Over the past few weeks, we’ve talked about the fact that 2020 has seen the largest influx of retail traders coming into the market in history.
The combination of boredom from quarantine, a bit of extra income from federal stimulus measures, AND the allure of “free trading” (in other words, zero commission fees) from broker platforms like Robinhood have fueled a retail trading explosion.
Now, don’t get me wrong…
I’m all for folks getting involved in the markets as a means to shore up their retirement…
Supplement their income…
And achieve financial security.
There’s just one problem…
Many of these new traders are being manipulated and treated as nothing more than pawns…
While the brokers collect MILLIONS at their expense.
Now, before we go any further, I want to be clear that there’s nothing inherently wrong with using one of these free broker platforms like Robinhood to manage your trade account.
But there’s one BIG caveat to that:
You MUST have some type of actual, proven trade plan in place BEFORE you start executing trades with ANY broker.
Why?
It’s simple, really.
See, trading involves STRATEGY.
Your trade plan should detail WHAT instrument you’ll be trading…
As well as the conditions under which you’ll buy, and the conditions under which you’ll sell.
Because here’s the cold, hard truth…
Anyone who trades without a plan… without a strategy… isn’t actually trading.
They’re GAMBLING.
And we all know what the odds are like when you gamble.
(Hint… they’re not in your favor.)
Now here’s what you have to understand about “free” trading platforms like Robinhood.
Sure, they may not be making any money off of you on the front end through commission fees…
But you can be certain that they’re making a TON of money off of you on the back end.
How?
One word…
DATA.
That’s right.
Just like Facebook has made BILLIONS by selling user data to advertisers, brokerages like Robinhood are making their fortunes by selling trader data.
See, brokers don’t actually execute the trade orders that flow through their system.
They sell that order information to market makers, who are the ones that actually execute the trades.
It’s called “payment for order flow,” and it’s actually a common practice among all the well-established brokerages.
But here’s the thing…
Traditionally, payment for order flow has been just one small piece of a broker’s overall revenue stream.
But Robinhood makes its money exclusively on payment for order flow…
Which means it’s in their best interest for their users to trade as much… and as often… as possible.
That’s why Robinhood has come under fire for showing its users stocks that are “trending” or experiencing high trade volume.
They’re basically enticing traders to jump into the latest trend, regardless of whether it’s a good trade or if it aligns with a user’s trade plan.
Oh, and get this…
According to SEC reports, Robinhood has the highest rate per share for its order flow than ANY OTHER BROKER.
And what’s more, Robinhood gets paid even MORE per share for options trade order flows.
That’s why we’ve seen so many stories of Robinhood traders losing massive sums through options trading.
These brokers just make it seem so easy…
And new traders who just don’t know any better are getting absolutely crushed in the wake.
Listen, here’s the bottom line…
Trading is not a get-rich-quick scheme.
No matter how easy and appealing an online broker makes it seem…
The truth is that unless you have a proven, tried-and-true, battle-tested method for trading stocks and options…
The odds are you’ll end up as one of the 90% of retail traders that lose money and give up trading entirely.
Now, again, there’s nothing wrong with using Robinhood or any other “free” online broker.
But you need to have a PLAN in place before you start placing trades with any brokerage platform.
So if you’d like to learn the details of a time-tested strategy that continues to hand traders profits through little-known, off the radar stocks and call option trades…
