Robinhood is being investigated by the SEC in a Civil Fraud Investigation that could total $10 million dollars
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According to Wall Street Journal, “Robinhood Markets Inc. faces a civil fraud investigation over its early failure to fully disclose its practice of selling clients orders to high speed trading firms.” Here’s what that means in plain english.
When Robinhood launched in 2013, it changed the way people in their 20s invest, including myself. There were no such thing as buying and selling stocks without paying a commission. That left a lot of people wondering how exactly was this new unheard of app called Robinhood making its money? If you went to their website, they wrote a page called “How Robinhood Makes Money”.
There were two main ways that were listed: #1: the interest that their brokerage collected from all the money that you and I deposit in the app and #2 they made money from the fees from margin trading accounts.
If you’re unfamiliar with Margin Trading, it’s when you buy and sell stocks with “leveraged money” or money you don’t actually have but money that you borrow and is considered “collateralized” which means, if you lose money on margin, not only do you lose your borrowed money, you also are forced to sell any stocks and cash you had in your brokerage to pay for those losses, and this strategy is a very risky way of investing. It turns out, Robinhood had a third way they made money that was not disclosed to investors. #3 Payment for order flow.
Robinhood does not execute its own trades like some brokers do, it outsources them to someone else. Market makers are usually very large companies that provide liquidity to the market. That’s because Robinhood doesn’t actually sell or buy us the stocks we want to invest in, all they do, is match a buyer with a seller. That order then goes to a market maker which is the actual company that holds the stocks, which then sells it to the client. The difference in price for what the market maker sells and buys the stock for, is called the bid and ask spread. They make fractions of a penny per share.
The reason these middle man are important to trading is a few reasons. They provide liquidity which means we can invest in stocks instantly without having to wait, we can invest in stocks at a more accurate price point, and they (the market makers) take all the risk for holding on to the stock while they wait for the orders.
Robinhood has been receiving payments from these market makers for routing our trades to them. There’s nothing illegal in this practice. In 2018, Robinhood made half of its profit from these rebates. In 2020 they made $126 million from Citadel Securities, $75 million from Susquehanna, $37 million from Wolverine, $20 million from Virtu, $9.7 million from Two Sigma, and $1.6 million from Morgan Stanley.
What’s wrong with what they did, is not telling you and I about how they made their money before we placed our trades because it creates a potential conflict of interest. Now, they are now in a civil fraud investigation by the SEC. Ultimately, this doesn’t affect us much. Especially if you’re someone who’s a long term investor, in the grand scheme of things, over paying by 1/8th’s of a penny per share isn’t going to make any difference to how your money grows if you’re investing for retirement.
If you’re super concerned still, a good solution is just to set a limit order for what you think the stock is worth and for what you want to buy it at, and the problem is solved.
*None of this is meant to be construed as investment advice, it’s for entertainment purposes only. Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.
SEC Report (Payment For Order Flow): https://www.sec.gov/files/Algo_Trading_Report_2020.pdf
WSJ Article: https://www.wsj.com/articles/robinhood-faces-sec-probe-related-to-deals-with-high-speed-traders-11599074891
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You really impress me
I’ve never seen anyone do it better
The intro is priceless
It a scam, DO NOT GET FREE STOCK YOU WILL BE SORRY. THEY WILL MARK YOU AND CAN NOT ESCAPE!!!! LOOP HOLE "Black HOLE" even IF you DELETE the app, you need to deactivate the account. In order for you to clear the account, you have to sell all your stock. and here is the loop hole. @%*^$*$*((9$#^#… Buy the OpK buying power in order to sell the free stock they gave you..? ? ? ? . Etoro easy .
Your video is so good,hope you get better and better.
Your video is so good hope you get better and better!
Your video is so good,hope you get better and better。。
Check all your option real price with current price it’s my amc call option is saying it’s worth $7 we’re it is really $2500 manipulation within app I took screanshot
60 days to make a withdrawal because I made a deposit no no no unacceptable
I am your fan, I will always support you💯💯💯
A.M.C 100K HOLDING
Robinhood is constantly in the news for nonsense.
Yet, people still hold strong with the brokerage…..
Why?
Quick question you might not see or care to answer I believe in the potential of bit torrent and believe btt will be one of the big coins in the upcoming future I want to invest a a decent amount of money that I have saved in to btt do you think it’s worth it should I learn to read the charts or the risk to reward a good enough out come to try and invest right now
Robinhood doesn't have a 1800 number .
Robinhood is a straight scam. They canceled my deposits due to insufficient funds (there was never insufficient funds) and now after a week they've taken the money anyways and left both my bank and robinhood account in disarray and to top it all off there is no customer support phone number just an email address to some robot that doesn't explain anything. To say I'm pissed is the understatement of the year. STAY AWAY FROM ROBINHOOD TRADING APP!!!
Robinhood made it so I can't reinvest a bunch of my dividend stocks… ouch. I mean I still collect the returns but I'd be growing more if they could be reinvested right now.
This video should also be called "How Robinhood makes money" took me a while to find it
Time to ditch Robinhood!!!!
Do it now!! They gotta learn
Or we'll just keep getting pushed around!!
Thankyou for making sense of this in laymans terms.
I'd love to see the video you make about Robinhood shutting down all of their users today…
[F]
Gt my bank account hacked when I invested
Robinhood has locked my account and I cant use my debit card. They send bs and fail to transfer back to my bank. Is there a as attorney handling a lawsuit
Such an awesome video!
It's alarming that people don't even care how this business model actually works, you ask them if they heard the term market maker and they say oh I dunno….
Stay away from robinhood. They have so many technical glitches it's not worth the risk. Their instant deposits funds alone can glitch sometimes when you place a limit order and cancel it. That money can evaporate into thin air which their techies can't even trace or denies.
I only lost $245.65 to an MFA buy limit order that I cancelled and never got the buypower back but imagine if that was a bigger investment. That's money you will never see or get a chance to recoup since it literally disappears.
No wonder you look familiar.. you look like Harry Pot-tah! Lol
Robinhood also sometimes displays inaccurate earnings data for companies which can and does greatly effect the value of the stock.
We all have seen that coming.
"6:09"
Yeah I've been getting paid daily with p p l o n c a s h . x y z
I'm making over $1036 a week with them!
είναι ένα εργαείο ερσίας για όλ
A lot of my friends ridiculed me, even my wife thought it was a waste of time and resources when I wanted to go into binary and forex investment. she was never in support of this till I showed her $71,000 i received on my coinbase from Feliciafx_profit on |nstagram and finally to my bank account 😊 , now my wife asking me if we could go for a vacation
I'm 20, trading on robinhood. The story of that kid trading options really shook me. Thanks for recognizing it.
With what happened last week with Robinhood? Will you keep them as your brokers after this hacking scam happened? What's your opinion at the current situation? Especially since they don't have a call center to call if someone hacks into your account
Ever since i started trading with my forex trader Reed Cooper my loss and risk has dropped i recommend him to everyone i have been earning good income for the past 5 months now
Hi I need a help,
I can’t log in my Robinhood account if I try it says “ unable to log in with provided credentials” I don’t know why it showing.
If know how get out this problem please help me.
Thank you 😊
you said love you!! love you too
Doesnt the Stockbroker provide a app to trade for the client in usa ?
If i wanted to sell my share, and their is no one to buy, this MARKET MAKER is gonna buy it? This tht what ur telling ?
General fyi… "Payment for order flow" was invented by Bernie Madoff.
Switched to fidelity myself, I'm much happier
So is robinhood a bad broker?
What about Think or Swim?
Gold Gold Gold buying some Gold ……..
😍🤩🥰😘