Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
Our goal is to bring the low fee trend pioneered by Robinhood to ETFs and mutual funds. We posted a Show HN about 3 months ago (https://news.ycombinator.com/item?id=41246686) and since then have crossed $10M in AUM (Assets Under Management) [1].
Here’s a demo video: https://www.loom.com/share/10c9150ce4114f278e8c249f211e7ec8. Please note that none of this content should be treated as financial advice.
Everyone knows that fees eat into your investing returns. Financial advisors generally charge 1% of AUM per year, and ETFs have a weighted average expense ratio of about 0.17%, although some go as low as 0.03% for VOO. Over a 30-year period on a $500k portfolio with $2k invested monthly, the money lost to those fees would be $1.30M for the financial advisor and $244k for the average ETF and even $42,951 for the low fee VOO.
Double lets you index invest without paying any percentage-based fees - we charge just $1/month. It works by buying the individual stocks that make up popular indexes. By buying the individual positions, we can also customize and tax-loss harvest your account, something ETFs or Mutual Funds cannot do.
Most ETFs and mutual funds today are not that complicated - they can be expressed as a CSV file with 2 columns - a ticker and a share number. You can find these holding csv files on most ETF pages (VOO[2], QQQ[3]). Right now there are about $9.1T of assets in ETFs[4] and $20T in Mutual Funds[5] in the US, with estimated revenue of $100B per year. We think this market is ripe for disruption.
We offer 50+ strategies that track popular ETFs and are updated as stocks merge and indexes change. You can customize these by weighting sectors or stocks differently, or even build your own indexes from scratch using our stock/etf screening tools. Once you've chosen your strategy, simply set your target weights and deposit funds (we also support transferring existing stocks). Our engine then checks your portfolio daily for potential trades, optimizes for tax-loss harvesting, portfolio tracking, and redeploys any generated cash.
I (JJ) started working on this after selling my last company. After using nearly every brokerage product out there and working with a financial advisor, I noticed a huge gap between the indexing capabilities of financial advisors and what individual investors could access. We wanted to bridge that gap and provide these powerful tools to everyone in a simple, low-cost way.
There are a number of robo-advisor products out there, but none that we know of offer direct indexing without expense ratios or AUM fees. One similar product is M1 Finance, but Double is more powerful. We offer tax-loss harvesting, a wider range of indexes, and greater customization. For example, when building your own index, you can set weights down to 0.1% (compared to M1's 1%) and even weight by market cap.
We also compete with robo-advisors like Wealthfront, but offer more control over your investments. And did I mention we don't charge AUM fees? You can see our strategies and play with the research page https://double.finance/p/explore without creating an account.
Over the past year we’ve learned a lot about the guts of building portfolio software. For example, stocks don’t really have persistent identifiers that are easy to model and pass around. We trade CUSIPs with our custodian Apex*, but these ch...
433 comments
[ 3.9 ms ] story [ 325 ms ] threadPFOF is a big moneymaker for Robinhood, but you get paid the more your users trade so people doing buy-and-hold index funds probably earn you less that way.
If you can keep expenses super low maybe this can work. But my sense is that costs are pretty flat regardless of how many users you have, so this probably needs to get pretty big to finance itself.
> so people doing buy-and-hold index funds probably earn you less that way.
You will be constantly buying and selling because you need to rebalance your "index" every time the market moves... Once you go down this unethical rabbit hole, there are endless possibilities.
If so, it’s easy to prove: compare the price you got to the public markets price at that time. I don’t think you’ll see a worse price.
You should be insulted that somebody is willing to pay for the privilege of trading with you. You can reasonably object to the amount of PFOF vs. price improvement. But it’s not unethical to say “we want your business so much we’ll pay for it”.
> We plan to make money by helping clients secure additional financial products like secured lines of credit, margin, and insurance, all in a fiduciary manner.
Longer term, we think there are additional revenue streams we can enable that are similar to existing broker-dealers like Robinhood, Fidelity and Schwab. That means things like cash float, margin lending, stock lending and payment for order flow. Currently we are not a broker-dealer.
I do not trust any institution that makes money off of lending MY shares out to predatory short-sellers who's sole purpose is to decrease the value of MY shares.
