There are worse problems with Robinhood, all of which I'm surprised people aren't bringing up more:
1) They've had outages where 100% of stocks were unavailable for trading.
2) Their business model is to offer their users inferior prices and then collect on the arbitrage (Yes, this is illegal. Yes, they are in trouble with the SEC over it).
3) Robinhood isn't transparent with their users about the risks of trading options and trading on margin. Some of the barriers they've removed for their users to make risky bets were there for regulatory reasons, it's not just a matter of their app being over-gamified.
You can't offer "inferior prices" to customers. It's called the Order Protection Rule of RegNMS. You must price improve the customer, by law. If a bid-offer is 23.01/23.02, Robinhood (but actually Citadel/Two Sigma) _must_ transact with a buy order at 23.0199 or less (the subpenny rule only applies to quotes, not actual trades). The reason Robinhood sells this order flow is because Citadel/Two Sigma would rather collect a spread of almost 1 cent (23.0199-23.01) from
_you_ rather than a hedge fund, who may conceivably move the market against the market maker. They are "paying for order flow" (PFOF) - much less than 1 cent - to collect the 1 cent spread from you.
Robinhood is in trouble with the SEC for a failure to disclose this relationship to customers, _not_ for having the economic arrangement to begin with.
"The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission."
What you are referring to is the fact that Robinhood can't offer a worse price than the NBBO, but the NBBO is not the best available price, there are also dark pools and brokers can match orders against their own clients.
Robinhood, like all brokers, has a fiduciary duty to its customers and as such is required to do what it can to always offer the best price to its clients instead of simply offering the NBBO, whose price serves as a worst case scenario when all other options have been exhausted. Robinhood not only failed to do that, they failed to do it while claiming in marketing materials that their execution is better than their competitors (it's not).
> The SEC has stated that “routing order flow for automated execution, or internally executing order flow on an auto- mated basis, at the best bid or offer quotation, would not necessarily satisfy a broker-dealer’s duty of best execution for small orders in listed and OTC securities.” The reasoning behind this view is that prices better than the NBBO may be readily accessible to the member."
Yes, they had outages where 100% of stocks were unavailable for trading, which is factually true. What makes that assertion weaker is the fact that other brokerages had the same kind of outages too, and not with less frequency of occurrence either. Which is why (1) is not really a meaningful point against RH specifically.
Yeah... And other stock trading platforms also stopped users from trading GSE. So by your own bad logic the original complaint against Ribbonhood should be no big deal, right?
That other fruits are rotten does not weaken the assertion that this particular fruit is rotten. I don't think anyone is claiming that every fault that Robinhood has is unique.
They don't have a normal amount of outages. They have more outages. It's a significant amount of outages. It's already been the subject of complaints previously.
>That other fruits are rotten does not weaken the assertion that this particular fruit is rotten
Services occasionally experiencing unexpected outages doesn't make them a rotten fruit. By that metric, literally every single complex online service in existence is rotten. Given how rare those outages are, and how they are all not happening at the same time across different brokerages, I wager to say it is normal with nothing nefarious going on. Unless you expect a complex online service to have zero downtime ever, which is just unrealistic.
It's partially true tho, they provide inferior price than other brokers using Citadel (because their contract apparently gives them a bigger kickback than most other brokers).
In practice price improvement is split between the trader and the broker right, some brokers might do 50/50 while others will be 80/20.
Yes this is true. It wouldn't qualify under the "best execution" standard, which is based on publicly displayed (lit) quotes.
But you are right that technically you could've been price improved slightly better had your broker signed a more favorable agreement with a market maker (and then passed it onto you). This would really venture into business economics though and is not related to regulation/legality.
1) They've had outages where 100% of stocks were unavailable for trading.
2) Their business model is to offer their users inferior prices and then collect on the arbitrage (Yes, this is illegal. Yes, they are in trouble with the SEC over it).
3) Robinhood isn't transparent with their users about the risks of trading options and trading on margin. Some of the barriers they've removed for their users to make risky bets were there for regulatory reasons, it's not just a matter of their app being over-gamified.