Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Hacking Wall Street to Close the Wealth Gap

Politics / Social Issues Oct 22, 2020 - 07:49 PM GMT

By: John_Mauldin

Politics By Dawn Pennington : Just like the legend of a bow-and-arrow toting, Sherwood Forest-dwelling vigilante, Menlo Park, Calif.-based Robinhood set out to bring that sentiment to the retail investing set with a brokerage app.

The company was founded in April 2013 by Vladimir Tenev and Baiju Bhatt, who had previously built high-frequency trading platforms for financial institutions. Their goal was to provide everyone with access to the financial markets, not just the wealthy… just like the Merry Men would do with unsuspecting victims traveling through Sherwood Forest.

The idea was a hit. No one had ever offered stock trades with zero commissions. This made investing affordable for people of any age and income. Today, the app has over 13 million users with an average age of 31.

The company has no storefront branches and operates entirely online without fees… and, as customers found out last week, no customer service.


And just like the fairytale…

There's a Nemesis in This Story, Too

This past Friday, customers logged in to find that their shares had been liquidated and that withdrawals were pending… and not to their linked bank accounts.

When they reached out to Robinhood, they also found that it could take up to three weeks for the company’s fraud department to get back to them. A Robinhood spokesperson said this was no fault of theirs and that “a limited number of customers” were affected.

I’m not here to criticize Robinhood—I've been a customer since its earliest days. But I am here to point out trends. And there are two big ones that we must take note of in the markets.

Trend 1: Free Trades Are Here to Stay

Robinhood set the stage for zero-commission trading, which attracted more people to investing.

When commissions were $9.99 (remember paying to enter a position and again when you exited, along with any applicable broker fees?), investors had to take that into consideration.

The added cash costs served as a good deterrent against trading with smaller amounts of money. Those fees could put a dent in your wins or amplify your losses in a big hurry.


Source: Quartz

The coronavirus was the next prong in this change of brokerage culture. People found themselves with more time on their hands, $1,200 in relief money, and the need to make more cash.

So they turned to the markets.

About half of investors on the Robinhood app say they are brand-new to investing. We can assume at least some are making impulse bets… rather than using proven systems like the kinds our Mauldin Economics editors use to deliver consistent, market-beating results.

With no commissions, there’s no downside to buying and selling without a system… for the individual. But now, there are reports that some billionaires are complaining about Robinhood amateurs moving the market.

Shares of Hertz (HTZ) bounced 800% after declaring bankruptcy. The fact that the company does not have enough assets to meet its debt obligations somehow didn't raise a red flag.

And the momentum of investors continued into the summer. In June, 4.3 million shares traded each day, on average. That was about four times the numbers of trades at E*Trade (ETFC) for the same period.


Source: FinancialPlanning

Investors don’t seem to be growing tired of Robinhood… even though it’s not perfect.

But the competition it distanced itself from has caught on. Will it catch up?

Trend 2: The Sheriff of Nottingham's Troops Are Joining Forces

Other online brokers cut their fees in rapid succession to compete with Robinhood. Of course, there are some exceptions to this rule. For example, trading on other exchanges or the over-the-counter markets (which Robinhood doesn't offer).

Fewer commissions did, in fact, mean more trades. But at the same time, it made making money more complex for the companies involved.

So, for their next act, the bigger brokers want to put their arrows into fewer quivers.

  • Late last year, Charles Schwab (SCHW) announced its plans to merge with TD Ameritrade. Shockingly, regulators and shareholders approved it. The $26 billion deal closed just last week.
  • Morgan Stanley’s (MS) solution is to spend $13 billion to buy E*Trade and, in turn, gain access to a younger audience as well as more active traders and options traders.

This means that Robinhood is the one setting the new standard for investing… not the giants from the past.

The Future Is Fintech

If the coronavirus taught us anything, it’s that we will be less and less dependent on brick-and-mortar locations… even for handling our financials.

It's clear that financial technology—fintech—is the future of banking and investing. But at what cost?

Most people still want to be able to reach a customer service representative when it has something to do with their money. Plus, you might want someone to call if you’re unable to place a trade due to an outage… which seems to still be an issue on Robinhood.

Source: Downdetector

According to Downdetector, Robinhood has experienced outages every month so far in 2020. And the company is currently facing lawsuits due to outages in March.

And don’t forget the tragic story of the 20-year-old “options investor” who took his own life after he believed he was assigned almost a million dollars’ worth of leverage.  

Could this have been prevented with a simple, answered customer service call? Sadly, we will never know.

What we do know is that trading and investing are far riskier without expert guidance—and getting help on demand (and potentially for a small fee) could go a long way.

Perhaps that might be the opportunity for platforms like E*Trade and Ameritrade to "rob" Robinhood of some of its thunder.

Dawn Pennington is the Editorial Director at Mauldin Economics.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules