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Comment by falsestprophet | Hacker News Reader

This democratizes the stock market like online casinos democratize gambling. Fees are the least of the layperson's problems in the stock market or a casino.

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This isn't a good comparison. Casinos are incentivized to have you fail/lose (but enjoy the process).

Pay-per-trade brokers are incentivized to have you trade frequently and/or buy certain securities. RobinHood doesn't actually profit from each trade, so it could be argued that they have are likelier to care about the retail investor's long-term success (providing automated tools for monthly investments in low-fee funds, etc).

Regardless, let's give some love to the fact that people are accountable for their actions and the vast amount non-bad information on the internet. A beginning retail investor is one search away from a strategy that is a metric ton better than not investing at all (which is what most of them do): https://www.google.com/webhp?sourceid=chrome-instant&rlz=1C5...

If RobinHood causes some people to piss away their savings on crazy-risky investments, it's not because those people didn't have access to decent investment advice.

Robinhood definitely does profit from each trade. They are paid by third parties to route the trades through them.

[edit] link to comment below as requested https://news.ycombinator.com/item?id=8358217

Do you have a link for that? From their FAQ, here's their (admittedly not super clear) answer to "How does Robin Hood Make Money?":

Robinhood will offer margin trading as well as API access, which will allow partnered developers to build applications in conjunction with Robinhood. Robinhood will also receive remuneration for providing trade volume in certain markets. In the future, we plan to offer premium services for active investors.

"Robinhood will offer margin trading as well as API access, which will allow partnered developers to build applications in conjunction with Robinhood. Robinhood will also receive remuneration for providing trade volume in certain markets. In the future, we plan to offer premium services for active investors.

Robinhood is venture-funded by Google, Andreessen Horowitz and many others, which affords us the freedom to focus on building a wonderful brokerage experience rather than short-term profits.

See the comment by chollida1 in another part of the thread: https://news.ycombinator.com/item?id=8358217

"They get paid to sell your orders to Knight Capital, Lava and Credit Suisse.."

How do those third parties profit then?

I've never worked on an order flow based trade but the ways that seem most obvious to me are: 1) decreased fees with the exchanges due to higher rebate levels. 2) updated knowledge of the depth and nature of price levels making pricing algorithms more intelligent. 3) capturing the spreads on market orders.

Precisely. As a small, personal investor the last thing you is to make frequent trades thinking that you can beat the market- unless it is your toy money.

Wealthfront and others are making the stock market better for individual investors, retirement savers, and so on. This to the contrary appears like stressing the gambling aspect of it.

I would love to be wrong, but it is hard to see how this will make markets better and not lose people a lot of money. (Provided they don't 'pivot' in the future.)

Frequent low dollar trades != risky day trading of penny stocks. It very well could mean an automated $50/week in low-fee mutual funds. Or talking half of your lawn mowing money and putting it into a college account and investing intelligently with it.

The last thing these guys want is tons of articles saying, "I lost my life savings on Robinhood". Why wouldn't they do their best to give their customers access to smart context-specific investment advice?

The reason the stock market is generally referred to as "investing" instead of "gambling" is because the expected return is positive instead of negative. While I would not recommend randomly investing, it's not such a terrible thing.

That's making the assumption that economy can grow indefinitely. I wouldn't be surprise if we hit the roof soon.

I wouldn't rule out the possibility of the market crashing. I would rule out the possibility of us being near any kind of fundamental maximum amount of value in the economy.

Are you suggesting that it is a bad idea for laypeople to participate equity markets?

It's bad because the majority of people who invest their own money invest without enough information about the company. Finance is almost deliberately obfuscated to keep retail investors out, and unless you have the time and the knowledge, it's going to be difficult to make decent returns unless you're investing in mutual funds, ETF's, etc.

Disclaimer - founder of http://capp.io and this is basically what we found in our market research.

Depends on the size of the company, IME. Small to mid-caps can be very transparent. To add extra protection, buy at the lower end of the market cycle or when the sector of the stock is out of favor.

> Finance is almost deliberately obfuscated to keep retail investors out

Is it retail investors they are worried about, or is it expecting that the market won't undo any trickery?

No idea. I think investing is advanced enough that you typically need somewhat complex jargon and data to actually make money - over time it's basically become an old boys club and no-one's really trying to make it accessible to regular investor.

Your use of disclaimers shows that you are well versed in compliance matters when it comes to dispensing investment advice ;)

I'm sure falseprophet's response would be something along the lines of "index funds bla bla bla professional investors bla bla bla efficient market hypothesis bla bla bla" which isn't necessarily wrong (I agree with this line of thinking myself, mostly) The problem is when people complain about new opportunities for average folk and use an argument that amounts to "we need to protect dumb people from themselves" which is too simplistic an answer for complicated problems, in my view.

Often, people end up being smarter than you think, when given the opportunity (not that I'm endorsing Robinhood... I'd be very cautious about using them, based on first impressions)

If we stopped protecting dumb banks from themselves and everyone else, we wouldn't need to worry so much about protecting dumb people from themselves.

As for efficient markets - I'm still trying to understand how social institutions that melt down every decade or so and are a consistent focus of criminal proceedings can be considered 'efficient.'

We are probably in the same camp; I just wasn't sure if GP was comparing casinos with 'stock trading' or the equity asset class in general, which, if one subscribes to the 'boring' methods of index fund investing, are hard to beat over a 5+ year time window.

I would hope ETFs are available on this platform, since they trade like stocks.

He's probably suggesting that it's risky, because it is. Laypeople should know what they're getting into. I've had the opportunity to invest a sizable chunk of change into the US equity market twice in my life: once in 1999, and again in 2006. I lost my shirt both times. The stock market is not for everyone. It is not always a magical money-increasing machine, although it might "statistically" and "historically" produce positive returns over a long enough term.

That's a bit of a loaded question.

If "laypeople" just means "not financial industry insiders", then no, it's not necessarily bad.

If "laypeople" means "people who haven't bothered to spend any time at all learning how the market works (or at least, how it's supposed to work)", then yes, it's a very bad idea. For those people, the market may end up being functionally equivalent to a casino, but without the free drinks.

I think if an ignorant person wishes to trade stocks, the lack of a platform like this won't stop them. Retail brokers like Etrade and Scottrade got the pennystock crowds long ago.

Mentioned in another reply, I would hope ETFs are available on a platform like this, since they trade like stocks. Hopefully that would allow more people to put small amounts of savings into index funds. That being said, Robinhood wouldn't be very innovative on that front, since many brokers offer the more popular index-based ETFs without fees anyway.

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