Robinhood: Steal from the poor and give to the rich (options trading, hedge fund)
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How does a free, no-commission stock trading app make money?
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In what the press accounts describe euphemistically using terms like a “controversial but legal practice,” Robinhood makes the bulk of its money on “payment for order flow.” It sells its data to high-frequency traders like Citadel and Virtu, market makers who ostensibly are paying for the honor of executing trades for Robinhood investors. These firms, using the technology that’s the subject of the celebrated Michael Lewis book Flash Boys, hunt out tiny price differences and gauge market sentiment and supply and demand before other traders, using sophisticated algorithms to jump ahead of the pack.
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The obvious problem is that a lot of these younger customers have no clue what they’re doing. “Retail investors don’t understand stocks, let alone options,” sighs Saluzzi. He compares the service to bringing amateur poker players to Vegas and seating them not at a table with old ladies and tourists, but with the best players in town. “It’s throwing them right in with the sharks,” he says.
And what tale of Silicon Valley disruption gone awry would be complete without Orwellian language tricks.
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It’s the perfect mousetrap, among other things because of its name. “That’s the other thing,” says Brewster. “They call it Robin Hood.” Instead of stealing from the rich and giving to the poor, the American version takes in the young and sells them to computer-powered hedge funds; this Robin Hood is the house that always wins. If there’s a more brilliant metaphor for capitalism in the Covid age, it’s hard to imagine.
I enjoy using robinhood and is addicted with options trading. I only put there what I consider "gambling" money.
I do see it could be dangerous specially with some young investors bragging about their winnings encouraging others to do YOLO (like betting all in one or few stocks). I've seen a lot of them making a lot (specially on options) and also many losing a lot.
One time this guy bet his college loan and lost it all.
The significant part is that Robinhood charges for order flow by a percentage of the spread between the bid and ask. The bigger the spread made by HFT traders or dark pools to whom Robinhood sells the order flow, the more Robinhood makes. HFT's often justify their existence by claiming they aid liquidity and bring down spreads. It's actually the opposite. They have no responsibility to make a market. They can just step back as we saw when the ETF's would get disastrous fills on sales in market declines.
If people lose money it's 99.999% of the time their fault for being greedy, stupid, ignorant, emotional, etc.
From what I read in the article, Robinhood is selling these trades to market makers who can profit off of the information. You can't compete with that because the market makers have more information than you.
If you're saying, "don't use Robinhood," I agree with you.
From what I read in the article, Robinhood is selling these trades to market makers who can profit off of the information. You can't compete with that because the market makers have more information than you.
If you're saying, "don't use Robinhood," I agree with you.
Nah.. there is also webull which is also commission free but equally popular if not more. This is more the user fault than the app.
From what I read in the article, Robinhood is selling these trades to market makers who can profit off of the information. You can't compete with that because the market makers have more information than you.
If you're saying, "don't use Robinhood," I agree with you.
So Robin is bilking the greedy peasants? I love it!!!!
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