford to do so as a way to really learn what books mean when they say there is an irrational 'fight or flight' instinct that individual investors have, not to mention the herd mentality of institutional investors.

Hope that clarifies things.

I believe the unprecedented bull run is also a contributor to Robinhood’s success. Most of your mobile app day traders are going to drop off when the market turns bearish.

I think many young people don’t understand this. They just think it’s guaranteed returns at this point with the amazing market and btc, etc.

I agree. A lot of young people have not seen anything except the economic expansion we have experienced for the past 8 years.

>Also, the markets have been in an unprecedented bull run. Everything you've learned will be useless once the tide turns

This is the real problem. Easy to beat the markets in a bull run when you're invested in high beta/high risk stocks.

The fact you’re browsing HN and have read all those books probably means you’re not the average user (read more intelligent) of RH. Just read the RH subreddit and looks at all the novice questions the users there ask.

Ha, yea, didn't even know they had a subreddit. I wouldn't go there for financial advice.

if the premise is that you can't make money as a day trader, no matter who you are, because the stock market is essentially efficient, then they aren't making dumb trades with less information, because all information is reflected in the price. What they are doing is accumulating more risk, giving them higher odds of fluctuating out, but the expected value is the same as holding mutual funds, maybe even a little higher, since mutual funds have administrative fees, and robinhood is free.

If that is not the premise, then it's not good general advice to tell people to avoid day trading as they won't learn anything. If the market is not efficient, then return on investment is correlated with your amount of information, and they will absolutely learn things of actual value, or at least their experience with trading will contain information about the strength of their hypotheses, regardless of whether they infer that information.

There are plenty of ways to learn the market without spending money as a day trader on Robinhood.

Most financial events are cyclical. Trading really hasn’t changed much since the late 17th century so reading a history book on financial speculation and market cycles would teach you plenty.

Another alternative is simulating trades without allocating real liquid to it. Watch how those assets evolve over time.

it's improper to be glib on HN, but did you really just call it "spending"?

Regardless, there's a lot to be said for putting actual money down on your beliefs, it has a non-negligible impact on the learning process.

If the goal is attaining wealth then “wasting money” is probably a more accurate statement.

How someone decides to use their money is up to them. If emotional reinforcement helps them remember something then I suppose day trading is an option.

I’m only suggesting there are frugal ways to learn if your ultimate goal is to build wealth.

If you are no more likely to lose money day trading than you are to make money, then it's not wasting money.

Or worse, I assume a lot of beginners aren't losing money in this market which will only fuel Dunning–Kruger effect when they have "real" money.

How else do you think people learn? Losing money by making bad trades IS learning something of value- like learning not to touch the hot stove.

You certainly don’t learn anything from giving all your money to a mutual fund.

I would imagine losing money usually causes people to learn.

I agree probably 90%. If this had existed when I was in my first year of university and had a little money in the bank still, I probably would have thrown some at GOOGL when the Gmail beta came out.......

On the other hand, it could have got ugly. Hindsight is often 20/20 and young people can get competitive, over-aggressive, and dumb.

It took me until far more recently to even start to pay any attention to things like financial markets and trading.

We’re going to see a massive loss in money in the next crash. With low interest rates, everyone is in the market in some way. Mostly in index funds, bot traders, or things like RH. The next crash is going to destroy those funds as they try to sell off their massively overvalued stocks.

We’re setting up for a rough time. The baby boomer’s retirements and the millenial’s savings(in the market, not savings accounts) are going to get hit really hard.

When I was in college I made every dumb trading mistake there is.

I traded on emotion, bought high, sold low, with margin leverage, and with options.

Fortunately I didn't have much money then, so my losses were a large percentage but a relatively small dollar amount.

In hindsight all those losses were inexpensive lessons that have served me very well now that I'm older and have more at stake.

So let the young and inexperienced trade. If you protect them from themselves, you deny them the ability to learn at a relatively low cost, and they'll wind up learning later at a much higher cost.

