Robin Hood: 3% match on IRA transfer

[sonofsven]

https://www.doctorofcredit.com/robinhood-gold-3-ira-transfer-bonus-unlimited-cash-bonus/

Anyone else tempted by this? Robin Hood is offering a 3% match on transferred in IRA's, roth or traditional.

Some of the cons:
Bonus is paid upfront, but IRA has to stay with Robin Hood for five years or faces claw back of bonus
Account balance must not be lower than initial transfer plus bonus during five year term, or face claw back of bonus
Must join RH Gold at $5 (or $7?) per month for a minimum of one year after first transfer
Will RH exist in five years?

[poker-wont-help-me-fire]

I’m really tempted.  3% is major to me.  I could retire 3 months earlier.  I don’t love Robinhood and would never do this if they weren’t offering a huge bonus.  I am considering transferring some amount less than the $500k that would be insured by SIPC. I don’t really see a risk in doing that. 

[Ron Scott]

Which would be worse for you? Working longer to earn that 3%, or doing business with them?

[Scandium]

Will RH exist in five years?

The fact that they're offering this bonus makes me nervous about this..

And/or they hope to make more than 3% of AUM off your account in the 5 years.

[dividendman]

3% pretty much instantly is crazy... wtf. Looking into it...

[maizefolk]

Account balance must not be lower than initial transfer plus bonus during five year term, or face claw back of bonus

Would this condition mean that you could lose the bonus based on a broad decline in the market sometime in the next five years?

[dividendman]

Account balance must not be lower than initial transfer plus bonus during five year term, or face claw back of bonus

Would this condition mean that you could lose the bonus based on a broad decline in the market sometime in the next five years?

I'm reading the actual terms and it seems not. They give you the match in about a week. It's only if you withdraw funds from your account that result in the account going below the initial amount + bonus. So, if the market goes down you can't withdraw in the 5 year period. If it goes up more than the bonus, you can withdraw that amount.

If you don't withdraw anything the bonus/claw back doesn't come into play it seems.

[dividendman]

Well, I did it with one of my accounts... should get about a $10k match, we'll see in a week.

[Alternatepriorities]

That does seem like a crazy bonus. If RH goes away, your securities held with them should be transferred elsewhere right? It’s not an investment in RH. As long as it doesn’t result in temptation to make poor trades and loose money that seems like a significant win. They are probably counting on young people transferring with modest assets and then staying for the long term.

[dividendman]

That does seem like a crazy bonus. If RH goes away, your securities held with them should be transferred elsewhere right? It’s not an investment in RH. As long as it doesn’t result in temptation to make poor trades and loose money that seems like a significant win. They are probably counting on young people transferring with modest assets and then staying for the long term.

Yeah, I made sure they were SIPC insured. I'm not going to move more than 500k in any account in case RobinHood has some kind of collapse.

You do have to buy Robinhood "gold" for a year, which is $5/mo. I already put a reminder in my calendar to cancel next year.

[EliteZags]

looking more into this the way to avoid the funds from being out of the market for the 5-7 business days transfer period would be to have them currently in an ETF that can transfer directly to the same ETF at Robinhood (ACATS transfer)

my biggest former company 401K is at Fidelity in "US Equity Index Fund" (only total stock fund avail) which "Seeks to track the performance of the Russell 3000® Index.... The criterion for selection of investments will be the Russell 3000 Index, the fund's underlying index."

anyone know if this would be able to directly transfer into Russell 3000 at Robinhood with no un-invested time?

[EliteZags]

also, say I have a 100K Roth IRA and 200K 401K and only wanted to transfer one or the other

would it be actually better to transfer the Roth since the bonus will be able to grow tax free?

[thedigitalone]

Tempting!  I have a 401k from a previous employer that I would happily move for this promo, but it sounds like only IRAs are allowed.

[dividendman]

@EliteZags if you have ETFs in an IRA you should be able to do an in-kind transfer of the funds... that's what I did (I just selected move entire account). For 401ks I don't think there is any alternative but to liquidate any funds.

As for the IRA/401k. The bonus will be half (since you have half the assets) as much but they'll both grow tax free, only the 401k you have to pay tax as you withdraw, with the roth you don't.

@thedigitalone it looks like from their promo material that 401ks (via a rollover) are also eligible.

[thedigitalone]

@thedigitalone it looks like from their promo material that 401ks (via a rollover) are also eligible.
[/quote]

You are correct!  I searched on 401k, not 401(k).

