The Robinhood Cheat

We are accustomed to linking Robinhood with the now famous mass sorties of traders who, from their accounts on that platform, have blown up Wall Street short positions in certain securities (Gamestop being the most notorious) causing prices to skyrocket to the point of forcing the closure of trading due to overreaching.

Given the destructive potential of these sorties against the positions accumulated by institutional investors, Robinhood is often romantically associated with the desires of those who dream of breaking down the overwhelming power of traditional finance.

In reality, Robinhood is, on the contrary, a platform with "innovative" features that are not exactly consumer-friendly. And this is especially true when it comes to operating with cryptocurrencies.

Investors who are not familiar with speculative platforms do not know that Robinhood is the kind of service, very popular among traders who use futures and options, in which transactions do not really take place in the platform, but are sold to external operators, who execute them, earning from the spread between bid and ask.

On Robinhood's sites and other similar platforms, such as Etoro etc., there is a written information somewhere, where users, if they can find the document, can know the extent of this additional cost imposed on their operations.

In Robinhood however, users do not find written anywhere that this mechanism (technically called "payment for order flow" PFOF) is also applied to cryptocurrency trades.

On the contrary, Robinhood brazenly presents itself as the only platform in the world that does not charge commissions on crypto (if you don't believe that, read the last sentence in their promotional article).

In reality, normal platforms, such as Coinbase or Binance, make the trades internally and therefore rightly charge, in a transparent way, commissions for the work done. In fact, in the summary of each executed trade you can clearly see how much commission is charged.

Robinhood instead omits to show you how much the market maker has earned when he made your trade outside the platform and moreover it turns this lack of information into a pure and simple zero cost.

A year ago crypto trades amounted to only 3% of Robinhood's business. Today, however, they account for more than half of it.

So it's easy to imagine the importance to Robinhood of this completely untracked revenue.

But this golden goose may be destined to come to an end, both because more and more users are denouncing it on forums and social media, and because the SEC is planning a major overhaul of the PFOF system that could scale back the lavish gains so far secured, not only by Robinhood, but by all other similar platforms.

Perhaps because of this, Robinhood has decided to create a wallet service for its users (as you can read in the article mentioned above).

Foreseeing that one day it might be forced to make real and not virtual transactions, which will have to be collateralized by real capital in cryptocurrencies, Robinhood has thought well of starting its capital "collection" right from its users' crypto, properly deposited in their new wallets.

Of course, Robinhood has stated that the decision to start the wallet service was taken in the wake of this need expressed by its users on social and of which the platform is always a careful spokesperson.

CREDITS

The photo "Masked" by "Janne Aspegren", is released under the Unsplash license

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