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Robinhood: Glorified Gambling

RobinHood isn't the company you thought they were. They don’t take from the rich and give to the poor as their name suggests. Quite the opposite.


Robinhood claims they are democratizing investing. While really they are democratizing gambling, cheating, and tricking you into gambling more.


To quote Scott Galloway, who teaches at NYU Business School:


Trading — distinct from “investing” — can feel like work and productivity. It’s not. It’s gambling, but without free drinks and with worse odds. One study found that over a 12-year period, only 5% of active retail traders made any profit at all.


(https://marker.medium.com/the-algebra-of-wealth-5798df7753d3)

How bad are they? They basically steal a few cents on every transaction that a customer makes. How? Well if you are selling a stock, they will tell other financial companies “...look, I have this stock from my customer for sale for 10 dollars. So that other company knows that the order is coming. That company can bid at a lower price and Robinhood gets paid for telling the other company that orders are coming. That other company may give a lower bid than is in the market and Robinhood is under no obligation to make sure that their retail customers get the best bid in the market. (Maybe because their real paying customer is that other company. They do this every day.)


Furthermore, they have ‘gamified’ trading so that their customers feel ‘rewarded’ by trading even though 95% of people who trade like this lose money.


Plus, Robinhood is addictive; so overdosing is a serious problem. Not to mention the misery that losing your money can cause. Last year, someone took his life after looking at his losses and possibly mis-reading his account statement. This is a really sad story that shows how detrimental Robinhood can be. You can read more about his story, here and here, our thoughts go out to him and his family.


One of the greatest minds in finance today, Charlie Munger, a 97 year curmudgeon, who believes in old school things like honesty, said it best. “Robinhood is just a disreputable way to make money. Trading stocks for free is not free…[Robinhood] is selling gambling services...luring..[people] in...I think it’s a dirty way to make money...you should make money...by selling people things that are good for them.”


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