How does a brokerage firm mention to lose large amounts of money e.g Robinhood

[Pekelo]

OK, my personal take. Let's use an analogy. What Uber is to taxis, that is RH to brokerages.

So a new company came to the marketplace with a revolutionary idea. That is not to say the idea itself is profitable in the long run like selling order flow instead of fees or employing average people with their own cars instead of pros.

But as a result prices for the masses are pushed down. That maybe temporary and even if it is good for the customers, it is not good for the employees or the investors. But because this is the new paradigm and cheaper prices, the other companies have to follow suit and lower their prices or switch to the new model.

Eventually both companies will go bankrupt, because the business model is not solid and it is not profitable.

Using a sport analogy it is like paying 250MM GUARANTEED for a QB like the Browns did. It fucks up the market place and screws with evaluation, but in the long run it DOESN'T WORK.

 

[zdreg]

Your examples are based upon a static analysis. You are making the assumption that companies don't change their behavior with changing conditions.
e,g, Uber has already changed its business model to not be dependent on public ridership as the driver for a profitable business. It has become a delivery service for packages and a source of long haul drivers for businesses whoever they face a shortage of drivers and vehicles etc.

As to the brokerage business the cost of executing a trade approaches zero less than .0001.
These brokerage firms have multiple sources of income from public clients inc. but not limited to credit balances and interest generated from short sales which are mostly not shared with the general public. There are sources of income from fees inc. wiring charges etc. Furthermore there is payments resulting from PFOF. It is unusual that it is a win win for both the public and industry
In spite of screaming by a small group of posters on ET who know little of market structure PFOF has been boon for both the general public and the brokerage industry. It has been a win win situation for both groups as spreads have narrowed to a penny or less plus zero commissions. If orders had to be sent to a central market place firms with public participation at a fraction of a penny firms like Virtu and Citadel would not compete but simply withdraw, Spreads would widen because the public will never provide the liquidity that Virtu and Citadel provides.
.

 

[murray t turtle]

How does a broker e.g. Robinhood that has no physical branch offices and makes money only off trade execution and customer account balances lose large sums of money?

%%
MUST work pretty hard @ it /they make plenty of interestLOL
They also have a lousy EPS, compared to IBKR, SCHW, MS GS.
Actually they have a good gross profit, but lousy netprofit + or they hoped to sell the whole co book value.
Not sure book value has much importance; it may for a book seller or if they want to sell the whole co

 

[zdreg]

%%
MUST work pretty hard @ it /they make plenty of interestLOL
They also have a lousy EPS, compared to IBKR, SCHW, MS GS.
Actually they have a good gross profit, but lousy net book value.
Not sure book value has much importance; it may for a book seller

Brokerage firms are customarily bought and sold on a multiple of book. value

 

[ETJ]

Eating a trade error, fines from the regulators, and with Robinhood under advance scrutiny - large compliance staff

https://www.barrons.com/articles/robinhood-earnings-stock-price-trading-error-51675896637

 

[murray t turtle]

Eating a trade error, fines from the regulators, and with Robinhood under advance scrutiny - large compliance staff

https://www.barrons.com/articles/robinhood-earnings-stock-price-trading-error-51675896637

%%%
Good points\i had forgotten about that fineLOL.
but in fairness SCHW, MS + GS have had bigger fines , gross $$$.[but they are doing much better by most measures]
SO naming a co after a robber with a hood maybe not so wise or even good marketing??

 

[schizo]

Eating a trade error, fines from the regulators, and with Robinhood under advance scrutiny - large compliance staff

https://www.barrons.com/articles/robinhood-earnings-stock-price-trading-error-51675896637

From the mentioned article:
Robinhood lost $57 million because of a mistake processing shares in a tiny healthcare company in December, an error that cost the broker about 7 cents per share in the fourth quarter. That single mistake, which the company says it corrected quickly, was the difference between Robinhood beating and missing earnings expectations. Robinhood posted a 19-cent loss in the quarter, versus expectations for a 15-cent loss.

Was that ever verified? I personally think that's just a friggin' excuse.

 

[ETJ]

Regulatory filings - homework.

 

[engineering]

How do they lose money?
People keep giving them money to lose.

After GameStop, who still wants anything to do with them except Citadel?

 

[Pekelo]

not be dependent on public ridership

I was talking about the public drivership.

Anyhow, the TL;DU (understand) and the answer to your inquiry was: they don't have a profitable business model to begin with. So it doesn't matter what your argument is, they are going bankrupt. Sure RH could become a real estate agency to make profits, but I doubt.

Just read the Seeking Alpha link I gave above if you want a RH analysis.