I've been using Stash to invest in some EFTs. I've only put in $50 to date and will put in more since the market is doing well but I did it more as a learning experience.

What would be the best way to learn, for someone looking to invest $500+, who's never done much investing before?

Outside of ~10 shares of Starbucks stock given to me when I worked there in 2001, this has been my only experience.

P.S. Those Starbucks shared have been long-lost - somehow they moved them from Schwab to another company and no one told me where/how). I forgot about them until today.

EDIT: Looking at my docs, I bought 7 shares at $18.275 in April 2001. The stock price is $60.55 today. I need to figure out who holds these and see what I can do to reclaim them.

EDIT2: I found them. I found where the original account was, called them and got the details. Sadly, the account was marked as dormant and I learned about "Escheatment". The stocks were cashed and the amount is now held by my state and I have go through several hoops to reclaim.

There are two main schools for investing/stock trading. "Value investing" which is trying to buy company stocks that are undervalued and generally seeks to hold these stocks for a long time, and "technical analysis" which is focused more on predicting future stock price moves based on reading charts and is focused more on short time frame. Value investing is a more well-respected style but people have made enormous amounts of money from both. If you're interested in value investing I would just read everything warren buffett and charlie munger have ever created. For technical analysis I would just google it and explore and watch out for BS. Investopedia is a great beginner's resource for both.

To piggy-back on the other reply, since he went on recommending material for fundamental analysis, I'll go the other way and go on recommending material for technical analysis. If you're completely unfamiliar with the TA environment, I'd recommend heading over to https://www.babypips.com/learn/forex which is absolutely fantastic in your development of trading vocabulary.

After that, I would recommend reading Technical Analysis of the Financial Market by John Murphy, and books tailored to specific indicators (you can write me back if you wish and I can go more specific).

All the best!

So do you think the “small retail investor” (Wall St. PC speak for “poor person”) should not be able to take the same risks as those of “accredited investors”?

Accredited investor status is a very non-libertarian idea. By forbidding a class of risks to the lower and middle classes, it excludes them from the corresponding class of rewards. When the lower/middle-class investor can only take a subset of the risks another investor can take, it means his money is worth less. The accredited status works as a gatekeeper against class mobility. In some ways it seems similar to disenfranchisement (“pass a test to vote,” “pass a test to take this risk”).

It's a lot closer to hunting licenses than voting tests. It's certainly true that preventing the unlicensed from hunting means that their rifles, freezers, four-wheel drives, dogs, and grills have less value than someone who is qualified to hunt. Yet hunters and non-hunters almost universally demand licensing because without a minimal set of knowledge, the risk that an individual is a threat to themselves, others, and the viability of the ecosystem, is rather too high compared to the potential benefits of unrestricted hunting.

From a more pragmatic libertarian perspective, one might also worry about the welfare claims that a person who is ill-equipped to make speculative investments and gets wiped out will make on society. One must also consider debts that they will fail to pay if they are forced to declare bankruptcy (one reason why stock exchanges never let you fund your account from a credit card—unlike coinbase). State-managed bankruptcy and welfare may be seen by some libertarians as incursions on liberty but they are also mechanisms that enable a higher degree of risk-taking and potential innovation from the same class of people who are restricted from some risky sorts of investing. Once you make these provisions you have to manage the costs, but its not clear that a classical libertarian prescription of eliminating state-involvement in bankruptcy and welfare and opening up speculative investments to all would improve class mobility.

The test to become accredited demonstrates that a person has the capacity to handle a failed speculative investment and is less likely to need to socialize their losses (obviously bank bailouts are a counter-example to the point I am making here, but that's just how schizophrenic our regulatory environment is).

It’s not just to protect the investor, but also to protect those selling the investment. Generally these are non SEC regulated securities, so the disclosure and registration rules largely don’t apply. Investors are expected to do their own due dilligence. It provides a degree of protection to the vendor from accusations of miss-selling, or missleading or not fully informing the investor of risks.