If this business proposes to be profitable by harvesting the borrow fees, then them being cheap is really disingenuous because they give you with one hand and take from you with the other.
If its free, then you're the product.
If its $1/month, then you're still probably the product. In the case of my investments, I do not want the firm that I invest with -- to whom I trust my assets -- to turn around and lend out my assets to other organizations that have no obligation to me to act in my best interest. Share lending is almost always to lend to short-sellers that are trying to decrease the price of the asset being borrowed.
> Even the bank and pensions gamble with your money, its how they move
I guess its not worth having an opinion that this is not a good thing then? Bring back Glass-Steagall to separate out banks and gamblers.
banks don't gamble with your deposit - that's illegal. They use your deposit as a form of security when they loan money out (it takes similar position as equity).
Pensions don't gamble, they buy investments which could have some risks (and it's calculated risks). These risks are such that they make a reasonable return for taking it, and therefore can service their obligations (as a pension fund).
"taking calculated risk" doesn't mean to calculate the risk. It means to look at whether the risk is worth taking, and only taking those that are worth.
Lottery is a bad risk - so it would be not wise to take lottery risk (as it's got a negative expectation of return).
They do it, but the proceeds go back to the individual funds (helps boost index tracking performance).
Fidelity and Schwab both take a cut. I forget beyond that, I guess IBKR does stuff.
[1] And frankly a lot of other 'opportunities' I'm not interested in, that seem outside the John Bogle model of Vanguard helping normal people invest in the public market at low cost. I don't want to invest in off market opportunities, thanks, and it makes me lower my opinion of the company that they push it.
Last I checked (which to be fair was like a year or so ago), vanguard didn't take a cut for securities lending. It does however boost the fund's performance
https://corporate.vanguard.com/content/corporatesite/us/en/c...
Vanguard the brokerage also has a share lending program, advertisement here https://investor.vanguard.com/campaign/earn-additional-incom...
> Vanguard Brokerage maintains an economic interest in Fully Paid Lending program loans and earns revenue in connection with such loans.
Vanguard the brokerage wants me to enable lending, but my mutual fund shares in Vanguard the brokerage can't be lent, because mutual funds are not lendable. If I converted it to an ETF, then the ETF could be lent, but I don't know how much interest there is in borrowing ETFs to short.
The underlying holdings in the mutual fund can be lent by Vanguard the funds. Vanguard says all the proceeds from lending (net of expenses) go to the funds. I think Schwab and Fidelity take a cut of lending proceeds on funds beyond their program expenses, but then they take a 'zero expense ratio'. It doesn't necessarily matter to me where specifically the Fund administrator takes their fees, it's the end of the day net investment value. And honestly, inertia is a big part of it, I have too much unrealized capital gains to really consider changing my stock funds, but I could be convinced to switch to a different brokerage.
1. You realize that short sellers have to buy the stock back, which basically has the opposite effect? Unless you're planning to dump the stock in a few months, this isn't worth worrying about.
2. You know what's worse than short sellers driving down the price of your stocks? Corporate malfeasance going undetected and blowing up (eg. Enron), causing you to lose everything. Short sellers might get a lot of flak by profiting off people's losses, but they provide a useful service by exposing misconduct and putting a wet towel on irrational exuberance.
Sure, that is their goal. But, shorting equities is a tough game, because most years the market goes up. An investor who is broadly short the market would therefore lose money more often than not, and has to pay borrow fees on top of that.
If you hold shares that you think are going to go up, you absolutely should be willing to lend out your shares because it will enhance your return.
What would you say to someone who is skeptical about the long term viablity of your low fee promise?
I also like to root for the little guy, but the trust barrier will be the largest hurdle I think that this company needs to overcome, and so it's fair to discuss it.
https://www.justice.gov/opa/pr/wells-fargo-agrees-pay-3-bill...
> As a result of HSBC Bank USA’s AML failures, at least $881 million in drug trafficking proceeds – including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia – were laundered through HSBC Bank USA. HSBC Group admitted it did not inform HSBC Bank USA of significant AML deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.
https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-ba...
Madoff had $65B AUM.
