this sounds like a lot of silicon valley darlings
That sounds extremely profitable, so long as you stay ahead of the law - just like Robin Hood, in fact. But in this case it's not taking money from the rich ...
Such as?
This isn't to say you can't make money as an individual by day trading, but it is to say that the median day trader would have made more money by buying an index fund and sitting on it for a decade.
Stock trades aren't instantaneous, and they're not guaranteed to resolve in the order they were submitted. Wealthy traders can throw money at a combination of locating their servers physically closer to the exchanges and just straight up purchasing preferential treatment from them in order to ensure that their trades will always resolve ahead of yours. Moreover, the "price" of a stock is essentially the rolling average of all the buy and sell offers currently in open. When you "buy" a stock from Robin Hood, what you're actually doing is creating an offer to purchase at or below a specified price point.
One of Robin Hood's main sources of revenue is providing access to that stream of trade offers to investment firms who can use it to "predict the future" in ways that will systematically erode your profit margins. There are any number of ways this happens, but probably the easiest one to understand is that after they see you place a buy offer they can use their position near the front of the queue to accept the cheapest available sell offers ahead of you and immediately resell them to you at your offered price, pocketing the difference.
That's the catch with normal humans trying to play the stock market. You can't actually participate in the same way that wealthy institutional investors do, because you can't afford to pay to be near the front of the queue. In fact, the way you participate essentially guarantees that, no matter how well you do, the institutional investors will be able to do slightly better.
One way to work around this is for normal humans to pool their resources so that they can collectively act as a wealthy institutional investor too. That's essentially what index funds are.
If all RobinHood users followed sound "buy diversified ETF and hold" investing advice, my understanding is that they'd go bankrupt.
If I had browser data from everyone on RobinHood, and was able to track which stocks they were looking at, I might be able to make money front-running.
If Robinhood is incentivizing or encouraging frequent trading by users, that's not really good in my opinion. It doesn't make them worse than other brokerages, but it doesn't make them better either. And with a name like Robinhood, they are positioning themselves as white knights.
I started at £120 a month and it was ten years before I started now my minimum buy is £2000 and I only do the occasional single stock even now 20+ years later.
Still not a panacea, course. What was the ROI on the S&P 500 between, say, 1997 and 2009? Ouch. We've been on a beautiful bull run for the last decade, at least up until a month or so ago. I wonder what the next decade or two will look like.
They shouldn't be using Robinhood to buy individual stocks, buy cryptocurrency, or do options trading.
But people like me should recognize that the people using Robinhood to trade individual stocks, buy cryptocurrency, trade options or trade on margin are effectively subsidizing those who do. Along with the participants of Robinhood's funding rounds, I guess.
The only real reason to have money in RH, IMO, is if you're gambling with <$1000 on penny stocks and options-cum-lottery tickets.
I'm not a Robinhood user, but I use simple.com as a bank. It's like every other bank in that it holds money. If anything it's somewhat less convenient than banks with physical branches. But the online UX is so vastly superior to every other bank I've used (large sample size) that I'm a rabid fan.
[Anecdotally, someone on r/tradexiv or r/tradevol or somewhere on Reddit had a post about their Vanguard advisor cautioning them about buying XIV earlier in the year, telling them, more or less, "you're either exposing yourself to a lot of risk, or you're too smart to be trading with Vanguard" ...... he was not, it turned out, too smart.]
My claim was that RH should not be where you have money that you use for long-term buy-and-hold investment, even outside of an IRA. I think using RH for speculative investment is fine(-ish) if you accept that their order execution is poor (you don't really see this until you get into options), the company has severe product issues (e.g. the options order error the other day causing them to halt all options trading), and the company is not very well established (so there is a non-zero, greater than average, default risk).
I think it's undeniable that RH's UI is prettier than most other brokers. However, I think it's obvious that "prettier" and "better" are not necessarily the same thing. Again, if you are a buy-and-hold investor (which, again, is what I was responding to), being able to make a quick trade is not important, since you should probably only rebalance your portfolio once a quarter (maybe monthly or biannually, depending on your level of engagement).
But specifically, RH's UI is deliberately minimalistic, to a degree that I think is starting to verge on dangerous. They only recently moved from spark lines to offering optional OHLC bars, and their charts have no axes, which makes it difficult to get a sense of the products price movements. RH doesn't show you historical OHLC data, or historical dividends (just yield). The app offers no stock screening. The charts offer no volume analysis, which makes it difficult to see whether or not you'll be able to exit a position. My mom (who thankfully understands that she should only put money she's willing to lose into RH) recently told me she entered into a position with some low-volume real estate company, and couldn't exit the position for some days due to lack of buyers. She was unaware of the liquidity of the product she was trading (and complained that RH should have warned her... but that's another story).
Even worse is their options platform. At minimum, it's useful to show the days-to-expiration when selecting the expiration date. The options platform deliberately hides important information, such as implied volatility (probably the most important figure for an options contract), Black-Scholes greeks, volume and open interest, and a probability of profit estimate, behind an unlabeled corner button after you've selected an option to purchase. RH introduced multi-leg orders over the summer, but these still don't really give you the tools you need to construct strategies like spreads, calendars, straddles, strangles, condors, and butterflies. These are fairly complex trades with non-linear responses to spot and volatility changes, but RH won't even show you your net position delta before placing a trade (it will show it to you after you've entered a position). If you want to see what a real options trading platform looks like, you can demo ThinkorSwim or Tastyworks. Yes, it's more complicated, but that's because it's necessary.
