What's up you guys, it's graham here so as most of you know, i really like to keep this channel centered around personal finance and investing, but every now, and then something comes up that i think is worth talking about further and today it's important we talk about. What's going on with robinhood, so no one else makes the same mistake now, just to some background. I discovered robinhood about four years ago and what originally caught my attention was that they were one of the first brokerages to offer zero dollar stock trades. That made it extremely easy to buy and sell stocks on a whim without having to worry about eight to twelve dollar commissions eating into your profits.

But even though they've now become wildly successful, the journey has not been smooth. They've had to shut down their original checking and savings account because it was never fdic or sipc insured. They experienced an outage that left people unable to sell their holdings during one of the most volatile times in the market. Users of wall street bets were able to exploit an infinite money, glitch that gave them unlimited leverage and more recently, data was released in an effort to show how people were using public information on robinhood to profit from enthusiastic traders before watching the stock come crashing back Down now, obviously, no one and no company is ever going to be perfect and there are shortcomings that we could list for pretty much every single company in existence.

But the allegations against hood are starting to get more serious and that is something worth diving into deeper, because this has everything to do with your money. How you invest and the accusation that if you lost money on robin hood, then maybe it's not entirely your fault and maybe robin hood is actually the one to blame. But before i explain why this is, if you wouldn't mind just gently annihilating the like button for the youtube algorithm, it would help me out a lot. So thank you so much for doing that, and also big thank you to morning brew for sponsoring this video.

But more on that later, all right, so here's where all of this begins. Last month i covered a rather interesting article with the headline herding by naive. Robin hood traders may be a good signal to short. The article went into detail about how robin hood is designed as a platform, which i think we could all agree, is a really good concept.

Their user interface is incredibly simple. It's extremely easy to navigate and by offering completely free stock trades to anybody, it's opened the door for pretty much everyone to invest with no prior experience whatsoever. Normally something like that should be celebrated. After all, i'm a firm believer that more people need to learn how to invest.

It doesn't have to be overly complicated, it doesn't need to be confusing, it doesn't need to be expensive and the more people that have access to financial literacy, the better, but some people argue legally. The ease at which you're able to invest your money in robin hood. Might cause you to lose more money than you expect and robin hood might just be making investing a little bit too easy for people who really don't understand what they're doing, for example, the biggest criticism was that robin hood made investing feel more like a game like When you were for a friend, you could get a free stock that you scratch off like a lottery ticket and then confetti comes raining down on anything that you get. You swipe up to place a trade you get dm like notifications, alerting you of account activity and within a few clicks, you could have access to options trading, and this is where things get interesting.

Arguably, options trading is not for the squeamish, because this could be a highly leveraged investment that could cause you to either make a lot of money or lose a lot of money. This is also nearly the entire premise of reddit's wall street bets, which is a community of 1.7 million users who post about how much money they've won and lost, and that brings us to the lawsuits brought forth to robin hood. The first was an sec charge that fined robinhood 65 dollars for misleading investors as to how they made money and how they failed to get the best price for customer orders see when it comes to robinhood and through zero dollar stock trades. You have to ask yourself if it's free to use how do they go and make money? Well, robinhood has broken this down for you in a few main components: one they make money from their robinhood gold service, which starts at five dollars a month and gives you additional features like margin trading along with level two market data and research reports.

The second, if you use margin, they're going to be charging you five dollars a month or five percent annually of your borrowed amount. Whichever is more now third they're going to be making money off the uninvested cash you have sitting on their platform and fourth, the issue. They're facing now is that bloomberg says almost half of robin hood's 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 now, if you're confused here's how this works, when you Place a stock trade on robinhood robinhood is not the one who actually executes those orders; instead, they instantly outsource it to another company that pays robinhood for the right to execute your trade. Those firms usually make a very, very small percentage off the total amount, and even though this is a very common practice for pretty much every brokerage out there, the 65 million dollar settlement came from accusations that robin hood didn't necessarily get customers the most competitive pricing.

On a stock and instead they routed orders to the company that paid the highest commissions to robin hood. Now, usually, this is an amount. That's never really going to get noticed by you in fact, bloomberg estimated that this amounted to 0.0024 cents per share, but with hundreds of billions of trading volume, it adds up. This article says that robinhood earned about 180 million dollars off of trades like this in their second quarter, and the sec probe found that robin hood's inferior prices cost their customers 34.1 million dollars.

Even after considering the savings from not paying a commission on stock trades. Now, in defensive, robin hood on this costing their users 34 million dollars off of - what's probably hundreds of billions of dollars worth of total transaction volume, is not that much money in the big picture, and probably most of us would just never even notice, but regardless robin Hood did pay a 65 million dollar civil penalty without admitting to any wrongdoing, and robin hood went on to say that this settlement is related to historical practices that do not reflect robin hood today. However, this doesn't just stop there because now there's a much more serious allegation on the table, and this is the entire reason i'm making this video. But before i get into that, i just want to say a huge thank you to the video sponsor today.

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That's actually interesting to read about, for example, the other morning they were giving details about the current status of the stimulus package that should be coming any day now. They were also covering details of my all-time favorite company. That makes it all possible for you to watch this video in the first place, google and the legal actions against anti-competitive practices, and finally, they covered the topic of this video robinhood and the complaints against them. It's just all really interesting content.

It gets delivered to your email every single morning and i read every single one of them and like it enough to recommend it to you. So if you're interested in business, finance or tech subscribe to their newsletter using the link down below in the description, it's totally free and takes you under 15 seconds. So thank you guys so much and with that said, let's get back into the video. The most recent allegation against robin hood is this robinhood accused of targeting novice investors with features that encourage excessive trading.

