Hacker News Reader

Comment by drocer88 | Hacker News Reader

https://www.cnbc.com/quotes/HOOD?tab=financials

Those loses look pretty big.

Pandemic gambling steam was going to run out eventually, but with $6B cash cushion, gives them a lot of time to figure out a long term strategy or get acquired by a traditional brokerage looking for a youth channel.

They have to keep that $6B almost entirely in reserve as collateral to avoid another GME. Why would you say stuff like this on a public forum when you have no idea how that industry works?

"Almost entirely $6bn" leaves a decent-sized handful of loose change, though.

Not when you are losing 100's of millions per quarter.

That is an insane drop. What is going on? Are they being outcompeted or simply not making money? Is their business model (being an easy to use broker for little people) simply not good?

There aren’t offering anything new and even frontrun their customers. And with the GameStop fiasco, I think a lot of people realizes it was a bad business model. I don’t think they will be able to recover. It will drop even more if a recession ever hits.

> and even frontrun their customers.

Oh ffs no they don’t.

I thought RobinHood helped Citadel front run the orders?

See https://www.washingtonpost.com/business/2021/01/29/robinhood...

Payment for order flow is not front running (which is illegal).

What is the order flow used for?

Citadel believes that they are less likely to lose money when they fill orders from retail investors. They're just paying for access to rubes, basically a finders fee.

The front running is instead of a transaction fee. Customers have to pay for the service somehow.

They don't front-run orders. They still give best execution but they receive a small fee from market makers for sending orders their way.

If both market maker A and market maker B offer the same price but B is going to pay them slightly more than A for your order, then they can legally route your order to B.

Many brokers do this now.

Front running is different entirely. For example, if you were about to buy a load of stock, front running would be Robinhood buying in before you, waiting for your order to clear the price level, and then selling a few ticks higher.

>They don't front-run orders. They still give best execution but they receive a small fee from market makers for sending orders their way.

I really have most serious doubts about the idea that you can simultaneously get paid for order flow and deliver on your best execution obligations - the payment for order flow literally comes out of missed price improvement opportunities for the customer. FINRA seems to feel the same way and fired a warning shot over the bows last year: https://www.finra.org/rules-guidance/notices/21-23

Went from being the golden child of /r/wallstreetbets (literally every portfolio screenshot was of robin hood) to being villainized due to suspicious circumstances regarding locking people out of trading Gamestop "for their own good." Now any screenshot of robin hood is ridiculed.

Yeah as soon as those orders weren't being filled and the ceo of robinhood was grilled by congress no one ever believed in them. On the discord there still people that use robinhood but most people use different brokers anyway like TD Ameritrade.

TD Ameritrade blocked trading in GME for the exact same reason as Robinhood.

try Fidelity Beta app. Its just as good as RH

My anecdata...

I started trading on RH in 2019. They make investing simple and approachable for someone who like me who knew the basics and just wanted to play around a bit with some spare cash.

But after a couple years when I want to start taking it more seriously, their platform has failed to grow and improve. In the three years I've used them, I can't think of a single new feature they added that I use. Meanwhile, there are plenty of things I'd like. For example, it's beyond ridiculous that price graphs don't have their axes labeled. When selling stock, it's always FIFO, so I can't choose which lots to sell to optimize tax liabilities.

The problem is that I have a hard time leaving because their margin rates (~3%) are so damn good compared to the major players (8% or higher).

Good margin rates will be difficult to find in a rising interest rate environment. You can get lower rates from traditional brokers if you have a substantial net worth btw ($1MM+ AUM).

Interactive Brokers have always had the best margin rates: https://www.interactivebrokers.com/en/trading/margin-rates.p...

Current max is 1.83% but the more you borrow it asymptotically approaches 1%. (subject to change, same as RH)

IB has very conservative risk management wrt margin and there is no margin call. If the market moves against you, they will liquidate you rapidly. Something to keep in mind when considering your LTV. Their margin rates are good, but there’s a reason they’re good.

I made an account 5 months ago and i could not make margin work on IRB and customer was unressponsive. Acated into RH and got it instantly.

Brokers are as behind compared to robinhood as car manufacturers are with RH.

Its just not a great business.

They’re a frontend to Citadel to “unlock” value for the investors.

It was never meant to compete with real investing tools but instigate transaction fees and accumulate retail behavior data for the market makers

RH is for trading (gambling, like you were doing) not investing.

Damn it was $70/share 8 months ago and now it is $10.

Which means that a 4 year stock grant worth $700k then got you 10k shares. That’s now worth $100k

The entire market had a similar drop this week (especially today) and has been slow-burning for the last three months, so. Take it with a grain of salt.

> Is their business model (being an easy to use broker for little people) simply not good?

It is fine, it is just a low marginal commodity business not likely to achieve the grandiose valuations and size its investors expect.

Reply on news.ycombinator.com