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Just a quick question for some with brokerage employment experience.
Robinhood states that they make money off the uninvested portion of customers accounts. As said are supposed to be held in segregated accounts outside the brokerages control, can anyone give me the SEC or other Law/Statute that allows a brokerage to generate interest on funds that have not been hypothecated to them by the cash owner?
Based on additional response from Robinhood support, I've asked for clarification from their compliance/legal team...which I will forward when it becomes available. The answer may prove illuminating, when taken in context of a certain brokerage that traded and lost funds held in supposedly "segregated" accounts.
There is, in essence, no such thing as a truly segregated account when you trade. Granted, the funds you put in a bank are (or aught to be) kept at arms length from the brokerage...but not from the bank itself, who plays with your money while the brokerage gets "a little taste for my beak" (The Godfather) for its own pockets from what the bank makes off your money.
While you are doing your level best to mitigate risk via money management in the markets, they are sweeping all of your unused funds to money market and other instruments that are neither insured against loss nor necessarily well managed. In point of fact, the banks themselves are entitled to use your own funds against any position you may take in any instrument. So much for being vigilant about brokers trading against you. So much for being concerned about HFT and "dark pools" (likely the banks operations through beards anyway).
That shows that while brokerages other than Robinhood make money from commissions, margin interest, and account money flow held by banks, Robinhood is only giving up one leg of the triangle (so far). This begs the question, what new shenanigans have their banks cooked up to replace that commission leg? There ain't no free lunch.
The real kicker? In the god-like wisdom of the criminally underfunded FDIC, should you refuse to allow your cash to be swept into these so-called "FDIC insured programs", your segregate cash account looses ALL FDIC protection (though not SPIC protection for product holdings within the account).
Likely the real reason for the boiler plate statement "significant risk of loss"? They ain't necessarily talking about loss your actions incur, but theirs.
Anyone had any experiance with these guys. Am thinking of opening a stock only account. Was considering them because i am looking at swing trading stocks only. not a lot of turn over where i may incur fees like at IB