SEC regulations are there to protect investors. If the rules for trading my nn regulated securities were dropped, then there would be much less reason for securities to go through the registration process, undermine my the whole regulatory system, but ncreasing risk for everyone including the country. After all these rules came out of the aftermath of the Great Depression.

Think of it on the same way as retail goods quality control standards. If you buy goods in a store they must comply with strict safety and quality controls, but if you’re a business or dealer those rules don’t apply, for extample if you’re buying the goods to scrap them, or bring them up to standard and then sell on. Different rules apply to retail purchasers and trade purchasers.

>should not be able to take the same risks as those of “accredited investors”?

I would say yes. Well, he should be able, if he wants, but is it good for him, really? For example, options trading is useful for hedging large positions in stocks, so you can pay small amount to, um, hedge against corrections in a bull market. By hedging correctly, you can make some money in during correction while avoiding fees associated with selling your sizeable position and buying it back.

But options trading without having large positions in stocks? It's not trading, it's lottery. 1% chance of making 10x return and 99% chance of losing the whole bet.

I don't mind, but let's not pretend that options trading is opportunity in itself. Having ability to trade large sums is opportunity, access to options market is not.

> But options trading without having large positions in stocks? It's not trading, it's lottery. 1% chance of making 10x return and 99% chance of losing the whole bet.

That's a pretty naive statement. Have you ever traded options before? Because it sounds like you haven't. Options like most other securities allow you to chose your risk, everything from lottery type bets to mostly sure deals.

I did. Doing "buy and hold" or even riding FANG`s on some margin requires mostly discipline, and it's already hard for a lot of people. Consistently profitable options trading while managing risk so it won't blow up one day is a profession.

The amount of knowledge needed is on a whole different level.

You are technically correct, but again, we are talking about retail broker targeted to millenial audience. I would be very surprised if 1% of it's audience knows what straddle or butterfly means.

> emotional, irrational day trading among people who can least afford it

This is completely untrue on the face of it:

"Unless you have an equity balance of at least $25,000 in your account, your Robinhood Instant or Robinhood Gold account is limited to no more than three day trades in a sliding five trading day window [emphasis mine]. Exceeding the three day trade limit will restrict your account from placing further day trades for 90 days." [1]

As someone who actually day trades, being able to do 3 trades every 5 days is completely useless.

As an aside, sort of disappointed this is the top-rated comment when the evidence against this claim could be found using ~1 minute of Googling.

[1] https://support.robinhood.com/hc/en-us/articles/217072366-Pa...

Did you read the last sentence of that article? "This limit applies to margin accounts (Robinhood Instant and Robinhood Gold), but not to cash accounts."

Also day trading is not a limit on total buys/sells - they're specifically saying it's a limit on buying/selling the same security repeatedly when they are lending you money in a margin account.

Per FINRA rules: Cash accounts are effectively limited to a settlement schedule (at least a day) in which the unsettled funds from one trade cannot be used for another trade. If the unsettled funds are used for another trade, it begins to count toward pattern day trading. Attempting to bypass the pattern day trading limitation with a cash account can also be subject to good faith violations.

So to follow FINRA's rules, Robinhood will limit cash accounts from pattern day trading as well as margin accounts. The rules applied to margin accounts are stricter, but truly day trading in a cash account won't work for long.

You absolutely need to trade on the same security intraday many times in order to generate a profit as a day trader.

Buying a security, then buying a different security, then selling a third security tomorrow -- that's not day trading, that is just the normal flow of equity investing.

Unless you have a lot of money so you can be invested into many different names, you won't be able to do this very many times before you run into the limit, at which point, the rational person will open an account at a different brokerage instead.

The utility of 'zero commission trades' rapidly declines as you have more capital. If you have >$25k to put into a brokerage, paying $1-2 commission per trade (e.g. Interactive Brokers commissions), or even $5-7 per trade (most other retail brokers) is definitely worth the flexibility of being able to change your mind and reversing that trade without the risk of being locked for 90 days.

