Robinhood Crypto Trading

What’s up everyone and welcome back to
G4B TV. Bringing clarity to cryptocurrency. My
name is Ken and if you’re a new viewer and a fan of crypto related news and
content, definitely subscribe, because I plan on creating a ton more deeply
informative videos just like this one in the future so you definitely don’t want to miss
out. Now because my first video took a very high level view of Robinhood Crypto,
I want to make a follow-up video for more advanced viewers who want to take a
deeper look at Robinhood, under the hood. Moving on, in this video I’m going to
discuss Robinhood security and storage of your cryptocurrencies and I’m also
going to talk a bit about how Robinhood Crypto is regulated, which actually
relates to how the company is legally structured. Also, because I personally
find this stuff pretty fascinating and so some viewers might think so too, I’m
going to finely comb through the actual mechanics of how trades function on the
Robinhood trading platform. I want to note that this is not a sponsored video.
Robinhood just happens to be the first topic I chose to cover because it allows
me such a big opportunity to touch on different aspects of traditional finance
and investing, which I’m accustomed to and that I also believe enhances the
central discussion around crypto currencies. So without further adieu, let’s
jump into it. Security, I don’t know about you, but for me, security over my
investments is a big sticking point when deciding which exchange, I choose to
trade on. So in that regard alone, I like Robinhood because they’re
already an established company with a proven track record. And bonus, they’re
based in the U.S. This isn’t a bash on foreign countries but I place
particular importance on country of domicile, because much like most of the
West, the U.S. has well-established and for
better or worse, strict regulations for corporations, protecting both customers
and investors, alike. And so the big question then becomes, how does
Robinhood store their users coins and protect them against hackers. So as is
common practice Robinhood stores its cryptocurrencies in a Katy Perry style
mix, of “hot and cold” storage. Hot, meaning online and connected to the Internet. And
cold, being the opposite. You guessed it, meaning offline, and so not connected to
the internet. However, it’s the hot/cold ratio that’s most important. Of which Robin
Hood doesn’t provide any further details. They instead generically state that they
use the most cutting-edge security measures that are both process and
technologically driven. I know, fancy language.The remaining disclosures remain brief broad and boilerplate and go on to describe additional internal
controls including employee firewalls and constant internal reviews of current
security procedures. As is considered best practice amongst advanced crypto
investors many would opt to circumvent any vulnerabilities in Robinhood
security by transferring their purchased crypto holdings to a personal hard
wallet, such as the Ledger Nano S or the Trezor.
However, I’m afraid I’ve got some bad news if that’s you. If you check out the
Robinhood website, they say that and I quote, “At this time we don’t support coin
withdrawals, however we plan to do so in the near
future. So, unfortunately there’s no exact date for that feature, but it’ll
definitely be a huge positive when they do add those coins withdrawal capabilities.
Because it’ll be another shiny carrot for them to hold out, to draw more
seasoned investors. So we’ve established that users can’t transfer their crypto
out, but what about transferring their Bitcoin or Ethereum in?
Unfortunately, Robinhood has taken a hard stance against this, but again, given
their language leave the possibility open for change. According to their
webpage, “We currently don’t allow transfers of your existing
cryptocurrency assets into your Robin hood Crypto account. Our primary concern
is to prevent money from illegal activity being used for transactions on
Robinhood Crypto. We’ll be sure to update you if
and when this type of transfer becomes available. So, this is a smart but mostly
safe choice by the company, who for obvious reasons are and will continue to
be under enhanced scrutiny from regulators. Although, it sets a benchmark
for other online stock brokerages who may in the future, also add
cryptocurrency trading. Now this is a protective policy to best serve their
regulatory obligations of fulfilling anti-money laundering and know your
customer security measures. So, that’s the companies security, but individual users
should also be cautious to protect themselves from personal attacks. On
their cell phone, laptop, or any other electronic device used. Which aside from
the already used methods we apply towards protecting our online identities,
or safeguarding against viruses. The most highly recommended action I would
suggest is to make use of Robinhood’s two-factor authentication. Which provides
an additional layer of security, that is really simple to implement and is
available to users on any major cryptocurrency exchange. I would also
suggest that if your phone has it, make use of the apps fingerprint recognition.