[badger1988]

Giving this some serious consideration. Between my wife and I, we've got about $650k in Vanguard IRAs we could move over for a quick $19.5k boost.

Only thing that gives me pause is I may decide to pull the trigger on RE within the next 5 years, and if I do I'd likely be wanting to take distributions from Roth accounts (I've got a decent ladder started), leading to the risk of losing the entire bonus:

Limitations. If a customer has received a Robinhood Gold IRA Deposit Match, and they transfer or distribute some or all of their Robinhood IRA outside of the Robinhood IRA prior to the earn-out period of five (5) years from receiving their Robinhood Gold Deposit Match in their Robinhood IRA, a non-taxable IRA Match Early Removal Fee will apply to the IRA as payment for services from Robinhood, separate from and above any ACATS out fee, and this IRA Match Early Removal Fee will be the amount that the customer has received via the Match for any Match received over the previous five years.

The wording around whether one can avoid this fee is rather messy...especially with phrasing like "may not" and "risen by":

The IRA Match Early Removal Fee may not apply if a customer’s IRA balance has risen by an amount greater than their net IRA contributions plus any Match that they have received.

I'm leaning towards doing it, but holding back the $227k I currently have that'll be eligible for tax/penalty-free distributions within the next 5 years. Seems like it would still be an easy $12.7k bonus.

[salt cured]

Also very tempted. Question: Is this match taxable (e.g., as interest) if it goes into a Roth? I didn't see any information on how the IRS would treat the money on Robinhood's website.

[Dibbels81]

Tempting!  I have a 401k from a previous employer that I would happily move for this promo, but it sounds like only IRAs are allowed.

When you roll over that old 401k to Vanguard or another firm, the money is reclassified as an IRA.

[Alternatepriorities]

So I've been thinking about this a lot since yesterday. It feels crazy, but a 3% bonus just doesn't seem like enough money to be worth it with where I am in life now. If I limit myself to a 300k roll over for reasons others mentioned above (should be worth about 500 in 5 years), the best I can make is 10k. But I am then working with a company I don't really trust or agree with for 5 years. As best as I can tell RH has a business model of gamifying investing which allows them to sell their investors trade data to high frequency traders who skim a fraction of each trade. Most of us here know that is not the best thing for their clients. Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come. They must be offering this deal for a reason. Maybe because enough of their early clients have either realized this or lost their pandemic money in a rigged game that they need new ones? Even though I could avoid their gamification by buying and holding long term investments I think I'd rather find enough work to earn 2k per year for the next 5 years... Though I must admit a part of me is tempted to "steal" 15k from robin hood for the irony and the principle.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

[trollwithamustache]

Robinhood is owned by the same people who own Citadel, if you followed the GME stuff.

They make money by selling your order flow to citadel's high frequency trading hedge funds. But, if you are indexing away in a vanguard ETF say, that order flow / worst legally allowed execution on trades doesn't really matter.  My brother inlaw used to trade single shares and fractional shares there and give me lots of tips about how to be a better investor... 

I'm seriously thinking about moving an account over for it, 3% is a big boost.

[rantk81]

Huh?  I have about $1M in a Rollover IRA.  So if I transfer it there, buy some silly monthly "gold" service for a year, and leave the account there for 5 years, they're going to give me $30K ?  Seems too good to be true.

[dividendman]

Huh?  I have about $1M in a Rollover IRA.  So if I transfer it there, buy some silly monthly "gold" service for a year, and leave the account there for 5 years, they're going to give me $30K ?  Seems too good to be true.

Not only that, they give you the 30k within about a week of the transfer... so it can grow starting then... I'm doing it with < 500k so it's SIPC insured though.

[Alternatepriorities]

Huh?  I have about $1M in a Rollover IRA.  So if I transfer it there, buy some silly monthly "gold" service for a year, and leave the account there for 5 years, they're going to give me $30K ?  Seems too good to be true.

Not only that, they give you the 30k within about a week of the transfer... so it can grow starting then... I'm doing it with < 500k so it's SPIC insured though.

If you have to leave it in there for 5 years and you expect it to grow, won’t all of the gains not be insured if you start at 500k? Am I missing something there?

ETA: What is the SIPC insuring against exactly?
ETA2: fixed typo and read up on the SIPC. The only open case they list is Madoff. It must be pretty rare for a brokerage to run off with peoples money.

[nalor511]

also, say I have a 100K Roth IRA and 200K 401K and only wanted to transfer one or the other

would it be actually better to transfer the Roth since the bonus will be able to grow tax free?

