Robinhood: Taking from Everyone

Is Robinhood a good place to invest? George G breaks down how they make money, and whether or not you’ll make money!

Apr 2, 2024 | Blogs, Podcast

About the Episode

Robinhood is offering some big incentives to join their platform. Is it the right place for you to be investing? George G talks about that, online gambling, how many people are making money trading, and a fun game of F/Marry/Kill. We know you’re gonna love it. 

 

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George Grombacher

George Grombacher

Host

Episode Transcript

Lord, Liberty, we have got a loaded show for y’all today. excited, excited to get in everything. We’ve got a fun new game that I know you’re gonna love plus an old favorite for years. So why don’t we just get into it? Let’s just get started. Stop pussyfooting around and jump in, it’s time to play. Is this an advertisement for an online gambling site or a promotion for a brokerage account? Hmm. I don’t know if you’re gonna get it or not. This is pretty tricky. They are awfully similar.
Which in itself is is is amusing, if not hilarious and also very, very, very telling. So let’s start with this one. Get your first bet back. If your first cash bet loses, you’ll get it back as a bonus bet up to $1,000.
Okay, that one’s kind of on the nose, that $5 to get $150 instantly in bonus bets. Also, kind of on the nose, get a 3% boost on all deposits. Gold membership will also get you unlimited 1% boost on all deposits you make into your account. It’s no cap on the boosts you can earn a little trickier that $5 to get $200 in bonuses. All right. Those are tricky. A lot of similarities. Some differences. I know it’s a tough one. And all of it just seems way too good to be true. All this free money that’s floating around out there. How do these companies even make any money if they’re just giving it all away? Hmm. All right. But if you guessed 3% boost on all deposits, and the gold membership gets you an unlimited 1% of all deposits. Out of cap. You are correct. That is the promotion for online
with the brokerage platform, Robin Hood
with a brokerage platform Robin Hood, Robin Hood, if you recall, Z mythic mythical character portrayed in many movies and books, and he would steal from the rich, to give to the poor and Robin Hood brokerage platform claims that they are interested in treating everyone the same not giving special treatment to the rich.
And being good to regular folks like you and I. So maybe that’s maybe that’s the connection there. I did a brief search on why Robin Hood is called Robin Hood. And I guess that’s kind of it. And at the end of our conversation today, you’ll be able to make your own determination as to whether or not that’s really what’s going on here or if something else is going on here. But I point that out, it’s like these are I saw that advertisement
for the 3% boost on all the deposits you roll in. If you are transferring over money from a retirement account and IRA into Robin Hood’s IRA, you get 3% boost on everything you rollover, so it’s a substantial amount of money. And that actually might be worth it, I do believe that there’s a time limit or a time horizon time period, you must leave the money on the platform. So you can’t just roll money on there, and then roll it back out with the 3% that they’re giving you. But you have to look into that yourself. And again, like everything else, you can make your own determinations and decisions about all this. I just thought it was a little bit funny that a lot of the marketing the advertising the way that they’re trying to attract people onto their platform, not dissimilar, from the same way that new online gambling, sports betting platforms are trying to get people onto the platform as well. One might also say if you were to actually, if you were able to legally advertise drugs, you were a drug dealer, you would probably advertise something like this, just to get people hooked, give them a little bit of a taste. Get him in there, get them using the platform, get them comfortable. And that’s where you then kind of get out or at least get them for a little while but we’ll talk a little bit about that too. So
that was it the Robin Hood advertisement.
And here’s here’s kind of a thing, and
whether it’s nefarious or sinister or whatever. By taking part in in these in these promotions, specifically this promotion, you have become the product. That’s right. Just like you’re the product on social media. You are the product with your brokerage account as well. gratulations gratulations Is this true of all
brokerage accounts and all brokerage platforms? Well, no, no, it’s not. No, it’s not to all of them make money in, in similar ways. Yes, yes, they do.
But I think that one of the big problems that I’m going to discuss and get into is,
does it make sense for me as the investor, to be making lots of trades to be on an app and to be engaging, to be highly engaged and to be spending a lot of time on it? Like social media? The answer is no. But they definitively been proven that social media is, is certainly not lived up to or filled the promise of making deeper connections and connecting more people. And it’s probably more of a net negative than it is a net positive. But like everything else I am guilty of, again, Yaqeen, you’re young, if you’re into sports betting or if you’re into Robin Hood, and all this kind of stuff. You’re probably not interested in hearing this. But is it just my perspective? So?
So is it good? Is it bad? How can any of this be good? And I guess fundamentally, it’s what’s the point of a brokerage account? Like what why do Why does a brokerage account exist? And briefly, a brokerage account is not unlike a bank account, it just has