You must be living under a rock (or a democrat) if you trust an institution just because it's large.
I totally accept and understand that large businesses do all sorts of shady and nefarious things. What I don't expect them to do is lose all my money with no recourse. And that's not just the case because they're big, but the regulatory regimes are set up to deal with these known entities. The reason I've personally become wary of fintechs recently is because many of them want to "move fast and break things", and think they can offload all of the regulatory responsibilities to partner institutions. Like, if you're such a great fintech, why not open as an actual bank or as an actual broker dealer (note, I'm not saying that's the case here, as they are an RIA, but I don't know the protection that is entailed by that designation).
When you say "Madoff had $65B AUM", he also had like 10 employees, which is why he was able to hide the fraud for so long.
They keep your account at Apex Clearing, which is a very very large company that is not going anywhere anytime soon.
So, the key bit here is: do you trust them on that? They’ve got SEC filings and it’s as above-board as any other fintech. And next, are you prepared to argue with Apex for your money when/if they fail? And is this worth it to you for the product offered?
More importantly, though, that's not what I'm saying. Getting over the consumer fear about their financial security absolutely has to be a primary priority of this company, and if they don't address it, then they have a shitty business plan.
why should anyone "give them a break"? Aint running a charity here - if they provide sufficient value for the risk, then they will get customers without having them to "give breaks".
"Invest all your savings in our startup so after 30 years you'll have 1% more money in the absolute best case scenario" doesn't feel like a winning strategy.
Edit:
Also, they can sell their order flow to a market maker (HFT?), as it is non-toxic retail flow. That is basically how Robin Hood keeps fees so low.
2) Are you going to rebate your borrow fees back to investors? This is the other dirty secret way of making money. Many people don't realize that you can earn lending fees by lending your shares out for people looking to short stocks, and those add up to substantial amounts over time for a scaled asset manager. Do you keep this instead of rebating it fully back to your customers?
3) If the answer is no, you don't sell trade flows and yes, you will rebate your borrow fees, can you make a lifetime commitment that you won't go back on your word? Many people who start in this industry say they won't sell trade flows and then after they reach scale they change the footnotes and agreements and starting selling trade flows.
Is this known for sure? I thought the value of this order flow to them was the lack of adverse selection.
This is the real reason for low/no broker fees. Don't believe any broker that says they will input orders without taking their cut otherwise they (automated or not) would not exist.
Citadel and friends pay to trade with you because they think you’re dumb and they can make money off you. They’re giving you or your broker a better deal because they think they’re smarter than you. That’s all it is. They’d rather trade with you than with the median person on the market. Because they think you’re dumb.
You’re welcome to be insulted by that. It’s an insulting thing. But it’s not some grand conspiracy.
Trading with a highly sophisticated counterparty can be very costly and undo the small profit they have made from thousands of other trades.
This breaks the whole idea of a "market" where every buy puts upward pressure on a price and sales put downward pressure. Thus, a "farce".
That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced.
Gotta love brokers that don't have your best interest in mind. Who needs best execution? /s
This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements.
They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities.
So when exactly will that $60 billion of buy pressure hit the market?
1. source?
2. supposing this is true, what's their daily turnover? "60+ billion" sounds like a lot, but if that's their daily turnover that shouldn't be anything out of the ordinary.
Not that others won't naked short also, it is just they do not do it openly.
That's... working as intended?
> market makers provide a required amount of liquidity to the security's market, and take the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders. In return, the specialist is granted various informational and trade execution advantages.
You can argue such a system is inegalitarian or whatever, but if you want a reliable provider of liquidity that won't instantly vanish when there's market turmoil (ie. when you need it the most), there has to be some mechanism to compensate market makers.
its a scam and is a reason how Citadel makes $30,000,000,000 profit per year
Where are you getting "$30,000,000,000" (billion) in profit? Wikipedia says they only made $6.3 billion in revenue in 2023. Moreover, they were in existence for 22 years. Even if they only started "counterfeiting shares" in 2021, $30B in profit per year (so $90B in the past 3 years) seems absurd for only $60B worth of "counterfeiting shares" on their balance sheets.