You can do both. You get $500k SIPC coverage *per account type* https://www.sipc.org/for-investors/investors-with-multiple-accounts

[rantk81]

FYI - The correct spelling acronym is "SIPC" - and not the other word that some people use as a slur.

https://www.sipc.org/

[Alternatepriorities]

FYI - The correct spelling acronym is "SIPC" - and not the other word that some people use as a slur.

https://www.sipc.org/

Thanks

[Much Fishing to Do]

I

Also very tempted. Question: Is this match taxable (e.g., as interest) if it goes into a Roth? I didn't see any information on how the IRS would treat the money on Robinhood's website.

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

I frankly have never even thought about SIPC and its limits so it might actually be good for me to do this as I'm all at one place now.

Can someone confirm my understanding, which is you get 1% for an IRA with no monthly service, you get 3% for an IRA with the monthly service, and you can get 1% for a taxable account, but for a taxable account there is no similar 3% offer?

[dividendman]

I

Also very tempted. Question: Is this match taxable (e.g., as interest) if it goes into a Roth? I didn't see any information on how the IRS would treat the money on Robinhood's website.

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

I frankly have never even thought about SIPC and its limits so it might actually be good for me to do this as I'm all at one place now.

Can someone confirm my understanding, which is you get 1% for an IRA with no monthly service, you get 3% for an IRA with the monthly service, and you can get 1% for a taxable account, but for a taxable account there is no similar 3% offer?

I believe everthing you've written is correct.

[Must_ache]

I'm jumping on board and transferring a $320K Traditional IRA over there.  The setup to initiate the transfer seemed a lot easier than the E*Trade process many years ago.  Hopefully it's a painless  $9,600. 

[EliteZags]

I

Also very tempted. Question: Is this match taxable (e.g., as interest) if it goes into a Roth? I didn't see any information on how the IRS would treat the money on Robinhood's website.

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

so my earlier point is wouldn't the 3% in Roth be the most bang for the buck since it's an immediate 3% that doesn't impact contribution limit, can appreciate, and never subject to taxes?

where's the 401K/tIRA match's value will eventually be <3% when withdrawn/taxed?

[dividendman]

I

Also very tempted. Question: Is this match taxable (e.g., as interest) if it goes into a Roth? I didn't see any information on how the IRS would treat the money on Robinhood's website.

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

so my earlier point is wouldn't the 3% in Roth be the most bang for the buck since it's an immediate 3% that doesn't impact contribution limit, can appreciate, and never subject to taxes?

where's the 401K/tIRA match's value will eventually be <3% when withdrawn/taxed?

Yes, but that has to do with the structure/purpose of the 401k/tIRA, not what Robinhood is doing... It's the case with any gain/funds added in a 401k/tIRA.

[Scandium]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

[Must_ache]

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

You would get more bang for buck if you transferred BOTH accounts over there, all else being equal.
I do put my more aggressive investments in the Roths with the hope that they appreciate more over time...

[Much Fishing to Do]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

[Scandium]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

Eh. I feel slightly different spending the credit card company's money, then paying them back, than I do transferring ~$300,000 of *my own money* to Robin hood, and locking it up for 5 years.

Even if it's insured, I'm sure there are many scenarios that involve a massive PIA for the user.

Also; could they be juicing their AUM to sell to a larger company? Or some other founder/VC exit scheme?

[dividendman]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

Eh. I feel slightly different spending the credit card company's money, then paying them back, than I do transferring ~$300,000 of *my own money* to Robin hood, and locking it up for 5 years.

Even if it's insured, I'm sure there are many scenarios that involve a massive PIA for the user.

Also; could they be juicing their AUM to sell to a larger company? Or some other founder/VC exit scheme?

That's my guess and best case scenario. Then we get the free money and don't have to deal with Robinhood.

[EliteZags]

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

You would get more bang for buck if you transferred BOTH accounts over there, all else being equal.
I do put my more aggressive investments in the Roths with the hope that they appreciate more over time...

my point was if you were on the fence about transferring in the first place whether due to mutual fund/ETF conversions or just moving too much in one brokerage, wouldn't you prioritize Roth first since Roth dollars are more valuable/limited and more a of no-brainer to max over 401K, plus the complete tax avoidance

[Much Fishing to Do]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

Eh. I feel slightly different spending the credit card company's money, then paying them back, than I do transferring ~$300,000 of *my own money* to Robin hood, and locking it up for 5 years.

Even if it's insured, I'm sure there are many scenarios that involve a massive PIA for the user.