As for the addendum, sales in cash accounts are settled over several business days and you can't trade on those funds, so again there is no day trading there unless you're very significantly overcapitalized.

> I remember seeing on their social a now deleted tweet

Naw. It's still there.

https://twitter.com/robinhoodapp/status/756262680537759744

The reply meme to this tweet tho.

"First time day trading with 2K.... AAAAND IT'S GONE".

I think Robinhood's purpose is exactly to promote "emotional, irrational day trading." Isn't that part of what impacts the market anyway? There are tons of bad traders in any given platform, and you're right that Robinhood increases that likelihood but you can't exactly blame an app for poor trading motivations. That's a due diligence.

Everything from the marketing to branding/design to distribution channel is designed to encourage higher frequency active trading among retail investors. When you're using Facebook-like product design tactics to encourage "engagement" (in this case, more trades), then you're not a neutral fee-free brokerage but an active contributor to irrational behavior.

I would be less critical if they had a library of investor education materials, or required investors to go through a training course to understand the risks of riskier trades (i.e. margin or options trading), but as far as I know they don't have anything like that.

It's a very good app for buying up small (50-500 dollar) blocks of ETFs to hold, which is what I do. Thanks for the free trades, VC guys.

Robinhood makes money on execution (through exchange maker-taker fees [1] and reselling order flow to hedge funds or market makers).

It's in their best interest to promote more volume to increase revenue. They're making money of each and every trade.

[1] for example https://www.nasdaqtrader.com/Trader.aspx?id=bx_pricing

Ah, I didn't know they made money off that part of it. I suppose you give up some privacy/data when they resell your order, similar to using Facebook or Google. It's a slick business model, I didn't even realize it.

> Ah, I didn't know they made money off that part of it. I suppose you give up some privacy/data when they resell your order, similar to using Facebook or Google. It's a slick business model, I didn't even realize it.

Your also giving up better trade execution ie paying more for shares. Robinhood is good for getting your feet wet but people should switch brokers as soon as possible.

Why not just get a vanguard / schwab / fidelity account then and buy their no fee ETFs?

If all your doing is passive investing then yes a Vanguard account would be ideal. I'm not sure on the fees for chwab and fidelity so I can't comment on those. For my passive investments I use a Vanguard account for my trading(active investing) I use Interactive Brokers.

Yeah, I plan on moving my shares to a broker with the nice features like DRIP/partial share purchases and so on once I accumulate enough capital to make the $5 trade fees worth it.

If you can handle the minimum amount to open an account(10K) Interactive Brokers is awesome, Commissions are usually just a $1 in and out. If your under 25 then it's 3K to open an account.

IB is good if you trade enough to make the monthly fee worth it.

But I execute maybe, 4 trades per year. E-Trade / Ameritrade / Scottrade are good enough, and offer me Options trading and other useful features.

Like a website, so I can trade on a computer properly damn it.

> IB is good if you trade enough to make the monthly fee worth it.

Yea valid point. I make 2 to 4 trades a week so IB makes sense for me. Plus I signed up before I was 25 so my monthly fees are still only $3 instead of $12. Plus I do enough trades that my monthly fees are waived.

that's bullshit, sorry. If they sell your order to a firm with good execution, you could very well get a much better price than from a firm that doesn't sell your order flow.

that's a bizarre complaint for a brokerage. Every brokerage exists to make money on trades.

Not saying it's bad, I just wanted to note that the VCs don't need to subsidize your trades on Robinhood.

Thats pretty smart.

I learned a long time ago that the solution to a problem is never a blanket ban on a product or tech. All that does is punish well-intentioned or needy people.

Trade fees are a relic, and deserve to die. They do nothing but skim money from smalltime players. Yes that also increases risk of gambling behaviors, but the solution is better education and treatment, not depriving everyone of a fair and low friction system.

Bad behavior? RH's market is the Millennials who see it as a fancy gambling, check out Reddit's r/RobinHood or - even better - r/wallstreetbets.

I can see RH becoming a dominant player in the Tech Fin Millennials space.

