Robinhood Facts, Figures and that 65 Million Penalty From The SEC

I have not been interested in writing about Robinhood, since they have received such bad press lately and everyone jumped on the bandwagon of saying how awful they are. I myself am a fan of Robinhood. Don’t get me wrong, I am not a happy at some of the recent activities and that they hid how they made their money, but there is some upside. I looked at some figures that I will talk about that show, even with their issues, how they opened the market up to everyone.  

First off, I am a customer and use them for my more risky and speculative trades. I am not a day trader, but I like to take some flyers and Robinhood makes it easy. Most of my investments (non crypto) are in a more traditional trading house where I can call someone if I need to and do a lot more in-depth activities. But, if I want to take a shot on a Cannabis stock, no issues with Robinhood.   Honestly, one of the reasons I went to Robinhood, is I didn’t want my Financial Advisor seeing or asking questions about what I was doing. I just wanted to be able to buy and sell longshots without feeling guilty. I don’t trade enough that all the downsides of using Robinhood impacted me enough to care, I just like that it was easy and fun.  

So, before I talk about their positives, let’s start with the 65 million they paid in penalties to the Securities and Exchange Commission. The quick of it:

As Finance Magnates reported earlier, Robinhood was fined $65 million at the end of last year by the market regulator as a disciplinary action. The broker was blamed for hiding the fact that its primary revenue driver was the controversial ‘payment for order flow’, under which it routed orders to principal trading firms in exchange for fees.

However, the routed orders received inferior execution prices, which violated the US securities market rules.

“Robinhood violated its duty of best execution by failing to conduct adequate, regular and rigorous reviews of the execution quality it provided on customer orders,” SEC’s order stated.

The SEC has said they are going to start looking at where that money should go.  Once Robinhood came clean around 2018, they had six million customers. This means if they just divided it up among those people, that is about 10 dollars a person. Not enough to make their customers happy, not enough to really hurt Robinhood in the long run, basically a wash. It did make Robinhood become more transparent, so I guess that is the win.   So why am I still a fan of Robinhood. I’ll bullet point it because that is just the type of blogger I am:  

·      Before Robinhood, the cost of a trade was going to be 5-10 dollars on the low end. Robinhood forced everyone to change their strategy. I get nothing is free, you can read all the other posts on that, but, now you could buy 20 dollars of a stock and not be killed with fees.

·      Most firms needed 500 dollars minimum to start trading, not so with Robinhood.

·      Robinhood’s average account size is 3500 dollars, Etrade’s for example, is 100,000. Charles Schwab is almost a quarter of a million.

·      The average age of their users is 31, this us up from 26 when they launched in 2015.  

So, it opened up trading for everyone. Not a bad thing. As much as #wallstreetsbets Reddit users complain about Robinhood’s activities, there probably wouldn’t be a #wallstreetbets without Robinhood.   I get that people say that new traders could lose money by getting in over their heads, but, I say it is the cost everyone pays to learn about the stock market. Robinhood allowed everyone to get into trading, to get started at a young age and to have fun. People that never would have invested were now reading about companies and looking at PE ratios. None of this is bad. If all you can get is .001 percent in a savings account at your bank, you have to look elsewhere and Robinhood started the progression toward anyone that wanted could trade.  


Thanks for reading.

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I am an American aquarium drinker. I assassin down the avenue. I'm hiding out in the big city blinking. What was I thinking when I let go of you?

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Interesting Thoughts, That Aren't Always Mine

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