1/ Having built online trading platforms, I can share insights what is happening with #RobinhoodApp, why their businessmodel is shady and how this $GME 🚀🚀🚀squeeze makes this all a pretty messy affair.

So, a thread 👇🏻
2/ Firstly, the well hidden truth of online trading platforms is that most of the active traders lose money. And most does not mean 51%, but this is more like 90-95%. Clients burn out quite quickly as well.
3/ Some research:
a) from Brazil: "97% of traders lose money" papers.ssrn.com/sol3/papers.cf…
b) from Taiwan: "Less than 1% of daytraders consistently earn positive returns"
sciencedirect.com/science/articl…
4/ If we take a 100 year stock market chart, one can clearly see that longterm investing makes a lot of sense, whereas active trading most often is not a very rational thing to do. People do it because they think they can be better than the average.
5/ Every online broker should say to their clients "just do long term buy and hold, please-pretty-please do not do any trading stuff." But have you seen messages like that? Me neither.

The reason is that one active trader can bring fees like 500 passive investors.
6/ Robinhood goes extra mile with making leverage and options available to small investors that will probably increase the number of clients that will burn out even more.

The chart below shows how call option activity in US has made all time records due to Robinhood customers
7/ Since novice traders usually play the long side, extraordinarily good times on markets will increase the % of traders with positive returns. But only temporarily.

Last 6 months have been super bullish and therefore r/wallstreetbets has such a big number of active traders.
8/ In addition to all that Robinhood sells it's clients trading flows to Citadel et al. This is the way they can offer free trading.

Citadel can then use flow data to their own benefit and that is very likely totally against the benefit of Robinhood customers.
9/ Comparison to Facebook is a suitable one for Robinhood. "If you are not paying, you are not the customer you are the product". Free trades is a marketing gimmick to lure in investors, usually they would be better off trading elsewhere and paying some commissions.
10/ An important detail: most of the accounts at RH are margin accounts. If Robinhood goes belly up, then the stocks on your account are not yours they are on RH's balance sheet. "Cash account" is the account type where you own shares. If that gets more publicity - bank run.
11/ We do not have enough facts to decide if Citadel also pushed Robinhood to limit $GME trading. On one hand it makes a lot of sense for some parties to pressure RH with that and Wall Street is even more connected than everybody thinks. But RH also really has a liquidity problem
12/ All the $GME saga pushed aside, the stuff above shows that Robinhood really is doing some nasty business. Selling trading info to big players and pushing novice investors to trade, that is just plain ugly. And complete opposite of Robin Hood principles.
13/ This all also is a reason why I have not started another brokerage project. Most of the money is made there on the trading side. A reasonable approach would be to push people towards longterm investing, but it's hard to make money there.
14/ At least their masks are now off. Robinhood probably needs another bailout and the ugly PR-fiasco with $GME is pretty lethal, lots of customers will leave - business will never be the same for them.

"Do no evil" still should be a key principle for every startup.
15/ If just this $GME thing can cause Robinhood such liquidity problems they must have a pretty horrible risk management. Should make customers worried.

Taleb's take on VaR used by RH and regulators is just not smart at all:

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Kristjan Lepik

Kristjan Lepik Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @kristjanlepik

31 Jan
Weekend reading: 8 articles about interesting new trends that are happening in the world - from technology to politics to markets. Thread 👇🏻

1/ Guardian is quoting an ex-KGB spy who is saying that Russia has used Trump as an asset for more than 40 years

theguardian.com/us-news/2021/j…
2/ This week the stock markets were derailed by ... a online Reddit army. Strange times, in a way the attack on Capitol was also started online. Decentralization is really happening.

edition.cnn.com/2021/01/29/inv…
3/ Big Tech has become quite repulsive. And since their business is global the goverments have not been able to do much. At least Big Tech has started now internal bickering - Apple attacking Facebook
inc.com/justin-bariso/…
Read 9 tweets
23 Sep 20
1/ Postimees, omaniku sekkumine ja kogu ajakirjanduse tulevik on olnud kuum teema.

Kirjutan mõned mõtted sellel teemal - miks Linnamäe üldse ostis Postimehe ja milline võiks olla meedia tulevik?

