By Steve Tepper, CFP®, MBA
The legend of Robin Hood dates to English folklore of the 13th or 14th century. There have been some variations in the storytelling over the years. Sometimes a nobleman, sometimes of lowly birth, but always the same basic story: the heroic outlaw robbing from the rich and giving to the poor.
But now we have a new version of the legend. In this telling, Robin Hood pretends to be on the side of the poor but is actually stealing from them and giving to the rich.
The Robin Hood I’m talking about is literally Robinhood, the online trading platform used by millions of “little guy” stock traders to buy and sell stocks at no cost (or so they think).
Perhaps stealing is too strong a word, and I only say that to avoid a defamation lawsuit. And, apparently, what they are doing isn’t illegal.
One of Robinhood’s largest revenue sources is selling its users’ data to high-speed traders. Say, for example, a large buy or sell order is placed by a Robinhood trader or several traders. The company will sell that information to another company that can exploit the information by “jumping the line,” getting into the trade before the Robinhood order is filled and taking advantage of a buy/sell imbalance that might push the price of the stock up.
It might be only a couple of cents, but that’s enough to make a nice profit when you’re trading thousands of shares. The Robinhood investor, on the other hand, ends up buying the stock at an inflated price. Suddenly, that $10 trade fee they saved doesn’t seem like such a good deal.
And now Robinhood has announced their IPO. Yep, they’re becoming a public company, spreading their dream of making the stock market accessible to everyone (and fleecing them) across the globe.
When you rob from the rich and give to the poor, the sheriff makes it their life’s work to catch you. When you rob from the poor and give to the rich, you get an IPO.
Now more than ever, investors need to be careful who they invest with and what technology they use—and beware of hidden costs.