60B is a balance at a specific date 12/31/2022, they trim the balance by the EOY and harvest losses.
the average balance is much bigger and fluctuates heavily given market demand.
UPD: I stand corrected, the market making arm only made meager $5,000,000,000 for the 6 months, so more like 10,000,000,000/year, not 28
https://www.nasdaq.com/articles/citadel-and-jane-street-set-...
https://en.wikipedia.org/wiki/Citadel_Securities
The market maker boogeyman is Citadel Securities, not Citadel LLC.
But even then, all trades are either eventually settled at some time t, or fail to settle, e.g. if the seller is not good for the shares. Any of these 2 events happening is reported outside of a single broker-dealer, i.e. public info. And to settle a trade, you will need the actual shares, that you've either bought or borrowed.
All this info, settlements, failures, stock buys & loans is visible to other parties in the market.
If your point is that the Citadel is breaking the law, and not reporting what they should, when they should, then that's a problem. But there would be so many other parties discovering it way before their annual financials are published.
https://www.sec.gov/newsroom/press-releases/2023-192 https://www.sec.gov/newsroom/press-releases/2017-11
> But there would be so many other parties discovering it way before their annual financials are published.
Looking at Bernie Madoff I'm not sure this is really the case...
also heavy usage of synthetic shares and derivatives to hide naked shorts
That’s not true, because, amongst other reasons, everything you’ve listed (synthetic shares/derivatives/kicking the can down the road) can be seen by others in the market.
(Naked) Short all you want, there’s nothing wrong morally with betting in that direction. But it will be picked up.
> So when exactly will that $60 billion of buy pressure hit the market?
Citadel needs to deliver the stock they sold on T+1 as of May 28, 2024. There's some allowance for failure to deliver, but the data is out there, if Citadel is routinely failing to deliver, you should be complaining about that, not about their financial statements.
Meanwhile, if Citadel wants to pay me fractional pennies more per share than a public exchange, and also my brokerage fractional pennies for the privilege, who am I to say no? Especially when the public exchange may charge me a fee to trade.
they use derivatives and heavily recycle buy/sell shares to keep kicking the FTD can down the road for as long as the market returns to their desired position.
Let's say I buy a share of F on Monday, my brokerage routes it to Citadel, because PFOF.
On Tuesday, I expect to get a share of F delivered at close of business, because T + 1.
If Citadel doesn't deliver on Tuesday, what happens?
Are you suggesting they would continue to not deliver the share I purchased for several days, by saying oh yeah, we'll get toast0 his shares tomorrow? That would be pretty upsetting, and I imagine I'd call my brokerage and ask them why they're dealing with Citadel if they never deliver shares on time.
plus even if there is only a single share authorized for stock exchange, there will be more than one in the float, due to synthetic shares: created when shares are borrowed and then reshorted, created to support derivative market (selling calls and buying puts). ALso borrow/rehypothecation mechanics is recursive, since shares are fungible, I can recursively re-borrow and re-short the same share, creating synthetic shares out of thin air, supported by nothing other than some bytes in the database somewhere, and not physical shares
https://news.ycombinator.com/item?id=26011135
>So when exactly will that $60 billion of buy pressure hit the market?
it probably did shortly after the statement, coupled with a likely similarly sized "sell pressure". They're constantly buying and selling things that's how the business model works
1. alternate trading systems are obligated to print their trades to the ticker, albeit at a slight delay compared to official exchanges
2. price is dictated by supply and demand, not the trade being publicly announced on exchanges. Trading volumes not being public probably has some non-zero effect on price discovery, but claiming that it has "no effect" is absurd.
Have any pointers to info on this? I'm looking to buy into some ETFs but I've been unable to find much information on balancing (I'd like to selectively manage my exposure to some stocks that are heavy in indexes at the moment).
Ultimately the AP (authorized participant) is incentivized to make ETFs available because they get to use supply/demand imbalances as an arbitrage opportunity.