I like it, not really because it’s a lot faster and more secure, but because I
like the feeling of imagining I’m a secret agent, while doing so. That’s all
for security, I want to quickly mention their policy on forks. Or rather, lack
thereof. From scouring their website, I wasn’t able to locate any public policy
regarding hard forks, so I assume if you hold Bitcoin on Robinhood, don’t
expect to be showered by any newly minted coins. Now onto everyone’s favorite
topic, regulation. Those used to the SIPC insured safety net that comes with stock
investing, won’t enjoy the same luxury with their cryptocurrency investments.
SIPC, if you’re unfamiliar, is similar to the insurance that FDIC provides in the
case of a bank failure. In which your balances are protected up to $250,000.
For SIPC member broker-dealers, your investments are covered up to 500k, and
that’s where the company structure comes into play.
Parent company Robinhood Markets Inc. has two wholly-owned, but separate
subsidiaries, Robinhood Financial LLC. Who are responsible for your stock, ETF,
and options trading accounts. And Robin Hood Crypto LLC. Which is responsible for
your cryptocurrency assets. The difference between the two is how
they’re regulated. Yes, Robinhood Crypto is registered with
FINCEN as a money services business, and so is subject to the Bank Secrecy
Act. And therefore abides by money transmitter laws of most U.S. states. But
what we all care about is safety in the case of a loss, such as from a major hack.
Which is a major problem for any business, but leads to more dire
consequences for exchanges and their users. Because Robinhood crypto is separate
from Robinhood financial, it doesn’t have the same SIPC insurance in the
case of company bankruptcy. And therefore leaves Robinhood Crypto susceptible to
the potential fallout caused by having investors money stolen. Now in a doomsday
scenario, this may lead to a Mt. Gox type bankruptcy proceeding for investors
to reclaim any stolen losses. However, depending on the size of the loss, if
they were hacked, if possible, I feel like they would likely choose to simply reach
into their own company coffers to make good with their customers. Such has been
the case with past scandals, such as the half a billion stolen from Coincheck, in
Japan. One day this nascent industry may get there, especially if the Winklevoss
twins gain any major traction on their Virtual Commodity Association. Which is a
self regulatory body similar to FINRA. FINRA, for those unfamiliar is
committed to investor protections amongst broker dealers in the
traditional financial industry. Now onto some more fun stuff, trade mechanics. As
discussed previously, Robinhood Crypto’s trading capabilities include both market
and limit orders. So let’s start with market orders. When placing market orders,
have I said market orders, enough? They display the best available price to you, which is
based on the exchanges they connect to. Which brings up the point that
technically, I believe, Robinhood isn’t itself an exchange. They instead
act as a broker. Meaning, middleman or facilitator between their users and
other actual exchanges. But you’ll notice in my videos and just in general with
any major news source or investment professional you listen to. The word
“exchange” is used very loosely to describe companies like Robinhood.
Loosely, meaning not to its full legal definition. Of which determines how it’s
regulated. But back to the point. Co-founder Vlad Tenev, seen here spotted
again on CNBC dressed as human Vulcan, first officer Spock.
Along with co-founder Baiju dressed in his best rendition of magical mystery
man, Chris Angel, has said that they’ll connect to many exchanges, up to a dozen
or more, over the next several months. This is significant because the more
exchanges Robinhood has to choose from, the more opportunity for liquidity they
can provide to their customers. Liquidity is of particular importance during
market free falls and flash crashes. As traders rush in to BTFD. This has been
a major pain spot for competitor Coinbase and their customers. Now more
exchanges also means greater potential for lower prices. This is intuitive, well
because the more sources to get quotes from, the greater likelihood that one’s
quoting a lower price. And because cryptocurrency prices are rather
sporadic to say the least. As a built-in protective mechanism, all market orders
are actually adjusted limit orders. You can think of this as, if your market order
wasn’t immediately filled, it can be converted before executing to prevent
you from getting a raw deal. So clearly Robinhood has done this to prevent user
dissatisfaction. And protect investors from the volatile tendencies and past
history of cryptocurrencies trading tightly, particularly, after major news
headlines reach the investing public. Trading tightly in this case meaning
that supply is limited during periods of excess demand. Leading to those wild
rollercoaster price swings, and therefore all market orders are actually limit orders
collared up to 1% for buys, and 5% for sells. Which leaves greater potential
downside, albeit minimal, if you’re a seller, compared with if you’re a buyer.