Jutulõim 👇
2/ Vaatame korra laiemat pilti ja selle siin on üks aastatagune oluline uudis err.ee/937655/margus-…

Linnamäe oli koondanud erinevaid kuulutusteärisid ja müüs need kõik ühise paketina Londoni fondile maha. Sarnast konsolideerimist teeb UP Invest ka praegu näiteks kinodega.
3/ Miks see oluline on? Ma nägin unes, et tehingu hind võis olla ca 250 mln EUR. Kui see tõele vastab, siis on tegemist väga eduka tehingu ja hea plaaniga.
Read 17 tweets
18 Jun 20
1/ Kirjutasin märtsi lõpus Suure Plaani artiklis, et Eesti peaks laenama majanduse augu katteks 7 miljardit eurot. Paljud pidasid toona seda utoopiliseks numbriks, Levilat vedav Daniel Vaarik ütles, et see artikkel oli oma ajast lihtsalt ees.
levila.ee/tekstid/majand…

Jutulõim 👇
2/ Kui algselt räägiti miljardist või kahest, siis nüüd on valitsus jõudnud ka juba seisukohani, et vaja on 5 miljardit eurot, jõutakse lõpuks ka selle seitsme miljardini vähemalt.
aripaev.ee/uudised/2020/0…

Kuid siin on nüüd mitu probleemi.
3/ Esiteks, ma tõin oma artiklis välja ka selle, et olen pidanud varem riigi laenamist kaheldava väärtusega tegelemiseks, sest see laenuraha ei tohiks minna lihtsalt kulutusteks, vaid peaks minema investeeringuteks - see peaks tulevikus tagasi tooma.
Read 8 tweets
7 Apr 20
VÄLKSEMINAR 1/: Sel neljapäeval (09.04) kell 10-12 toimub üks huvitav projekt - ma teen online-seminari majanduse olukorrast, Chalice teeb sinna otsa välkkontserti.

facebook.com/Levila.tv/post…

Allpool veidi taustast pikemalt 👇
2/ Mõtlesin, et ehk oleks huvitav ka juurde kirjutada selle välkprojekti saamislugu. Mitmed konverentsikorraldajad pöördusid minu poole, et teha online-seminar. Majanduse kohta küsitakse iga päev minult palju kordi, see oleks efektiivne viis infot esitada.
3/ Kuid praegusel ajal raha ei tahaks küsida kuulajatelt. Samas tasuta ei peaks ka olema ning äkki peaks seda kuidagi moodsamalt lahendama?
Read 10 tweets
18 Mar 20
1/ Aktsiad ja investeeringud: väga palju küsimusi tuleb selle kohta viimasel ajal, seega teen selle kohta ühe eraldi avaliku jutulõime👇

Mida toob aasta 2020 finantsturgudele? Nagu arvata võib, mitte 100%-list roosamannat, kuid samas tuleb väga häid investeerimisvõimalusi
2/ Esiteks, aktsiaturgude langus on kahtlemata väga järsk ja ulatuslik. Joonisel on näha USA S&P 500 indeksi liikumine viimasel aastal. Boom.
3/ Ning kui võrrelda ajalooliste liikumistega, siis siin on näha, et nii kiiresti nii alla ei olegi varem kukutud. See praeguse languse sirgjoonelisus on kahtlemata erakordne, isegi paaripäevaseid põrkeid ei suudeta organiseerida.
Read 20 tweets
6 Mar 20
1/ Koroonaviirus: palju küsitakse selle kohta ja palju on segadust, seega allpool antud teema jutulõim (ma vaatan seda teemat ülemaailmses võtmes) 👇

Kui proovida summeerida - Paanikaks ei ole põhjust, kuid ettevaatlik tuleb olla nii tervise kui majanduse suhtes.
2/ Alustada tuleb sellest, et ma eristaksin siin kolme kihti, kõiki neid tuleb eraldi analüüsida:
1. Meditsiiniline - Kui laialdane saab olema viiruse edasine levik?
2. Majanduslik - Kui tõsine saab olema mõju majandusele?
3. Finantsturge puudutav - Milline on mõju aktsiatele?
3/ Alustame meditsiinilisest. "Kui laialdane saab olema viiruse levik?" Ma ei ole selle ala ekspert, kuid ka eksperdid on väga erineval arvamusel, keegi kindlalt ei tea. Hiina on saanud juba karantiinidega viiruse leviku pidama. Paljudes teistes riikides alles levik algab.
Read 13 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!