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The first was an SEC Charge that fined Robinhood $65 Million Dollars for “misleading investors” as to how they made money, and how they failed to get the best price for customer orders.
Bloomberg says almost half of Robinhood Revenue came from their practice of routing order flow…which, the SEC says – is deceiving to YOU as the investor, and exactly how much that’s costing you.
If you’re confused, here’s how it works: when you place a stock trade on Robinhood, Robinhood isn’t the one who fills that trade…instead, they instantly outsource it to another company that pays Robinhood for the right to fill your order. Those firms usually earn a very, very small percentage off the total amount…and even though this is a very common practice for almost every brokerage – the $65 million dollar settlement came from accusations that Robinhood didn’t necessarily get customers the most competitive pricing on the stock – but, instead – the routed orders to the company that paid the highest commission to Robinhood.
Second, the most recent allegation against Robinhood…is this:
“Robinhood accused of targeting novice investors with features that encourage excessive trading”
READ THE MASSACHUSETTS LAWSUIT HERE
They claim that Robinhood is using aggressive tactics to target inexperienced investors, they’re failing to responsibly prevent and respond to system outages, they’re gamifying investing to encourage repetitive trading, they aren’t supervising who’s trading options, and because of that, they have breached their fiduciary duty as a brokerage.
Now, obviously – this is a REALLY touchy subject, because – on the one hand, investing SHOULD be made accessible to everyone – but, on the other hand, there ARE safeguards that should in place from preventing someone from getting in over their head.
Obviously, some might argue that it’s not ANY brokerages responsibility to protect people from themselves…but, the REAL issue is whether or not Robinhood has a legal obligation to put safeguards in place to make sure people can’t get carried away, and make sure that they properly qualify everyone as outlined by law.
BUT, I do have to end this off on a positive note for Robinhood, that – without them – we likely wouldn’t be seeing $0 stock trades like we do now, and UNDOUBTABLY, they’ve opened the door for SO MANY NEW PEOPLE TO INVEST that never would’ve invested otherwise. There’s inevitably going to be growing pains throughout the process, especially when you’re scaling up a “new” company to a now estimated $20 BILLION dollar valuation…and, overall, there’s a LOT of GOOD to come out of the platform, as well.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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