So no, I disagree with the claim that RH's UI is "100x better". I think it's UI is maybe "50x prettier", but I don't think it's "better" for the user (and I've seen some wretched UIs, like Ameritas). In options trading, I think that RH's interface is objectively worse than those offered by other platform. Unlike checking and savings, which are generally regarded as low-risk activities, I think that RH's UI is deliberately designed to encourage risky behavior, and minimize "information overload" (in favor of "blissful ignorance") in what is inherently a risky activity for which most customers are not adequately prepared, under the thin guise of "democratization" (hence its beeline from stock investing (risky) to stock investing on margin (riskier) to cryptocurrency meme investing (extremely risky, and launched during peak bubble) to options trading (extinction-level-event risky for novices)).
Specifically, I have a boring investment strategy of SP500 and AGG. I'm just seeking the lowest cost means of investing in those two indices. When I opened the brokerage account RH was mostly top of mind. Things have gotten more competitive lately, with Fidelity's 0 expense ratio funds and maybe I should look at Vanguard more carefully. Although 'Vanguard is more established' isn't particularly resonant personally, so to my mind they seem relatively equivalent.
I completely recognize that RH's platform enables a lot of unsophisticated traders to make unwise trades, and leaves sophisticated traders wanting.
The extent of my knowledge just comes from reading /r/wallstreetbets for entertainment, while doing passive index fund investing for personal finance.
I think the best resource for anyone starting out investing would be "A Random Walk Down Wall Street" (Burton Malkiel), and maybe "The Intelligent Investor" (Benjamin Graham), even if you don't intend to be a traditional value investor. I think these books (I'll admit I haven't read all of The Intelligent Investor) set your expectations. I also listen to Masters in Business, Odd Lots, and P&L podcasts by Bloomberg (P&L is more short-term, while MiB and Odd Lots are more generally applicable). Both of those books might be floating around the internet.
I also really enjoyed "The Physics of Wall Street" (James Weatherfall). It's a look into how financial mathematics got started and how it has grown and been increasingly applied in modern finance.
If you're interested in options and other derivatives (I find derivatives to be the most interesting, and least arbitrary, financial product), I'd start with John Hull's "Options, Futures, and Other Derivatives", which is a textbook at maybe the sophomore or junior level. I hear the PDF is freely circulated online. I think understanding how options and futures work is essential for understanding finance. A slightly more technical text, "Dynamic Hedging" (Nassim Nicholas Taleb) is also good (and maybe also available online somewhere...). It is less philosophical and polemic than his other books, but doesn't resist calling you an idiot either, as is Taleb's style.
You might also find work on non-ergodicity (Ole Peters), the Kelly criterion, universal portfolios (Thomas Cover, 1991), and Ed Thorpe (a mathematician who derived a precursor to the famous Black-Scholes model) of interest (Ed Thorpe is an incredibly interesting person in his own right). If you find yourself wanting to get into technical analysis, I'd recommend "Evidence-Based Technical Analysis" by David Arons (a spoiler: the evidence is not good). If you're interested in ML applied to trading, I keep seeing references to Advances in Financial Machine Learning (Marcos Lopez de Prado), although I haven't actually read it.
Regarding other financial products, CME has a large number of resources available for understanding futures trading, although futures are generally too high value for regular traders to use safely (the highly liquid /ES contract controls ~$130,000 exposed to the S&P500 and allows one to take about 22x margin, or even as high as 250x for intraday trading). Similarly, there are some nice introductions to the forex market, but again I'd caution you to stay away. And as much as I'd similarly caution you about blindly following their advice (and in general about being a "volatility seller"[1,2] -- see Taleb's book), TastyTrade produces a ton of videos on options trading (particularly retail options trading), which include the mechanics of options trading and how their trading platform works (which is similar to TD's platform -- the CEO/Founder, Sosnoff, was involved in the development of it when he was at TD). You can download TD's ThinkorSwim and paper trade options, or just "preview" their application with delayed prices and see how options work.
Finally, rather than r/wallstreetbets (which is now 99% low quality memes and loss porn), I'd recommend checking out r/options and r/thewallstreet, which are more professional forums, and potentially forums such as EliteTrader and Nuclear Phynance as well.
[0] https://www.bloomberg.com/news/audio/2018-12-07/why-part-of-...
[1] https://www.bloomberg.com/news/articles/2018-11-29/broker-se...
[2] https://www.bloomberg.com/news/articles/2018-02-06/credit-su...
What if they do it for fun?
Personally, I would have fun having a few thousands there (but I'm Canadian), it's not worse than having a few thousands over a gaming computer, or gambling at the casino.
If you consider Robinhood as the way to finance your retirement, well you are doing something pretty bad, but that was always true for any stock trading.
Robinhood presents a nice way of making it easy to get into the stock market with a pretty interface and without going through a cumbersome broker and paying fees for things you don't understand. Do seek professional help if you are looking for 401k and retirement guidance.
If anything, RH is sophisticated gambling.
> Investing, Checking & Savings. All for Free.
> Robinhood gives you the tools you need to grow your savings, invest in your future, and do more with your money.
Does that sound like "this is not an appropriate way to finance your retirement" to you?
All brokerage accounts advertise themselves as investments, even if the reality is that idiots open them and lose all of their money trading options.
I mean, if you really have this expectation of marketing copy, I don't blame you, that's a totally legitimate position to hold. It's just not one I would expect many people to share.
And yes, this criticism does apply to most brokerage accounts. Most brokerage accounts don't have half of Silicon Valley fawning over them, though.