> The creation and redemption mechanisms help ETF shares to trade at a price close to the market value of their underlying assets. When ETF shares begin to trade at a price that is higher than the market value of their underlying assets (at a “premium”), APs may find it profitable to create ETF shares by buying the underlying securities and exchanging them for ETF shares, and then sell those shares into the market. Similarly, when ETF shares begin to trade at a price lower than the market value of their underlying assets (at a “discount”), APs may find it profitable to buy ETF shares in the secondary market and redeem them to the ETF in exchange for the underlying securities. These actions by APs, commonly described as “arbitrage opportunities,” help to keep the market-determined price of an ETF’s shares close to the market value of their underlying assets.
http://www.understandetfs.org/creation_redemption.html
My understanding is that volatility is good for ETF APs because there are more arbitrage opportunities.
More to the point, just because they're smarter than you, doesn't mean you're taking a loss by trading with them. The public markets are shark tanks, and it's better for both sides to avoid it. Market makers can make money off the spread (eg. buying at $3.14 and selling at $3.16 and pocketing the difference) without the risk of getting run over by a hedge fund, and retail traders benefit through tighter spreads, which the market makers can offer because they know the typical retail trader isn't a shark.
so why don't the sharks use robinhood, which then they can do their shark thing there, but at a better price than before?
2. It doesn't have to be 100% effective. For every day trader that's beating the market and running over market makers with $1M orders, there's a 100 that's losing everything in ill timed trades on meme stocks. As long as there's less sharks than the public markets, they'll come out ahead.
In fairness to Robinhood, they did just release a desktop version[0].
[0] https://robinhood.com/us/en/legend/
In general, citadel wants to pay to trade with retail investors because it knows it isn't going to face adverse selection. So it will give them tighter bid/ask ratios (this is better for the customer) than they would get if they were trading in the open market, citadel isn't going to get hosed by one of them (because there's no adverse selection)
It's win win win
> I feel like most of what I read about payment for order flow is insane? Otherwise normal people will start out mainstream explainer articles by saying, like, “Robinhood sells your order to Citadel so Citadel can front-run it.” No! First of all, it is illegal to front-run your order, and the Securities and Exchange Commission does, you know, keep an eye on this stuff. Second, the wholesaler is ordinarily filling your order at a price that is better than what’s available in the public market, so “front-running”—going out and buying on the stock exchange and then turning around and selling to you at a profit—doesn’t work. Third, because retail orders are generally uninformative, the wholesaler is not rubbing its hands together being like “bwahahaha now I know that Matt Levine is buying GameStop, it will definitely go up, I must buy a ton of it before he gets any!” The whole story is widely accepted but also completely transparent nonsense.
https://advocacy.urvin.finance/advocacy/we-the-investors-pfo...
Not a win win.
Sounds serious, I wonder what it is...
>"410 The author deleted this Medium story".
doesn't look promising. The rest of the paragraph fails to state any concrete harm, instead focusing on abstract issues like "misalignment between these platforms and their customers", and "little by way of self-regulation ".
It seems very much like that bogus stat that HR departments were peddling 20 years ago about how they only hire the top X% of people because they reject (100-X)% applicants - it tells you nothing about the quality in the gap.
These systems don't have to actively attempt to front-run you or pro-actively make bad trades, they can just optimize for deal flow, which is enough to cause the customer to get a sub-optimal price.
The fact that 70k people signed a statement making a bunch of strong but vapid claims is umm telling
Let's take a longer money stuff excerpt:
>>> Some retail brokerages seem to make a lot of their money from payment for order flow. Others make less. Some big retail brokerages do not accept any payment for order flow at all: They still use this system (routing their orders to market makers), but they take 100% of the value in the form of price improvement for their customers instead of payments for themselves. Intuitively, you might think that the brokerages that get a lot of PFOF would get worse price improvement.
But, nope! Here is Bill Alpert in Barron’s:
Critics of retail brokers like Robinhood Markets condemn those companies for routing customers’ orders to market makers like Citadel Securities in exchange for payments. ...
The suspicion is that greater payments to brokers must be offset by less favorable execution prices. But that isn’t what a new study finds.
In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price.
But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing. Interactive Brokers ranked last in the execution pricing of the professors’ orders.
That's from https://news.bloomberglaw.com/mergers-and-acquisitions/matt-...
Excerpted Barron's: https://www.barrons.com/articles/payment-for-order-flow-sec-...
Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239
> creating an inherent misalignment between these platforms and their customers
is just speculative harm, and as to the other part about preventing risky trading - this is literally what Robinhood et al customers want!
Meanwhile PFOF actually does have proven benefits in that it reduces spread for retail investors.
To be fair, some of that is because its existence changes the pool of people trading on lit and thus increases spreads there. There are systemic effects that are a function of pfof that make it look better, and ofc there are a wide range of actors of varying quality...
The reason its bad is because its anti-competive and gives them information that no-one else has access to.
By trading against you, Citadel prevents any other potential market maker from trading with you. With less competition, the spread widens and even after price improvement, you're paying more.
PFOF also tells them who they are trading against but anyone else who just sees a quote doesn't know that.
Generally, things are very zero sum so wins all around are very unlikely. But some thinking is needed to track where the value loss and gains are.
Your argument seems reasonable but isn't borne out empirically
https://news.ycombinator.com/item?id=42378516
Suppose in some other industry, some monopolist consistently sells goods at a loss to drive out all the competition. In the last moments when they are doing this, yes its cheaper for you to buy from the monopolist at that moment. But after everyone is driven out of the market, you'll be paying more. Even though the monopolist is still the cheapest amongst all options.
I'm saying you're already in the "after" scenario here. You're saying that you can save a few cents with PFOF when you cross that 50 cents spread and yes that's true. But I'm saying that spread should be 25 cents and no-one is offering that because they've been driven out.
Now that I think about it, the more immediate consequence to you is that some of your order will not fill because PFOF exists, rather than you getting a worst price. Say you put a bid to buy at 100. And then I come along and want to sell at 100. Normally, you'd get to buy from me. But because my order is PFOF'd, Citadel decides that buying from me at 101 is a good deal so they do. This happens a few time with different sellers then you get fed up and/or the market moves. So you raise your bid to 150. Citadel sells to you at 149. You saved 1 off that 150 but lost out 49 from the trade you'd have gotten from me without PFOF.
Imagine you are a market maker: you offer 2 APIs. The first, you allow anyone to trade on. The second, you only allow traders who are doing less than 100k in volume per day (and don't allow users to have multiple accounts)
Which API are you able to offer tighter bid/ask spreads on? Why?
That's the point. Pfof is saying: the second API is so valuable to me that I'm willing to pay to obtain customers. In the worst case, there will always be the open-to-all API.
Your second example continues to show the lack of understanding. You're saying: without the market segmentation, somehow I have a wider bid ask. That's not right at all. The entity that gets bad spreads is going to be the entity that would take advantage of good spreads. That's the whole point. Maybe there's a point that vanguard ends up getting worse execution because it gets lumped in with the rest of the market, but the counterargument to that is essentially just volume: is the retail market big enough that if you didn't segment them onto a better spread that the overall market would end up with better pricing. The answer: maybe! In some things! Is that really what the people who hate pfof want though?
My understanding is that people who hate pfof are actually the ones benefiting the most from it. (ie because unsophisticated investors get better execution)
1. It segments the counterparty they trade with.
2. They get dibs on new orders arriving.
You're only talking about 1. I'm talking about 2.
1 is also bad because this segmentation also gives them inforamtion no-one else can get. But the chain of reasoning to concretely show why its bad (for someone getting their orders PFOF'd) is less obvious and longer.
> Imagine you are a market maker: you offer 2 APIs.
This is so wildly different from how market works. You'll have to clarify what you mean. If the only way to trade is through the API, then you'll offer infinite spread on both. If normal markets exist alongside, then I don't bother using either.
I don't find them convincing - why is it bad that someone paying for exclusive access to data gets exclusive access to that data? There are so many exclusive data vendors in financial markets, this one seems relatively low value
That doesn't really have anything to do with pfof (TD Ameritrade gives better execution and receives pfof)
https://news.ycombinator.com/item?id=42378516
This is very obvious in institutional FX. Pure "retail" flow will get quoted much tighter spreads by banks and market makwrs than you'll see on any ECN. Yes, it can get skweded against predictable flow, but a true "noise" trader won't be affected by that and will definitely be better off with tailored liquidity.