>or - even better - r/wallstreetbets.

This is not a serious sub, it is satire/trolling/shitposting.

4chan for stocks.

I agree somewhat but there's no better way to learn how to invest than to try outsmarting the market for a few years.

Frankly the demand is ALWAYS going to be there for these types of services. And there are people that are actually smarter than the market. Robinhood is so much better than a lot of companies that try to attract those investors (like a site that makes you pay for day trading classes for example)

I'd rather have Robinhood than an app that charges fees, seems like a win for the consumer to me.

The demand will ALWAYS be there because Robinhood targets emotionally driven investments. This bullish market has also contributed to inflated egos around investing. Robinhood is now a fashionable trading application. If anything that should be a sign that we’ve entered a near speculative craze market wise.

Learning to invest well is like learning to drive. You can read up on it or try it out in a simulated environment but there's ultimately no substitute for doing it for real.

Developing a investor mindset free of emotional responses is fundamental and hard to do if there's not real money at stake. If Robinhood gives young people easy access to learn by doing then all the better to then.

> and small minority of knowledgable retail traders

"What if there are fifty righteous (knowledgeable) people in the city? Will you really sweep it away and not spare the place for the sake of the fifty righteous (knowledgeable) people in it?" :-)

> "Trade fast, die young."

That's hilarious! I mean, until someone actually tries it, but for now, it's hilarious!

Edit: It's still there: https://twitter.com/robinhoodapp/status/756262680537759744

It is that queue of 150000+ that have signed up for a place in the queue for this that scares me.

More people could sign their money away on this to make the Tesla queue look like a lemonade stand. This has not happened before, we really are in new territory as people en-masse think they can get rich on this. Plenty actually are and all of them are telling everyone else to follow their example. This is a bubble but everyone is getting everyone to pump it up with a view to hold... Oh dear.

There's no such thing as a no-fee stock trading. It does not exist: every company that has "no fee" stock trading sells order flow to market makers.

Every single retail brokerage including all the companies that charge "fees" also sell order flows to market makers. All of them.

> Every single retail brokerage including all the companies that charge "fees" also sell order flows to market makers. All of them.

Not true, Interactive Brokers doesn't sell your order flow.

that may very well be really bad for consumers. If Robinhood sells to Citadel and Citadel has better execution than IB, you are getting worse prices on IB.

It does not work like this. You will always be crossed on NBB or NBA.

The concept of "bad" vs a national best bid or a national best ask can only come via order delay. Better execution via order delay as seen by a customer is always a lie as none of retail brokerages look at the order, look at the 100@101 x 100@101.1 market and say "ok, i'm buying 380K @ 101.09 from you" followed by posting the trade followed by trying to unwind position. Oh no, they simply present your order by adding it to the book.

No, that's incorrect. They can fill you better than NBBO if they have an internal prediction that NBBO is moving. Or they can fill your sell order at better than bid price, to be more precise.

Just so I'm responding properly. What kind of broker are you talking about?

There are retail brokerages that allow one to specify execution path. Those brokerages cannot sell such order flow.

There are retail brokerages that allow one to collect order flow charges. Those brokerages cannot make money on such order flow.

Which ones?

Look through the list that clear via Pershing.

Do you have any data to back your claims that small uneducated retail investors are struggling with Robinhood or are you just making these blue sky claims. Do you really think retail investors will look at Coinbase's 1.5% fee and be like nope, I don't want to invest there.

I for one totally welcome this move. Coinbase is making billions on their product with high fees (because of low competition) and this should even the playing field.

They also make money by selling orders to high frequency traders. The User accepts at potential 5% markup on orders in exchange for “zero-fee trades.” https://startupsventurecapital.com/robinhoods-exceptionally-...

Bingo.

This sort of investing works well in bull market, and after an almost 9 run-up, I'm guessing we have a lot of younger traders who have not seen a bear market.

This is not going to end well for a lot of folks...

They have a system in place to deter day trading.

> The government has a system in place.

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