Don't get me wrong, I love some of what they're doing....I just don't trust them with my money.
I see a lot of people saying things like "I don't trust Robinhood with my money". I am curious what scenario you see unfolding with Robinhood that could result in loss of your assets. Especially scenarios impacting Robinhood uniquely. Are you aware that Robinhood, as well as virtually every other brokerage in America, provides SIPC insurance up to 500K USD on all (non-crypto) investment accounts? This is on-par with the same kind of protections you get with any FDIC-insured checking or savings account. In order to even qualify for this kind of insurance, Robinhood had to essentially sell its soul to the various auditors and regulators. Regulations around these kinds of businesses are incredibly stringent. You would probably feel a lot more comfortable with any arbitrary brokerage if you had to sit through one of their audits, or were simply made aware of how extensive it is.
There is certainly a lot of "controversy" around Robinhood in the press lately (surely no competitor would stand to gain from running hit pieces against a zero commission broker), but from a purely academic standpoint, it is just noise and doesn't impact the ability of the firm to carry out its fiduciary duties in a reliable and consistent manner.
What I would say is that I just don't trust Robinhood as a company. They feel scummy to me, and their marketing and UX pushes practices that I would not consider good investment advice. I can only assume that pushing frequent trading (and poorly-described options trading) on unsophisticated investors makes more money for them. But it's likely at the expense of those investors. Even if I "know better" and could just take advantage of the platform as-is, I don't care to support that behavior.
Take that and pile that on top of -- for example -- their misleading and factually incorrect announcement about their quickly-pulled cash management product last year... yeah, no thanks, I'll pass.
While similar, SIPC is not "on-par" with FDIC.
With FDIC, the bank is taken over Friday afternoon and your cash is available Monday morning.
With SIPC, it could very easily be five years before you have access to your assets again.
The difference in the value of the insurance also means the regulatory scrutiny behind SIPC is far lower.
The mere presence of extensive auditing and regulation does not mean that it is effective.
On the other hand, I still feel like it's a big jump to go from there to "...and so I don't trust them with my money". Have they lost anyone's money? Do you think they're in some real danger of shutting down and taking people's money with them? "These idiots keep failing to properly calculate margin requirements" is a pretty damning thing to say about a brokerage, but....
Brokerages are pretty heavily regulated. Why do you think your money wouldn't be safe?
Can you elaborate on this a bit and/or share article(s)?
The entire legal system around equity investment is built around these concepts, and while you might take a different approach to the whole thing if you could "do a full re-write of the codebase", that's not really how laws work. There's also the fact that the same or very similar rules are applied worldwide, allowing like-for-like laws to apply cross borders. A Chinese share can be described by US laws. Do you know how hard it would be to toss all that global legal framework out and replace it with something else?
And you've not really explained why you think your system is better, either. I'd say the discrete units of shares that make ownership laws simpler are worth the hassle, on their own.
(I do not work for Folio)
(I do not work for either. I've used Robinhood for 4 years.)
Edit: Looks like Robinhood moved out of Apex to their own clearing.
When I heard of Robinhood I thought it would fail for sure... I guess that shows how much I can predict startup success.
The $0 commission is now pretty universal, and most brokerages are pushing better mobile apps. I don’t really trade from my phone, but you have to admit it’s convenient for when you’re not always near a desktop.
It feels very incremental to me.
It also feels like a feature that is representative of something that would only happen at the "top" of the market.
For a teenager who wants to invest $100 to "dip their toes in" when a share of Amazon is over $1,700?!?! And Google over $1,300?
Back in the days when stock regularly split it wasn't a big issue. But now that a bunch of companies think it's somehow unfashionable to split their stock (e.g. Amazon and Google), all this does is exclude smaller investors. Fractional shares solves this problem.
A single share of stock shouldn't cost more than a MacBook, sheesh.
Now in this thread people are saying multiple such platforms exist. Did I make a mistake or get something wrong? Or are they applying some kind of workaround? I can't remember why I thought it wasn't allowed.
how did you somehow decide (unilaterally) it is illegal?
And is this something that exists outside of Robinhood?
- Sofi: https://www.sofi.com/invest/fractional-shares/
- Schwab: https://www.wsj.com/articles/schwab-in-bid-for-younger-clien...
I'm not totally sure how it's structured, but I imagine RH "owns" the shares and offers you the corresponding fractional amount of value/dividends, etc.
My understanding is that the way this works is that the broker will generally already have an inventory of all of the stocks that are regularly traded through them and simply carve up your fractional allocation from this inventory. When you purchase shares through a broker they can simply sell you the shares directly out of their inventory if they can match the market price. They will even get a small incentive to do this since it produces order flow (volume) without hitting the exchange directly.
This also helps with order clearing (the T+3 rule for ownership transfer). Since the broker is selling out of their inventory, it is virtually guaranteed that your order will clear. When transferring shares between institutions, it's possible that this process will fail and you will be notified that your order wasn't able to be fulfilled. It's rare, but can happen.
While purchasing fractional shares outright is somewhat new, the concept itself has been around for a while and I've had DRIPs at multiple different brokers. I was even able to get fractional shares of high priced preferred stocks going for $1,000+ market per share.
Anyways, that's my experience.
Most countries are now T+2. The USA has been so for over two years.
There's also DRIP (Divident ReInvestment Plan) plans, a feature brokerages offer to allow fractional reinvestment of dividends.
Not sure how it's actually implemented as a financial product.
Fractional shares through DRIP is something else really as you can’t purchase them directly.
I’d be interested to know how it works too, but it could be as simple as the brokerage buys 1 share when you ask for 0.5 then keeps the other half on the books, sells the other half to someone else.
I'd imagine similar to all of the other brokerage accounts that allow for fractional shares either via direct purchase or dividend reinvestment purchases. RH's competitor SoFi has had fractional shares for a while now, I would imagine it is set up similar.
