Exactly. You get rates back to 4-5% forget it....as for them going public...not a chance anytime soon...look at Uber and Airbnb enjoying life on the secondary markets!!!!
They always "used to" when they could get away with it. Any interest earned would accrue to the broker instead of the customer. Over time brokers got more and more aggressive... sometimes "making bets" on rates and getting hosed on the result. IOW... The broker uses YOUR funds to take risks and and make money in a "heads I win, tails your lose" arrangement. (Very much like scumbag banks, BTW) As a broker customer, I don't like that they would "take advantage of my funds" for their own gain. I'd like to think regulations have stopped that sort of thing.
FCMs do not offer securities, so they are not members of SIPC and your account is not SIPC protected. The NFA claims the segregated account structure is your protection. I would like to see the NFA create a SIPC type protection even if to start it only protect small account until they can raise funds over time. Even a NFA extra fee of $0.01 would be a good start if it were to start this type of protection.
I get that. But "segregated funds" were only "sort-of-segregated". Customer funds couldn't be used by the firm to pay their expenses, but were allowed to be "invested" with the earnings accruing to the broker. One way around that was for customers to have their cash balances invested in T-Bills. There was lots of inconvenience in that, of course. That is, brokers didn't want/allow T-Bills to be collateral for trade positions... they only wanted "free cash balances" for margin requirements.... discouraging the purchase of T-Bills. Then... when the interest earned on a T-Bill was less than the commission charged by the broker to buy the bill... lots of traders stopped buying them... leaving their accounts as "free cash" to be invested by the broker with interest or other earnings accruing to them. The "protections" customers have are limited to the diligence of the firm monitoring margin requirements, the firm's "capital/excess capital" to handle uncollectable debits, and that sort of thing. Which, BTW, has been adequate for nearly all of us for many years now. The REAL trouble has come from the brokers making bets with customer funds which got everybody into trouble. It's best they not do that nor be allowed the option to do that.
You're probably right in that most people buy stocks with it. I'm not familiar with their platform but I'd have to assume there is some reason people would hold cash in those accounts. It seems like Robinhood just makes money on the back end in every way possible with rebates, securities lending for shorts, lending cash and now margin with an interest rate plus the $6 monthly fee. They have an ultra scalable business though because all of these functions are just software at the root of things. I have no doubt they have a target % of AUM for revenue projections i.e. 1% of AUM or whatever the number is. As long as they hit that number at the least, which I'd imagine is easy to do given the way they make money, they're golden. If I had to guess the funds they lend to people for margin purchases is just cash from other clients' accounts, I'm pretty sure IB does this same thing which is why their margin rates are much more repo/money market-esque than the typical 7-8% and higher margin rates at most brokers right now.
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Except cash returns are not anywhere near 200 BP. If RH can't return to PFOF they are toast or going to have to come up with a diff model.
sss12 said: Except cash returns are not anywhere near 200 BP. If RH can't return to PFOF they are toast or going to have to come up with a diff mode it sounds terrific to me. suppose the avg. size of an account doubles to 2k or 5x and interest rates rise. they are starting from a very low base. the increase in the bottom line will be very large. Robinhood in brokerage has become what Apple is to millennials , choice #1. it is the cool factor with a decent product . posters here are missing the big picture and are assuming a static analysis that the future remain the same. the 4X increase in valuation in less than 2 years is the evidence.
It's written black on white that they receive PFOF. They didn't invent anything new. They just want to attract the volume by offering free comm for Public Customer orders. Public Customer order flow is the bread and butter in this industry. That's the real deal! They'll make money as long as they can get enough customer and volume and they keep their operation cost low.