Unless you have a good high frequency predictor and low latency order management (you don't), you're going to experience adverse selection. Either because you're taking resting orders that HFTs are smart enough to avoid or because your resting orders get run over by informed traders.
Yes, absolutely. The best feeds (tightest spreads) are only given to specific clients who are requested to trade exclusively with them. If they detect you splitting your orders up between venues, they'll worsen your feed. The feed they'll send to public lit ECNs will generally be their worst (widest spread).
MM takes on risk, can offer tighter spread when not exploited (ex. HFT arbitrage)
Could theoretically take advantage by manipulating prices
But is already operating within the bounds of the existing public spread
The entire thing is adversarial and it's really just a choice of game you choose to play.
To the OP dayone1: What’s your concerns with 3 exactly? Double’s structure is innovating on the fee front like an extreme Vanguard 2.0, so overall the structure (even if 3 takes place like Vanguard) is still the best deal on the market for an individual.
To be honest, why would you even ask that? "Lifetime commitments" are ridiculous. It's simply not a promise that any founder or business owner could ever make. Businesses get sold, circumstances change, etc. It's better to just accept that as a risk factor and decide whether or not you'd be comfortable taking on that risk.
More importantly, founders also lie about their intent.
It's easier to trust owners when they commit and are ready to go to court over their promises. Ever heard of Lavabit? https://en.wikipedia.org/wiki/Lavabit
It's never ridiculous to ask. What's ridiculous is for founders to make their customers believe they're ethical when they're not. Let's ask then, and you don't have too high expectations.
Is there really no way to put a binding bylaw in incorporation papers that will survive a sale? Something like a land-use covenant, but for a corporation?
I'm not sure that's necessary for this particular case, but for something like private data exposure I've been playing with the idea that it's the only way to actually trust a company with your data.
one is to be upfront about it on every advertisement and service description... can't get any easier than this. and is as effective as the complicated canary shenanigans.
Did you even bother reading the thread? What happens when your company gets sold, and all the old promises are thrown out the window? This has happened many times before (just ask Palmer Lucky about Facebook logins for Oculus), and that is what people are asking is preventable, and your suggestion does nothing to solve that problem.
they get around this using platitudes, like "do no evil".
Lets say customers bought GME and GME shoot up. Citadel just waited out until the movement fizzled out. They were able to hold naked short position for prolonged period of time (basically printing fake shares) to artificially increase the float
Returning to the earlier poker table analogy, I mentioned that the operator with a local monopoly on poker tables, would be required to keep their rake low to keep their local monopolistic privilege, as an analogy to how market makers also have to keep their spreads in line with the NBBO (due to Reg NMS), in order to keep their privilege of executing orders on an ATS.
Is that really a problem if you're still getting NBBO (https://en.wikipedia.org/wiki/National_best_bid_and_offer)
Could you explain the downside of selling order flow if you're getting no worse than the current NBBO?
How do transaction fees compare with expense ratios of, say, Vanguard? I see that you account for them in your backtest, but it would be helpful to represent that in terms of an expense ratio.
We do not charge trade commissions. There are some SEC fees charged for trading across most major brokerages. The national best bid offer (NBBO) means you will get executed at the current best price for a given security across all exchanges.
"Bid/ask spreads of the underlying securities directly impact the costs to market makers to trade ETFs" from this .pdf: https://www.ssga.com/library-content/pdfs/etf/au/spdr-au-etf...
I’m really worried about putting my money into any startup after the Synapse collapse, where a middleman for lots of tech-forward not-a-bank companies collapsed, stranding customer money.
Robinhood and Wealthfront both started their business on Apex as well.
https://apexfintechsolutions.com/
It says my money would be SIPC insured, which means if anything goes missing (obviously not through loss of equity value, but through missing funds or a ledger bug), I get my money back, up to the SIPC limit, right? I just want to ensure this isn't the same situation with fintechs that say your money is "FDIC insured", but that only protects you if the bank fails, not if the fintech goes bankrupt.
I'm just really, really wary of new fintech products to save like .3% on fees when I hear all these horror stories of people trusting fintech startups with their money any then losing 95% of their deposits like the Yotta customers.