This massachusetts lawsuit, which i will attach down below in the description for anyone who wants some really good reading material claims 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, and now this is where it starts getting really interesting. They go on to say that 670 robinhood users with limited or no investment experience averaged at least five trades. A day with two of those customers, averaging close to 100 trades per day and robinhood even allowed one customer with no trading experience to make 12 hundred trades in a six month time frame, i'm not even mad, like i'm impressed anyway.

This lawsuit continues on to say that robin would let 370 people with no experience that would ordinarily never have qualified for options trading access to options trading anyway and in massachusetts they argue that robinhood has a fiduciary duty towards their customers, meaning robinhood needs to look out For their best interest and most likely, their best interest is not having access to unlimited margin trading that might cause them to trade more than they should now. Obviously, this is a bit of a touchy subject because, on the one hand, investing should be accessible towards everybody, but on the other hand, there should be safeguards put in place to make sure that people can't get in over their heads. A very very unfortunate example of this was when one of their 20 year old customers chose to end his life after seeing a negative 730 000 balance in his account, he was one of the users that was approved to trade options and because of how these options Were exercised, a negative balance was temporarily shown in his account until the markets reopened on that monday. This was considered to be a short-term glitch in the system, but this trader didn't know this and thought instead that he owed robin hood 730 thousand dollars.

If robin hood responded, they made changes to the app and, overall, the situation is something that maybe could have been prevented under different circumstances, but the whole thing is just really sad either way. The point of this lawsuit is that they say robin hood is allowing people to gamble under the disguise of investing, and they make it far too easy for almost anyone to get approved for options trading without the proper safeguards in place. Now, from my own perspective, i do admit this is a very delicate situation and i have a feeling that eventually, there's gon na be strict regulation around who can and cannot get access to certain trading features on apps like this, for example, i've got over three million Dollars in a charles schwab account - and i literally had to call someone up on the phone and talk to a live human being to be approved for options training now with robinhood. On the other hand, i went on the app i answered, a few simple questions and almost immediately was good to go sure.

I certainly appreciate the convenience of robinhood, because that made my life very easy. But if i were somebody with an appetite for gambling - or maybe i just want to throw my entire life savings into gamestop call options, then perhaps i had just opened pandora's box now some people could argue that it's not a broker's responsibility to protect people from themselves. Just like, we can't blame a casino for someone's gambling problem, but the real issue is whether or not robin hood has a legal obligation to put proper safeguards in place to make sure people don't get carried away, and they also need to make sure that people are Qualified for what they sign up for, after all, the government has come to the conclusion that the average retail investor has absolutely no idea what they're doing and therefore there are regulations that have to be put in place to prevent people from losing everything like the term. Accredited investor is one of them and while some people argue that this just gives the rich an easier way of making more money, the reality is that so many startups fail and the average person is not going to have the budget to withstand so many losses before, Eventually, they maybe turn a profit.

Now i'm definitely no lawyer, but i certainly believe these accusations are really just the tip of the iceberg of what's eventually going to be implemented throughout every brokerage and at some point i believe, they're all going to be held to a higher standard that places more barriers On how much money people could invest, who could invest and how often they can invest it really all just comes down to how much responsibility do brokers have to protect you from yourself and how much responsibility do you have for your own actions? In my opinion, maybe a good middle ground would be to have their users take a test or a quiz before they're able to trade a certain amount of times or before they have access to margin and option trading. Ask questions about how options trading actually works or what happens when one of those options expires? I guarantee that would cut down on a significant portion of the number of people trading options that have no idea how to trade options, and i still think it's only a matter of time until there's a more clear distinction between what we call investing and gambling, because The line is definitely blurred, but i do have to finish this off on a positive note about robin hood, because without them we would likely not be seeing zero dollar stock trades like we do today, and undoubtedly they've opened up the door for so many new investors To come into the space that ordinarily would never be investing, there's inevitably going to be growing pains throughout the process, especially as a startup company that is now valued at an estimated 20 billion dollars and overall there's a lot of good to come out of the platform. As well, perhaps some changes will need to be made in terms of how robinhood presents itself as a game when it comes to investing. Maybe that might be similar to how vapes were being advertised towards children, and maybe they will end up changing their layout a bit.

If more of these issues persist, but that was their competitive advantage from the very beginning and that ended up getting so many new people into the investing space. So it can be a double-edged sword and it'll be interesting to see how this all plays out. But if i were to guess this massachusetts, lawsuit is probably just going to be the tip of the iceberg until there's a more concise definition on what people consider investing and what people consider gambling and when it comes to all of this. I definitely want to hear what you think of this and whether or not it's reasonable or unreasonable.

So if you want to comment down below - and let me know your thoughts - i read like 95 of the comments at this point and i do my best to respond to as many people as i can. So if you comment down below most likely, i will see it so with that said you guys thank you so much for watching. I really appreciate it make sure to destroy the like button. Subscribe button and notification bell also feel free to add me on instagram, i post it pretty much daily.

So if you want to be a part of it, there feel free to add me there. As on my second channel, the gram stefan show i post there every single day - i'm not posting here. So if you want to see a brand new video for me every single day, make sure to add yourself to that and, lastly, speaking of stocks, if you want four free stocks, use the link down below in the description and weeble is going to be giving you Four free stocks, when you deposit 100, on the platform with those stocks potentially worth all the way up to 1 600. So if you want those stocks, link is down below, let me know which ones you get.

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