Also; could they be juicing their AUM to sell to a larger company? Or some other founder/VC exit scheme?

That's my guess and best case scenario. Then we get the free money and don't have to deal with Robinhood.

I still seriously just don't get how this "works".  I assume I can transfer my investments in-kind, and I dont really see that Robinhood charges fees for stuff otehr than that $5/mth account.  So if I move $500k why in the world would they give me $15k up front?  How do they expect to make the $15k+ back from me?

[Scandium]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

Eh. I feel slightly different spending the credit card company's money, then paying them back, than I do transferring ~$300,000 of *my own money* to Robin hood, and locking it up for 5 years.

Even if it's insured, I'm sure there are many scenarios that involve a massive PIA for the user.

Also; could they be juicing their AUM to sell to a larger company? Or some other founder/VC exit scheme?

That's my guess and best case scenario. Then we get the free money and don't have to deal with Robinhood.

"congratulations. Your account is now part of Edward Jones"
(the 5 year limit would of course still apply)

[Alternatepriorities]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

Eh. I feel slightly different spending the credit card company's money, then paying them back, than I do transferring ~$300,000 of *my own money* to Robin hood, and locking it up for 5 years.

Even if it's insured, I'm sure there are many scenarios that involve a massive PIA for the user.

Also; could they be juicing their AUM to sell to a larger company? Or some other founder/VC exit scheme?

That's my guess and best case scenario. Then we get the free money and don't have to deal with Robinhood.

"congratulations. Your account is now part of Edward Jones"
(the 5 year limit would of course still apply)

That would be dirty... and could be a profitable business model... Give people a little now to extra a lifetime of fees later. Wait, that sounds like blitzscaling. Is RH claiming to be a tech company now?

[nalor511]

Also, by making it a game to trade more people are more likely to lose money "investing" and be turned off of the concept for years to come.

If someone would like to present a clear case as to why that isn't their business model I'd be happy to improve my opinion of the company.

Robinhood seems sketchy to me, for the reasons you list. But this I don't really give a shit about. If people want to do dumb stuff with their money that's their problem, and responsibility. I don't care if other people invest, or are turned off.
This seems like a pretty good deal to get some "free money" from them. But I don't think I'll bother doing it. Partially because I don't want it tied up with this junky  "fintech bro" company for 5 years. And also because I plan to roll my IRA to my 401k, so I can do backdoor roth again.

I probably feel the same about Robinhood as I do about CC companies, and I certainly take their cash back.  I'm considering it.

Eh. I feel slightly different spending the credit card company's money, then paying them back, than I do transferring ~$300,000 of *my own money* to Robin hood, and locking it up for 5 years.

Even if it's insured, I'm sure there are many scenarios that involve a massive PIA for the user.

Also; could they be juicing their AUM to sell to a larger company? Or some other founder/VC exit scheme?

That's my guess and best case scenario. Then we get the free money and don't have to deal with Robinhood.

"congratulations. Your account is now part of Edward Jones"
(the 5 year limit would of course still apply)

It's just math. If the fees would exceed the 3%, you'd bail. If not, you'd stick. They can't repo more than the fees. All you can do is make the best choice at a given time

[salt cured]

I

Also very tempted. Question: Is this match taxable (e.g., as interest) if it goes into a Roth? I didn't see any information on how the IRS would treat the money on Robinhood's website.

I wondered the same, plus also wondered if it could even be considered a contribution (and thus subject to annual limits, income limits, etc).  Googling around the consensus (though not unanimous) seems to be it is like interest earned within the account itself, so no tax or contribution consequences the year it happens, which I guess for a Roth means it will never be taxed.

Wow. I think I may rollover a pre-tax IRA and if there is no tax owed, also a Roth.

[Mississippi Mudstache]

I have 300K in an old 401k that I've been thinking of rolling into an IRA. This would be a good time to do it. However, I keep "Unsuccessful HTTP response" when I try to create an account. Anyone else having this problem?

[billy]

Welp, it’s not looking like RH will reactivate my account in time to get the 1% taxable account ACATS match, I wonder how ofter they offer this promo?

[Must_ache]

my point was if you were on the fence about transferring in the first place whether due to mutual fund/ETF conversions or just moving too much in one brokerage, wouldn't you prioritize Roth first since Roth dollars are more valuable/limited and more a of no-brainer to max over 401K, plus the complete tax avoidance

Good point.  if you were not planning on touching your retirement accounts for the next five years,  yes.

