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Comment by dlivingston | Hacker News Reader

Robinhood was an absolute game changer for me. Outside of my 401k (and a Viacom stock my mom bought me 20+ years ago to teach me about the stock market), my investment portfolio was nil.

I now maintain a growing but conservative portfolio of stocks thanks partly to the frictionless UX of Robinhood - but, primarily, to the addition of fractional shares.

To pay $1500 for a share of TSLA? When I could put that precious money into my savings account? Pass. But if I can buy 0.1 shares at $150? Now we’re talking. Hey, TSLA went up a bit today. I’ll buy another 0.1 shares. Etc. That, without hyperbole, is truly the beginnings of the democratization of the stock market.

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Mutual funds and ETFs are basically that but you get a sliver of like several hundred high quality companies instead of just one. I’d argue those products did more for democratization because they allowed investors with small sums of money to achieve diversification.

The only thing to remember is, as a customer, you’d be paying for that service in really bad execution. I still think this is genuinely democratizing but looks like Fidelity has this also (called the absurd “stock by the slice”)

Betterment is extremely painless (outside of their slightly awkward checking accounts), and has fractional shares as an automatic part of diversified portfolios.

That's the problem of RH - in your cases stock is managed because of "frictionless UI" whilst it should be managed due to financial considerations but not because they have made it easy as getting a cup of coffee.

You need to understand the model how low cost services like RH operate - they sell all your data to big hedge funds. Guess what happen at certain moment when smart money will decide it's time to cut pigs - massive wealth redistribution with robihooders being cut. It has happened before in history and will happen again since history doesn't really teach majority of us anything at all.

Youre saying at some point big HF will say 'a bunch of robin money is in some stock(s)' and make a move to cause losses for the RH folks?

>It has happened before in history

When?

Big HF will see event requiring lots of RH people to pull liquidity, and know what equities this will move, and move first.

Not to mention that big HFT uses order book data from retail to vacuum away pennies on every transaction.

how does order-book sales (if it even happens - apparently it's not legal?) affect your existing shares in RH?

Unless you are trading, tiny differences in the price at purchase and sale is unlikely going to make a big difference to your final total returns. I would just consider it cost of the transaction.

This doesn't jibe with what Matt Levine describes as RH's operating model. Unless you're actually informed, this just sounds like Internet urban myth. You actually can get better results because as a retail trader participating with other retail traders you have uncorrelated order flow.

> You actually can get better results because as a retail trader participating with other retail traders you have uncorrelated order flow.

Hedge funds will get even better results knowing what's robinhooders are betting upon with much better precision.

That doesn't negate his point (that RobinHood can fill your order just as well, or better, than eTrade or Fidelity).

If you're trying to out-hedge hedge funds then the only way to win is to not play.

You can (and should) use stop limit prices to guarantee a desirable price in which case there's nothing a hedge fund can do to bump you.

And if you're sensitive to 0.1% differential in price then you're trading, not investing.

> That doesn't negate his point (that RobinHood can fill your order just as well, or better, than eTrade or Fidelity)

That may be right, but "better" order filling or any other bells and whistles will not help to beat the market or gain substantial benefits from it in the long run. I've seen traders sending orders in slow command line and making substantial returns, so the tool perhaps is not the instrument for success on the market in the long run. It's like saying that green car will drive you faster/safer/etc compared to black or white cars, while the most important contribution to speed and safety lies between steering wheel and driver's seat.

> You can (and should) use stop limit prices to guarantee a desirable price in which case there's nothing a hedge fund can do to bump you

Needless to say orders may not (and most certainly will not) be filled when market (or HF) make sharp moves.

> use stop limit prices to guarantee a desirable price in which case there's nothing a hedge fund can do to bump you

This is VERY misleading - not sure if you just worded it poorly or if you believe this - but a stop limit is NOT a guarantee that your stock will be sold.

Someone has to take the other side of that trade for it to fill. If there's no one there to take the trade - which is common when the price moves quickly - it will not execute.

RHer buying VOOG beats hedge funds all the time. It's the safest thing to do over large periods of time. Guy using eTrade buying VOOG does not do much better than RHer buying VOOG. Guy using Ameritrade buying VOOG does not do much better than RHer buying VOOG.

That's because the magic is VOOG, not your platform. And if RH gets you to buy VOOG instead of storing excess dollars in your savings account, then RH is the number one option.

All the returns are in the activation energy of getting to stock one of VOOG. Whether you buy it at 198.86 today or 198.85 will not change your outcome to any significance. What it will do is put you ahead of many hedge funds ten years from now, even if they spend 200 on their portfolio where you spent 198.85.

