Comment by nrmitchi | Hacker News Reader

Comment by nrmitchi | Hacker News Reader

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I'm just going to go off the top of my head here.

1. They released a "checking account" that they claimed was FDIC and/or SPIC insured when it was not. (yes, they backed off of this one when they got caught).

2. They've gamified buying/selling stocks using addictive dark patterns (like confetti explosions). FOMO-inspiring push notifications are another example here.

3. They have such a terrible level of support for a product which involves people's real money.

4. They let people start trading options without any of the due-diligence typically performed.

5. They released an initial options product which was quite literally "Do you think this stock is going to go UP or DOWN?"

6. Their entire product is based on people having margin accounts that do not know that they have margin accounts.

7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard.

Overall, their business model is taking a variety of complex financial instruments and wrapping them up in lipstick to sell to people who overwhelmingly do not understand the thing they are actually buying (or selling).

I'm sure I'm forgetting a couple but I'm also multi-tasking at the moment.

Edit:

I forgot about the "infinite money" "glitch", which was a situation explicitly called out in regulation as prohibited (regarding counting outstanding margin credit as assets when calculating margin credit)

> 7. Their Payment for Order Flow is (or at least was) significantly higher than industry standard.

Just to elaborate a bit, with payment for order flow the broker essentially gets a kickback for executing a trade with a particular firm. They pass on part of the kickback to the customer as a rebate, and keep some of it for themselves.

Robinhood was (is?) keeping a bigger cut for themselves than other brokers who do payment for order flow (practically all retail brokers at this point, I guess), while advertising that they have the best execution.

If I remember right, they didn't get dinged for keeping a bigger cut because that's not necessarily illegal, they got dinged for lying about it - you can't say you have the best execution in the industry if you're taking more hidden fees than everyone else.

Many of your points were being lauded as good things just a year ago. "Robinhood made advanced financial instruments accessible to the average Joe" now that the average joe has continuously shot himself in the foot, people are realizing it might not have been the best idea.

How's this for some proposed legislation/regulation: Anyone who wants to use a share trading service has to first complete a one month "training period" where they use the service with virtual money only. The UI would be exactly the same, but you couldn't top-up or cash-out your balance.

The catch, though, is that you "fail" this training period if you don't make a profit (or enough trades) during that month. You are also prevented from attempting another training period with that service (or any other service) for another 11 months.

This would have the dual effect of locking out the large proportion of users who don't know what they are doing, and also preventing a sudden influx of users from taking advantage of (or falling victim to) some meme scheme that generates a lot of short-term media attention.

Making money on trades within a month doesn't tell you whether you know what you're doing. It only tells you if you're lucky.

We should not be encouraging day trading. A better test would be if you put the money in non-penny/non-meme stocks and didn't touch it for the remainder of the month.

> Many of your points were being lauded as good things just a year ago

I'm sure some people did.

I personally have never said these were a good thing, and am still not saying they were ever a good thing.

> Robinhood made advanced financial instruments accessible to the average Joe

This is definitely a very charitable interpretation of what I said.

The FDIC-insured nonsense alone perplexes me. There is no web to spin here that favors them.

Did they really think they could get away with this? Or did they have a severe cascade of miscommunication? It is incredibly irresponsible and careless behavior either way.

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