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Comment by toast0 | Hacker News Reader

My understanding from other threads is that RH accounts default to being a margin account, and that most people don't opt-out of margin.

I would never apologize for RH, I thank them for pushing mainstream retail commissions to $0, but I don't do business with them (and never have) because they don't seem to have focused on the important parts of being a brokerage.

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> they don't seem to have focused on the important parts of being a brokerage.

That's because they don't. The entire application and order flow seem designed to limit the amount of information given to the actual user, in order to make them more confident in the decision. More confident users trade more stock.

I guess you could argue that "a brokerage makes more money the more stocks are traded, so they are doing the best of the brokerages", but would personally argue that a brokerage should have a responsibility to at least partially work in the best interest of their clients.

Out of curiousity I went through their option buying flow the other day (100% expecting to lose that money); it felt more like buying a lottery ticket than a financial investment.

I feel gross agreeing with Robinhood here, but it doesn't really sound like they were in a position to not take the action they did (this time).

They could add lots of disclaimers and dozens of I agree and I know what I am doing checkboxes but not allowing to buy certain stocks but only to sell them is like a partially blocked intersection with the only open road leading to a ravine. Not cool RH, not cool. It's really an insult to the legend of Robin Hood, he was robbing the rich and giving to the poor not the other way around.

Would you have preferred that if they were unable to take new buy orders, that they also prevented people who already owned from having the ability to sell it? While everyone else "sold ahead of them" and the users lost money "because Robinhood wouldn't let me sell"?

Robinhood may be able to control what happens on their own platform (typically heavily based on regulation), but that doesn't mean they can stop buy/sell activity on the whole market.

Their mobile experience awesome. I did this with other platforms and didn’t like it as much. Believe it or not, even in serious applications, user experience matters.

We can discuss the trading halts separately.

This is similar to thanking Google for bringing the cost of email down to $0. There sure is a lot of upside to the average user, but a lot of the costs are just shifted behind the scenes (data collection, privacy).

I'm not saying it has no place in the market, but a more informed user might calculate the risk and decide to use a fee-based brokerage instead (like ProtonMail vs Gmail).

Right, but with Robinhood the hidden costs are actual money. They give their users inferior prices and then collect on the arbitrage.

> They give their users inferior prices and then collect on the arbitrage.

That’s false. They’re legally required to get the national best bid or ask just like any other broker. Routing trade flow doesn’t change that, it just gives the recipient the ability to match or beat those prices. If there was a better price elsewhere they’re mandated by law to attain that price. If they’re not doing that the SEC would be en route.

Literally settled with SEC a month ago for exactly that. https://www.sec.gov/news/press-release/2020-321

Ha! That’s incredible. I can’t believe anyone would keep their account there after something so brazen comes to light.

If a Robinhood trade is being matched with a better price after it routes then Robinhood didn't offer them the best price. It's how Robinhood makes money. This is the heart of their deal with Citadel Securities. And, yes, the SEC is indeed on their case about this. It's how we know about it.

"How Robinhood makes money on customer trades despite making it free" https://www-cnbc-com.cdn.ampproject.org/v/s/www.cnbc.com/amp...

Robinhood basically sells right of first refusal on "dumb flow," which is valuable. The buyer can route it to someone else if they don't like it, but they get to decide before them. Also they get information from retail investor orders before the rest of the market gets to see them and can adjust pricing on other offers in related symbols before others get to react.

I had a Hotmail account before Gmail was a thing.

Maybe Gmail was not the first free email, but was definitely the first massively adopted free email with a very high storage capacity.

At Gmail's launch, Hotmail was offering only 2MB of free space, while Gmail was offering 1GB. At the time, that was a game changer, and how they captured a good chunk of the market.

> At Gmail's launch, Hotmail was offering only 2MB of free space, while Gmail was offering 1GB. At the time, that was a game changer, and how they captured a good chunk of the market.

The 1GB storage was so ridiculously large, that many assumed it was an April Fool's joke (also because GMail was launched on April 1st).

> I thank them for pushing mainstream retail commissions to $0

This isn't a positive. Had they charged fees, they wouldn't today be doing the bidding of of their real clients.

$0 commissions are huge, and allow people to (Along with partial stock buys) invest little amounts on a recurring basis.

Robinhood forced the major brokers to do $0 stock trades, just need a few others to do $0 option trades too. The fees aren't crazy, but they add up if you do lots of spreads.

Matt Levine has explained that even before the fees going to zero, the fees represented a small percentage of brokerage revenues. Elimination of the fees had an almost negligible effect on brokerage bottom lines—certainly not enough to change their entire behaviour.

> Commissions are way down there; in 2018, they represented a bit less than 7% of Schwab’s net revenue.

https://www.bloomberg.com/opinion/articles/2019-10-02/the-tr...

Market makers were paying for order flow when I had to pay a $20 commission to sell my equity based compensation, and they still paid for order flow when I had to pay a $0 commission.

I'm much happier paying $0 than $20 for the privilege of turning my compensation into cash. The spreads decreased a bit over that time too, which is also nice.

Paid brokerages charge you money AND still sell your order flow.

> Access to margin is not automatic to everyone, and requires you to upgrade to Gold.

https://robinhood.com/us/en/support/articles/margin-overview...

"When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, which is a margin account."

https://robinhood.com/us/en/support/articles/robinhood-accou...

A non-margin account can “Instant deposit” and begin using $1,000 immediately prior to the transaction clearing. Now, whether this is considered ‘traditional’ margin to the masses or Robinhood for the purposes of this freeze, I’m not sure.

Depends on who you golf with(and don't), if we're being candid.

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