Got invited to a Robinhood Day Trading Group.

Discussion in 'Fred's House of Pancakes' started by Higgins909, Aug 16, 2020.

  1. Higgins909

    Higgins909 Member

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    An old childhood friend that I had added on facebook sent me a invite to a beginners trading group for Robinhood Day Trading. I noticed there are many of my other childhood friends in the group. Before this the only time I heard about it was on NPR about a kid who got in a ton of debt somehow despite having no job and committed suicide... or some variation of that.

    I've tried to scope some things out like the FB group and some of the things he's shared. It's kinda looking like he's the owner of the group and he's sharing a website that I assume is his and has a monthly service on that website.

    I really hate that my mind always assumes the worst, but is he just trying to make a buck off me? Wondering the same for all the other people in the group. What do ya'll think?

    I've been wanting to look into trading/stocks but have a never ending list of things I want to do or start up and never finish. Maybe someone made a 5 minute video on the subject. The other part of me is thinking this is something I should investigate further into and see if I can do anything with it.
     
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  2. Raytheeagle

    Raytheeagle Senior Member

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    Sounds suspicious to me;).

    Almost like a Ponzi scheme:cool:.

    I'd pass(y).
     
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  3. fuzzy1

    fuzzy1 Senior Member

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    IIIRC, he wasn't really in serious debt, but got confused or mislead about the updating delays between the different sides of some transaction(s), and merely thought he was in deep debt.

    The user interface was confusing or temporarily misleading. But very tragically so.
     
  4. fuzzy1

    fuzzy1 Senior Member

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    The underlying platform makes a small "commission", or harvests a small basis spread, on every trade. The modern spreads are small, even tiny, but they make it up on volume. Massive volume. No matter what direction the markets move, or don't move, they profit from the churn.

    If you are an experienced investor who wants to try day trading, there are far better places to learn it and platforms on which to do it.

    If you are inexperienced at investing, STAY THE [email protected] AWAY FROM DAY TRADING!!! Its promoters make their best profits by pulling in suckers with some money to play with, bleed them dry, then toss them out to make room for new suckers with fresh cash. This was the business model of a few local (Bellevue WA, actually) firms during the booming 1990s: advertise free training, bring in novices (who met certain financial minimums) to learn in their classrooms (initially with fake money accounts to learn the game without risk), turn them loose on live trading stations, then boot them out when they dropped below the financial minimums (as 90+% of them quickly did) to make room for a newer crop of suckers students.

    The business models may have changed now, so they don't actually have to boot most folks out or even provide the offices and computers. But remember that this is not quite a zero-sum game, really a slightly-negative-sum, due to the trading costs. Unless you bring in some real business or financial niche expertise not shared by most other experts, or are doing this as your full-time career, you are at a very serious competitive disadvantage to those who are.

    And also at disadvantate to those doing massive ultra-high-speed computer analysis and trading, who can afford to place their supercomputer warehouses next door to the trading exchanges in order to take advantage of the speed-of-light communication delays of traders miles away. Yes, they actually do this!

    Your friend might have honest intentions and motives. Or might not. But that doesn't really matter, because the underlying platform is there to bleed you a few drops at a time, as many times as they possibly can. And them too! You are best off to just pass on this.

    ==========================

    Robinhood Has Lured Young Traders, Sometimes With Devastating Results
    Its users buy and sell the riskiest financial products and do so more frequently than customers at other retail brokerage firms, but their inexperience can lead to staggering losses.

    "At the core of Robinhood’s business is an incentive to encourage more trading. It does not charge fees for trading, but it is still paid more if its customers trade more.

    That’s because it makes money through a complex practice known as “payment for order flow.” Each time a Robinhood customer trades, Wall Street firms actually buy or sell the shares and determine what price the customer gets. These firms pay Robinhood for the right to do this, because they then engage in a form of arbitrage by trying to buy or sell the stock for a profit over what they give the Robinhood customer.

    This practice is not new, and retail brokers such as E-Trade and Schwab also do it. But Robinhood makes significantly more than they do for each stock share and options contract sent to the professional trading firms, the filings show.

    For each share of stock traded, Robinhood made four to 15 times more than Schwab in the most recent quarter, according to the filings. In total, Robinhood got $18,955 from the trading firms for every dollar in the average customer account, while Schwab made $195, the Alphacution analysis shows. Industry experts said this was most likely because the trading firms believed they could score the easiest profits from Robinhood customers."