I'm retiring in April at age 52.  I want to keep my Roth accounts free because those are the ones, if any, I am more likely to draw on in the next five years as it is advantageous to keep my taxable income lower for ACA subsidies and other things. 

So, I am transferring the account I am planning to access later.  I would like to transfer more and am thinking about it, but if I need to take SEPP would I have enough accounts around to get what I needed is my concern.

[Mississippi Mudstache]

I have 300K in an old 401k that I've been thinking of rolling into an IRA. This would be a good time to do it. However, I keep "Unsuccessful HTTP response" when I try to create an account. Anyone else having this problem?

Tried downloading the app and creating account that way, and I got the message "Oops. Looks like something went wrong. Try again in 17 days".

Not sure WTF that's about. Robinhood has always seemed like a scammy company, but I was willing to give it a try for a free 10 grand. Oh well.

[SmashYourSmartPhone]

Not sure WTF that's about. Robinhood has always seemed like a scammy company, but I was willing to give it a try for a free 10 grand. Oh well.

They're simply a way to sell order data to frontrunning high frequency trader companies, who pay obscenely good money for that data, as it's literally guaranteed profits for them: "Payments for Order Flow" is the term to search for, and it is rather controversial.

In a nutshell, if you want to buy a share of GME, Robinhood tells all the people paying them (their real profit source) that Someone Is About To Buy GME, Ready, Set, I'm Buying GME!

This allows the HFT firms to make guaranteed profits on those transactions, buying GME first and reselling it for a higher price to you.  The same is true for selling.

But, hey, it's a "Free App" so must be good, right?  They only collect everything they can later sell!

https://robinhood.com/us/en/support/articles/privacy-policy/#1INFORMATIONWECOLLECTANDHOWWECOLLECTIT

[nalor511]

Not sure WTF that's about. Robinhood has always seemed like a scammy company, but I was willing to give it a try for a free 10 grand. Oh well.

They're simply a way to sell order data to frontrunning high frequency trader companies, who pay obscenely good money for that data, as it's literally guaranteed profits for them: "Payments for Order Flow" is the term to search for, and it is rather controversial.

In a nutshell, if you want to buy a share of GME, Robinhood tells all the people paying them (their real profit source) that Someone Is About To Buy GME, Ready, Set, I'm Buying GME!

This allows the HFT firms to make guaranteed profits on those transactions, buying GME first and reselling it for a higher price to you.  The same is true for selling.

But, hey, it's a "Free App" so must be good, right?  They only collect everything they can later sell!

https://robinhood.com/us/en/support/articles/privacy-policy/#1INFORMATIONWECOLLECTANDHOWWECOLLECTIT

If all you do is buy-and-hold in your IRA/Roth, then you'll make out like a bandit with the 3% bonus over whatever they could possibly make from your dividend reinvestment transactions. If you buy/sell all the time, then RH probably isn't a good choice, agreed.

[Alternatepriorities]

In early 2013 my brother and I climbed Kilimanjaro together in what proved to be the high point (excluding flights) of my year of backpacking around the world... We ended up hiking with a group of fellow Americans for several days and two of them were HFTs. I don't think I even knew the term at the time time, but it was about the only thing they could talk about. They were obviously making serious money doing it as they paid more than three times as much as we did to climb the same mountain! The more they talked about how they made money, the more convinced I became that it was a parasitic in nature. I don't think they ever used the term "payment for order flow" but I'm pretty sure that is what they were doing.

Is there an argument to be made for the HFT adding real value to the system?

[SmashYourSmartPhone]

I don't think they ever used the term "payment for order flow" but I'm pretty sure that is what they were doing.

Perhaps "frontrunning"?  There's serious money to be made in speed, in being a few milliseconds faster than the next guy.

Michael Lewis wrote a book, Flash Boys, that talks about it a lot: https://en.wikipedia.org/wiki/Flash_Boys - as it was written in 2014, it would be directly relevant to the conversations you were having with them.

Is there an argument to be made for the HFT adding real value to the system?

Sure.  The HFT traders go on about liquidity and market making and a lot of other stuff they claim is essential to a modern financial system.

Meanwhile, the rest of the world thinks it's just a tax on transactions enabled by their paying obscene amount of money for speed, which I think is a good description of it.  I'd be all for a "minimum time to hold" requirement on stocks (though there are ways around that), or a small per-transaction fee that made HFT infeasible.

But I don't have the kind of money that the HFT sorts do to throw at politicians to make sure the gravy train continues.  And the rest of us pay for it, fractions of a penny at a time.