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NEW: Robinhood has become a Silicon Valley success with a mantra of “democratizing finance.” We used new data and analysis to look at what it looks like under the hood. The picture is one of unusually big risks and technology failures. https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html
Robinhood’s founders say their users are prudent and mostly just buying stocks, but RH has never released any data on this. Our analysis found that RH is making more from risky options trading than all stock trading combined -- 2x as much.
In the most recent quarter, Robinhood customers traded options contracts 14x more than E*Trade users and 88x more than Schwab users, on a relative basis. This is according to analysis we did in collaboration with @alphacution
The founders attribute their growth to their great technology, but employees told us the app has been hobbled by under-investment and a culture that prioritizes speed over stability. The site has recently gone down 47 times, 5x more than Schwab and 2x more than E*Trade.
This has led to enormous losses for people like Richard Dobatse, a Navy medic who took out two home equity loans then watched his portfolio fall from over $1m to around $7k over the last few months. His wife told us the economic and psychological consequences have been dire.
Beyond the personal stories + data, we look at the business model that incentivizes this, involving big payments from Wall Street firms. RH makes more from these payments than any other retail brokerage, relative to the size of its accounts.
Read more: https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html
Read more: https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html
