You see those grey bars in the chart above? Those represent options trades. This gives you a sense for just how much more lucrative options trades are for Robinhood compared to other types. Because of this pull, Robinhood's incentives to lure customers to increasingly dangerous behavior are stronger than for other companies, and is proving to be irresistible. This leads me to the next point:

Dangerous Territory In general, the more a small investor trades, the worse their investment performance is likely to be. This is a well studied effect (here is one example of a paper from 2000), and is why the conventional wisdom when it comes to investing is to set it and forget it.


For sophisticated investors, there are ways to combine option trades in order to reduce risk, but those are hard to understand for most people. For example, it is believed that confusion stemming from a 'bull put spread' trade placed in Robinhood led to the suicide of a 20-year old college student in March. It's one thing for people like my brother, a professional trader, to be dabbling in these types of trades. It's quite another for young kids with no income and no investing experience to get into this much trouble from a few simple taps.


Let's return to company lore for a moment. Remember that whole stealing from the rich and giving to the poor thing?

What if the real story is a little different. What if instead, we focus on the cofounders' previous venture, which was building software directly for HFT firms? Maybe during that time they learned that what HFT firms really need is a larger, steady volume of 'dumb money', and built the ultimate trap—dark UX patterns and all—for young people to start trading in?

https://theflywheel.substack.com/