    (That last paragraph is confusing without more context. Basically, Robinhood customers have an estimated average account of about $4800, and the company apparently made about $91M from all of them in 2020Q1, a ratio of 18,955 : 1. That is a far higher profit ratio than other trading firms.)

    Is Robinhood making money off those day-trading millennials? Well, yes. That’s kind of the point.

    "Brokerages have other sources of income, of course — margin lending, advisory arms, and so on. But most of all, “Every broker is in the business of getting transactions moving through the system. They just want volume,” Nadig said. Any lubrication that helps that movement is important, he said. Ultimately, “Robinhood is not there to teach you financial literacy or how to pay down your student loan. It is very good at getting you to make transactions. It’s Tinder but for money.”"

    ===============================


    So, do you still want to do it? Then at least get some independent advice.

    Day Trading on Robinhood? Keep These 9 Expert Tips in Mind.

    "3. Understand That Losing Is Very Likely

    ... A 2010 study by Brad Barber at the University of California-Davis found that, factoring in transaction costs, only 1 percent (yes, one percent) of day-traders generated strong gains on a consistent basis."
     
    #4 fuzzy1, Aug 17, 2020
    Last edited: Aug 17, 2020
  5. ETC(SS)

    ETC(SS) The OTHER One Percenter.....

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    I think that the fact that you are asking is proof that your 'lizard brain' is hard at work trying to protect you.

    ....Instinct.
    Gut.
    Funny Feeling.
    Spidey Sense.

    It has many names.

    Sage advice.
    I would add that most people who are experienced at investing don't Day trade unless "investing" is their primary occupation....and even then they only do so hesitantly.

    I grew up with two rich uncles (8 figures) and two relatively poor ones (< .5 median income)
    One of the poorer ones got that way through day trading, and only an inheritance (speculation on my part) and a few decades of busting tail allowed him to retire with something approaching dignity.

    If you are under 40? and some of your other posts indicate that you are.......Don't.
     
  6. bisco

    bisco cookie crumbler

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    with free trades, if you watch certain stocks go up and down over and over day after day, day trading looks simple, and a small test batch might be fun. but the tax implications sound complicated
     
  7. fuzzy1

    fuzzy1 Senior Member

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    It seems that the few individuals I've heard about who are successful long-term day traders, mostly have it as their only occupation, full time. Because if they don't make it their full time job, they can't keep up with the continuous business news flow to successfully compete against those who are, in an effectively zero-sum game. And against the institutions that are throwing massive resources into it.

    Larger numbers are successful shorter term, but then crash or otherwise exit the game. And occasionally, whole investment banks (or divisions thereof), that don't keep adequate controls on their internal traders, collapse.

    Vastly more investors get wealthy on numerous slower paths, such as riding the long term rising tide or specializing in and building particular businesses.
     
    #7 fuzzy1, Aug 17, 2020
    Last edited: Aug 17, 2020
  8. bisco

    bisco cookie crumbler

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  9. fuzzy1

    fuzzy1 Senior Member

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    Hackers hit almost 2,000 Robinhood Markets accounts

    Apparently they have 13 million accounts, so this is a small fraction of the total. But they also have no customer service phone desk, so all communications are by email. And some of the hacks involved malicious actors compromising victim's email accounts, diverting notices and alerts from Robinhood into trash folder so to go unnoticed. And some two-factor authentications have been compromised.
     
  10. vvillovv

    vvillovv Senior Member

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    Not knowing what robinhood offers, I'll guess that most would give an eyetooth to have after hours access were many of the bigger moves happen. Although it's just as easy to mistime a trade after hours as it is during normal trading hours, just easier to bail when something tanks or looks like it might. Gotta love the stories of how the millions are made. I've only seen one that told of how much was lost after a long winning streak.
     
    #10 vvillovv, Oct 16, 2020
    Last edited: Oct 16, 2020
  11. fuzzy1

    fuzzy1 Senior Member

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    Many houses provide extended trading hours, and Robinhood seems to have narrower extended hours than most others.
    I believe bad timing is even easier off hours. Those markets are thinner and considerably more volatile, so it seems common that traders dumping early often get stung by worse prices than were later available on the regular market.
     
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