You can do those things on any brokerage. You can buy options pretty much anywhere. Not seeing where the democratization is coming from that is different from the status quo

Possible != easy, democratization implies it's easy enough for the average person to do.

My brokerage will only let me buy options in the standard batch of 100, which means to get anything I'm interested in I need to drop $20k, which isn't going to happen.

I only want to spend a couple of hundred on long term options ..

> I only want to spend a couple of hundred on long term options

Former options market maker. And honest question. Why?

Long-term options are tricky because theta and rho, the least intuitive components of the option pricing model, become significant as tenor increases. If you want to take a leveraged bet on the market, a margin account or leveraged ETF is safer.

I have a good portfolio of stocks, and to be honest I want to bet a hundred or so here or there. I never buy lottery tickets or anything like that, but I feel like it's a good chance to take.

It has nothing to do with safe, and is about risk v reward.

the market underprices implied volatility on long term options, because it just doesn't know, which is an absolutely awesome.

What do you mean by underprice implied vol? I think what you mean is that vol is underpriced, not implied vol being underpriced. Implied vol is just a function of 4 factors known at at the time of the trade (underlyer spot price, option premium, option strike, time to expiry) and one unknown (risk-free interest rate over the lifetime of the option). Saying they've gotten implied volitility wrong implies they've mis-entimated the risk-free interest rate. I think instead you mean they under-estimate vol, not implied vol.

Unfortunately the viability of options depend on their volume - you can have a call go from OTM to ITM and not be able to find a buyer because there's just no interest in it. Half-options (50 contracts) and other denominations exist but they're incredibly rare, and I believe only used for reverse stock splits. If you're looking to get into options I'd recommend either choosing a farther OTM strike price/earlier date or starting with a stock that's significantly lower in price.

I don't really see the advantage there over a service like Wealthfront or Betterfront, which offer automatic tax minimization, integrated handling of IRAs, and customizable stock-bond balances, or even just investing in Vanguard target date ETFs directly for similar returns with slightly lower fees.

Listen to Elon [1]. If you don't have $1,500, don't buy Tesla shares.

[1] https://www.cnbc.com/2020/05/01/tesla-ceo-elon-musk-says-sto...

Having not used it, what is special about Robinhood? Online Trading platforms have been around since the 90s. Maybe earlier, but I was seeing them then. There wasn't much friction back then, other than needing to be physically located at home to have an internet connection (no wifi or mobile).

They were the first to offer no commission trades. That's why I have an account. Now that vanguard offers that for equities and they default to putting your money in a money market account where you get the interest, I plan to only use vanguard.

The Robinhood mobile app though is way better than vanguards. It looks like a native app and even updates prices every few seconds where as the vanguard mobile app is just a mobile website wrapper (or at least looks like it).

Oh right, but you could do "spread betting" (similar to CFDs) back in the early 2000's in the UK. Commission free, but you pay the spread and some interest on borrowed money. I think they structured it as betting rather than investing so that customers would pay no tax on winnings. (Also not many people won!)

It just boggles the mind how people were able to invest for hundreds of years without a frictionless UX.

No offense, but how old are you? Most parts of life used to have way more friction.

They didn't. The difference between today and a hundred years ago isn't actually in what people did. It's how many people did a certain thing. Back in the day people didn't invest because they were farmers. Nowadays a lot more people live in cities and have a high enough income to invest it and this requires financial services to scale to millions of customers.

I am pretty sure online share trading has been around since early 2000s.

With dumb commission fees and other policies that made it deliberately obtuse and painful for the retail investor. Even today, with any brokerage, you can't freely trade without penalty unless you pass the class based virtue signal of having $25k amassed in your investment account.

If you think robinhood is providing their service out of a sense of Altruism then I have got a beautiful bridge I would like to sell you...

Read up on bid/ask spreads and market makers. It’s a pretty profitable business. Even more so than just charging “dumb commission fees”

And that $25,000 “class” limit, hahaha that’s like saying that payday loan providers are a community service.

Everything was still frictionless when the world was you dictating your thoughts into a nearby phone/ear while someone else made all the magic happen. In pure friction terms, robin hood with their lag and issues filling orders is probably still a big step down vs. calling your broker in a panic and dictating trades.

It's the beginning of the democratization of the market because they made it easier and more attractive for you to buy meme stocks?

Yes

Why would Wallstreetbets lie to me?

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