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1/ To connect some Robinhood dots: Robinhood makes its money by selling its "order flow." Robinhood processes customer orders. But there are a few "market makers" who actually do the job of giving users the stocks they just bought or sold.
2/ The market makers are also called high frequency traders. They are similar to retail wholesalers. And they pay Robinhood a lot of money to process the orders of their users. Why? Because they think Robinhood users are fucking idiots.
3/ The market makers profit by buying stocks/options at one price on the market and flipping them to Robinhood users at a higher price. And they know that Robinhood day traders aren't experienced and prone to rash decisions.
4/ Robinhood, BTW, has gotten lit up many times for not being up-front about how it actually makes money. It paid a $65 million fine in December for not disclosing this properly. https://www.marketwatch.com/story/youre-saving-a-penny-to-lose-a-nickel-why-robinhoods-65m-fine-is-a-cautionary-tale-for-retail-investors-2020-12-17
5/ Robinhood is supposed to farm out who processes the orders for its customers based on who can give the best price for its users. But hahahahhahahahahahahhahahaha good luck with that.
6/ BTW, this order flow business model was literally invented by Bernie Madoff. The self-titled "democratizers of finance" inspired to create a stock app by Operation Wall Street decided to use Bernie Madoff's business model. It's not illegal but hahahahahahahhahahaha
7/ The biggest market maker for Robinhood and for individual "retail" investors is Citadel Securities. Their bigwig is Kenneth Griffin, the owner of the most expensive residential real estate property in US history. That's the guy who gives Robinhood most of its money.
8/ On top of processing stock orders for regular investors, Citadel is also a hedge fund. One of the biggest in the world! Pretty cool conflict-of-interest there.
9/ The hedge fund getting hammered the most by GameStop is Melvin Capital. It got nearly $3 billion this week to stay afloat. And who was one of the big contributors to keeping Melvin alive? This will shock you... but Citadel!
10/ So Robinhood is now essentially stopping people from being able to buy GameStop's stock, which would likely be processed by Citadel's market making arm, which has a financial stake via its hedge fund in the hedge fund about to go bust.
11/ I hate Robinhood because it's just a way for regular people to start making bullshit trades without learning about the basics of investing first so the richest people on Wall Street can benefit from it.
12/ I signed up for Robinhood earlier this year to see how easy it was to make a horrible investment. I said that I had no knowledge of investing on their initial screen.
13/ Even with answering that, it took me less than 20 minutes to spend $50 to buy options of Dave and Buster's stock that would only profit if it shot up in value by 75% in two weeks. No one should be able to make that kind of trade that easily.
14/ But a company like Citadel was able to process my terrible order. I have no idea who ended up selling me my Dave and Buster's options play. But I have a good sense that Citadel made money off of my horrible decision.
15/ BTW, you can also very easily start using "margin" on Robinhood. This means you borrow money from Robinhood to buy/sell stocks. This is something that, once again, no one should be able to do unless you have a LOT of experience in investing.
16/ There are all sorts of day traders (re: WallStreetBets people) who post on YouTube and Reddit and elsewhere the fucking insane "foolproof options strategies" that people who have no idea what a 10Q is follow.
17/ Horribly, last year a 20-year-old Robinhood user died by suicide because he thought he was in a $730,000 hole because he bought options on margin and his investments went bad. https://www.cnn.com/2020/06/19/business/robinhood-suicide-alex-kearns/index.html
18/ NO KID SHOULD BE ALLOWED TO BUY STOCKS ON MARGIN! OR OPTIONS! OR BOTH! It's just fucking immoral. Maybe a few users get lucky using this or with GameStop's big spike or etc. But the only people who profit are the douches who own Robinhood and the market makers like CItadel.
19/ The moral of the story since everyone is now an expert on the stock market: Investing is NOT bad. It's good! But learn about how to do it first. Invest in things like mutual funds or ETFs that track something like the S&P 500.
20/ Read books on the stock market. Read all of the online guides about how to invest properly. Learn about risk tolerance. Don't fucking read WallStreetBets. Don't day trade. This stuff can get complicated. But put in the time to do it the right way for your future.
21/ And if you can afford one, use a reputable financial planner who follows a fiduciary standard that charges a flat fee. They do more than just sell you stocks. They can help you budget, set and help you reach long-term goals, etc.
22/ Yes, financial planners charge you money. And there are sketchy ones. But that's just life. But don't try to do this by yourself. You'll lose. Just like people who bought GameStop this week are finding out now because Robinhood decided Citadel's more important than you.
23/ And, yes. This feels slimy. But I'm starting a newsletter that will hopefully explain hard topics simply. I was a financial journalist for a long time. I love this stuff. I want you to love it, too. It's $5/month for now but I'll make it lower. https://financialgurugregggethard.substack.com/