greater capacity and ability. So brokerage account, you go to your favorite brokerage account provider Fidelity’s of the world, Charles Schwab, Vanguard, Robin Hood, your bank, you can open up an account, which is not dissimilar from a bank account, but it just allows you to buy and sell stuff. And we can’t do that with a checking account. But with a brokerage account. You can buy stocks, you can buy bonds, you can buy mutual funds, exchange traded bonds, cryptocurrency, you could trade options, stuff like that. And when it comes to that, I just don’t think that I want to be the product. I think that it’s designed so the product is the security that I’m interested in buying and or selling. I didn’t I don’t think that I me, the user, the investor is not the product. But
that leads me to my next game, which is one of my favorite games to play. Good ol F marry. Hell, this is going to be f marry kill brokerage platform edition. All right, so today’s contestants, today’s players in F marry kill our Charles Schwab, fidelity and Robin Hood. So let’s get started. Question is, Who am I going to marry? Who to marry? I’m going to marry fidelity and Charles Schwab. And I’m going to tell you why. I’m going to lean on my good friends at invest a PDF to do all the heavy lifting on this one, because for me, but allow me to go through and analyze the differences, the benefits, the pros and the cons of all these different black brokerage platforms. Why would I do that when you have such a trusted source like Investopedia, who’s already done the legwork on our behalf. So if you’re curious where I found all of this, you can just Google in Investopedia, top brokerage accounts of 2023 2024. And they named fidelity as number one. And essentially, Charles Schwab as number two best overall was fidelity. And that was because just the metrics that they use, the best for low costs was fidelity. And they deemed that the best for beginners was Charles Schwab. So if you find yourself in the market for a brokerage account or some kind of financial platform, it’s hard to go wrong with fidelity and or Schwab, that is just my humble opinion. thing about these companies is you can do just about anything that you would that your heart desires, you can have a brokerage account where it’s taxable, which means it’s not in side of a qualified plan. It’s not an IRA or an IRA. And, but you can also open up an IRA you can you can trade all the different things, you open up
managed accounts, you can interact with financial professionals, you can open up college savings accounts, really everything that your heart could possibly desire and all reasonably transparently priced and presented in a way that I believe is healthy.
So, by process of elimination, by process of elimination, it is time time to kill.
So I’m going to kill Robin Hood.
Thank you
Robin Hood, sorry, not sorry, Robin Hood, they make money in a lot of different ways. But the most notably is they make it through a system called payment for order flow. So that means that Robin Hood routes, all of its users, you and I, its investors orders through a market maker, who actually makes the trades and then compensates Robin Hood, where the business at a rate of a fraction of a cent per share. So I go on, I buy a share of stock, it goes through this market maker who is executing on the trade, and then paying Robin Hood, a very, very small percentage per share for each one of those transactions. Okay, so Robin Hood is making money and making more money based on how many transactions that I as the investor is making, okay? They also make money by investing the users, you and I are cash deposits at a higher interest rate than the pain, do margin lending. They do stock lending. And then they have their gold subscription suite of services that I talked about at the beginning. And they have a crypto business as well. They have credit cards, all these things bring in revenue, but bottom line is almost three quarters 73% of their revenue comes from user transactions. So they make three quarters of all their revenue based on you and I trading and doing transactions. bottom bottom line, they want you to trade more
bottom bottom bottom, bottom line, they make more money, the more you trade. So, like so many other things in modern living, you know, like social media, again, you your listener are the product, you’re the product. Is that good? Is that bad? Is it indifferent? I think the question is, is that a winning strategy for you? Is that good for you? Is more trading more activity? Good for you? Is it good for your financial situation? What do you think? But do you think? Is that good for you?
For me, it’s a hard no, like, real hard, like rock bucking hard. Part is it gets no, that’s not good. Did you know Did you know?
Only 13% of day traders maintain consistent profitability over six months. Put that a different way. 13% of people who are buying and selling stocks every day, make money over the course of six months.
And 1% succeed over the course of five years.
Wow. Well, that’s evidence right there. This is according to FINRA,
which is the body that regulates financial stuff. So financial losses 72% of day traders ended the year with financial losses. Okay, so let’s go through that, again. Only 13% maintain consistent profitability over six months, 72% of day traders lose money every year, only 1% succeed over the course of five years. So what does this mean, again? If Robin Hood is making money by you trading more?
Do you think that they’re working and incentivizing you to do that?
I think the answer is yes. I don’t know. This is my opinion about it.
How would I know? I’m just guessing you gotta follow the money. If they make 73% of their revenue from you trading, again, you’re the product.
That’s where the revenue comes from recorders of it. And the recorders essentially, of people that are doing this are losing money.
Okay, so case closed, I don’t know, you, you make your own decision. While we’re talking about online betting and gambling. Just Just so you know. Professional sports bettors rarely, rarely rarely, rarely maintain winning percentages above 56%.
Like the best of the best win around 53% of the time
to break even as a profitable professional sports bettor you need to be making you need to be winning about 52.4% of the time.

 

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