No, my comment was in the direction of: "It's bad if your core business is getting unsophisticated people making trades (bets) with credit."
It's the same reason we all know it's a bad idea to give someone a 400k mortgage on an ARM when we don't know if they can pay it back or not. Great way to find yourself in a recession.
I would agree, if there were evidence to support that primarily unsophisticated people are buying premium. However, I doubt this is the case (I'm sure someone will put together numbers on this eventually). I'm a competent trader who avoids leverage, simply because I don't want to pay for a membership (it's not just a loan; you need a gold membership, too, which is an added barrier to entry).
Based on what the stated publicly, it's in Robinhood's interest as a company to push everyone into Margin deals. Their core stated benefit of using Robinhood over other brokers is opening trading up to everyone, through ease and low carry to make it easy.
Ipso Facto that means their goal will be pushing new unsophisticated traders into leveraged deals. That is 100% implicit in this whole thing.
I'm not arguing that there is evidence that "primarily unsophisticated people are buying premium." I'm arguing that this is their plan going forward and it could be really really harmful to markets if they get to the scale they want to.
Best case, Robinhood can cover every margin call themselves, in which case they are effectively doing what Uber does which is unsustainably subsidizing investing on credit.
Worst case, they can't cover margin calls and neither can their users and they roll up.
I'm just waiting for them to allow leveraged shorts...
The gigantic risk to Robin Hood isn't that they'll have problems collecting occasionally. They can make up for that by fiddling with their fees to come ahead in the average case.
It's that some big market move busts everyone at once and they go bankrupt overnight.
The problem is when people make a bet that doesn't work out. There are a lot of exotic trades that can clean you out completely in an instant if you bet wrong.
I wonder how Robinhood will handle it when it happens.
From http://www.investopedia.com/terms/m/minimummargin.asp:
"When you buy on margin, there are key levels - as governed by the Federal Reserve Board's Regulation T - that must be maintained throughout the life of a trade. The minimum margin, which states that a broker can't extend any credit to accounts with less than $2,000 in cash (or securities) is the first requirement. Second, an initial margin of 50% is required for a trade to be entered. Third, the maintenance margin says that you must maintain equity of at least 25% or be hit with a margin call."
Of course, should Robinhood go under, don't expect easy access to your assets, until some other brokerage takes it over.
Who said it has no consequences? People make bad decisions with money their all the time. In fact, many of the working class get their fix in real casinos, where there's no real chance of winning, even if you know what you're doing. But the parent argument is going in the direction of "people shouldn't have the freedom to use this type of product." Instead of allowing normal people (some of whom know what they are doing) to freely engage in leveraged -- or just free -- trading, would you rather people with small portfolios get their already modest earning potential chewed away by large trading fees that make short term investing impractical? The difference is that I don't think we should be protecting people from themselves.