Robinhood makes it clear they’re different from other competitors, such as
Coinbase by mentioning that any price difference
you may see between the estimated price and the execution price is due to market
movement, and is not something that Robin Hood profits from. Of which, I mentioned
during my spout about fees in my last video that Coinbase does profit from
this price discrepancy by pocketing up to approximately 100 to 200 basis points,
or 1 to 2 percent each trade. And because I’m a finance guy, another
interesting thing to note, which i think is pretty cool. Is ontop of cryptos 24/7
trading hours, there’s also no settlement times for cryptocurrency trades. You can
compare this with stock settlement times which are normally T+2, meaning the
final exchange of say cash for stocks, takes two days after the trade was
executed. Excluding weekends and holidays, of course. Interestingly, this again is
another positive in terms of market liquidity for digital assets. Another
frequent question from new traders is that they feel cheated that the price on
the detail pages compared with the display price for Bitcoin or Ethereum,
is either higher when trying to buy or lower when trying to sell. This
difference I’ve experienced on Coinbase can lead to ridiculous spreads, so
ridiculous that the price you actually paid or sold at, often is never reflected
on their historical price charts. Which can be pretty infuriating, if you bought
high or sold low. But higher or lower than what’s actually shown on the price
chart. So for Robinhood at least, the display price on your watchlist, for
example, is the mark price. Which is simply the midpoint of the bid and ask
prices.The bid is the highest possible offer made from a buyer, whereas an ask
is the lowest acceptable price from a seller. With the spread being the total
difference between the bid and the ask. And the mark price, being the middle of
that bid-ask spread. And, I’m actually using the GDAX order book, for
this example. Anyways, you’re probably asking how does this explain the
difference in quoted prices. That’s because although the displayed price
will always be the mark price, if you’re buying, your trade will execute at the
higher ask price, and if you’re selling, it will be sold at the lower bid price.
The wider the spread, the harder for both parties to get the price they want, and
the less liquid the market. And depending on how many Bitcoin you’re transacting,
it may be more of a challenge to execute your desired trade. Increasing market
liquidity for specific assets through implementation of their fee structure is
why exchanges incentivize market participants to “make a market” as opposed
to , “to take” it. That’s because taking sucks liquidity out
of the market. whereas making, injects liquidity into it. And liquidity in this
example means that traders can buy or sell their crypto quickly and without
causing a drastic change in the price of that cryptocurrency. So that’s market
orders, as far as limit orders go, it’s much more simple. You can only set pure
limit orders, meaning no “stop loss” or no “stop limit” orders. Which are available
for rRobinhood stock traders. As well as to those making use of Coinbase’s GDAX
exchange. And therefore, limit buy or sell order trades will only execute at the
exact price that you specify. So unless another trader is willing to
take the exact opposite end of your proposed trade, your trade will remain
pending on the exchanges order book for as long as you specify. So what about
trading sizes? The minimum trading size for Bitcoin goes out to the fifth
decimal. Which, if one Bitcoin is ten thousand, then that would be equivalent
to ten cents. Day traders are quick to point out that
this is larger than a SAT. Which is short for one Satoshi, meaning the smallest
unit of a Bitcoin, which extends out to the eight decimal.
Whereas, Ethereum, despite also extending out to eight decimal places. Has a
minimum order size to the third decimal. Which if 1 Ether is selling for $1,000 the
minimum trade order would be one dollar. Basically, casual day traders who
prefer the ease of use in fiat currency trading pairs, will likely enjoy GDAX’s zero market making fees. While more advanced day traders will continue
to stack their SATs on Binance. As far as cash transfers go, if you have a
Robinhood account then you get instant access to your funds for up to a thousand
dollars. For additional cash transfers, settlement is subject to normal
settlement times. One last note, the marketing choice of making losing days
represented by pink, as opposed to red, is sort of a creative way to
psychologically soften the blow when checking your holdings during down days.
Especially since the market status of cryptos have the possibility of getting
fifty shades darker. As always, crypto currencies are extremely volatile
investments. So please, always do your own research before investing, and never
solely depend on the advice of anyone, especially YouTuber’s, yes, that includes
me, when investing your money. And that goes for any investment, even crypto
kitties. No matter how oddly adorable they are.
I’m not your financial, investment, or crypto advisor. This channel is just to
share my personal opinion on items I find interesting and entertaining
related to cryptocurrency. So wow, if you made it to the end of this ridiculously
dense video, then you obviously are passionate about cryptocurrencies and
investing, and so are exactly the type of person who would enjoy my future videos.
Hey, how about that? So don’t forget to leave a “like” and subscribe to the G4B TV
channel. And because I covered a lot of higher level information today, don’t be
discouraged if it didn’t all make sense to you. I’m more than happy to answer any
questions you may still have, in the comment section below.
If not, I look forward to seeing you next time.

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