Zero interest until there is a very clear answer here.
[1] https://www.nerdwallet.com/h/category/banking
(I also sort of loathe the idea of needing to continually update a bunch of ACH information every year while I chase whatever bank is currently trying to draw customers with a temporarily decent rate.)
(And honestly the whole thing is kinda stupid every time I hit it. Businesses tend to give you shocked-pikachu-face when you can't use a CC due to the limit — like you've got to know these exist? And my limit is standard, as they go. And daily limits are trivially circumvented: you just spread the transaction across multiple payments spread out over time. In business, this hack^W method is called a "payment plan".)
They have branches in most major US cities I think.
Checks the boxes for me, personally.
But yea there's a CMA too
ostensibly the CMA offers better atm reimbursement, but then the brokerage debit card also does, so that's weird.
The major difference:
sweep in CMA is FDIC, the brokerage is SIPC (but held in treasuries). The underlying thing (US government ) is the same, but FDIC has way better turnaround. But because it's FDIC on the underlying bank (Fidelity has no banking charter), it's not clear to me how much benefit that even is.
FDIC turnaround is faster, but only for failure of the underlying bank, not fidelity. If fidelity fails, you'll still have some SIPC latency to resolve things, instead of single-business-day FDIC awesomeness.
(Note that SPAXX was up to about 5% 7-day yield within the last few months, IIRC, but currently 4.25%.)
i’ve only ever hit debit card limits when trying to buy like a car. if you’re hitting cc limits, i dunno, maybe you have more liquid cash where smaller interest rate increases are worth the squeeze.
edit: ok i totally forgot i moved the bulk of my ally savings into an ally invest account holding a vanguard money market fund bc the rate was higher. this is a little less work than opening an account with another bank at least. the rate was 5.4 and is now 4.5. ally savings account is at 3.8. cds, ibonds, money market funds, these are all vehicles i never used prior to covid but have since. chasing it all around is annoying, but i only take stock maybe every 6 months. there’s diminishing returns here since everything past the efund gets invested in an index fund anyway.
One does need to look around, whether for national or local, and for instance not all local credit unions which can get close to the rate you would pay on a mortgage advertise on the web.
more than can be said for those that trusted another YC fintech (synapse)
Usually not. Your best bets are your state banking regulator and AG. After that, the FDIC and Fed.
Someone on HN suggested getting the comptroller involved. I think I found a state office called the comptroller, but it might have been the federal one? In any case, the moment they showed up in a conference call the bank transferred me to someone important, stopped fooling around, and made the transfer happen. The person at the comptroller office never got past the asking questions stage, but the bank's behavior changed immediately in a way that suggested they recognized the smell of authority. So that's my keyword suggestion: comptroller.
The "in your name" part is specifically what I was looking for.
The thing that actually gives me the most reassurance is that they say definitively that they are a Registered Investment Advisor. In the Synapse situation, all the regulatory agencies were essentially saying "not my problem" because Synapse itself wasn't covered under any explicit regulatory regime. That doesn't seem to be the case here, but I'd feel better if the founders said something along the lines of "This is how we're different from Synapse..."
We are Registered Investment Advisor (RIA) regulated by the SEC.
As a startup, you must figure out how to convince ordinary people to change their family safety net. Full transparency, audits by a known firm, and an entire brochure/mini-site explaining every significant fintech failure, showing how my money would remain safe if that scenario happened again.
What? Their second largest bank, Credit Suisse, imploded only last year. They hold trillions because of their nominal neutrality (though their cooperation with western sanctions against Russians appears to be hurting this significantly) and banking secrecy laws that serve as shelter for proceeds for all sorts of crimes.
Nomenculture aside, depositors did not lose a single cent in that implosion, and it went smoother than the SVB one.
That's immediately the scenario that comes to mind when I see any of these offerings (this one might be perfectly legit, but the reality is that I have no way to know). Then I remember George Costanza exploiting a loophole to save money by seeing a holistic healer: https://www.youtube.com/watch?v=8uVSKgMpnuo
If a big bank launched this it would have $1B in AUM within less than an hour
I love the M1 product (and while I am not a Double customer, I love the value proposition). Note that ShareBuilder (eventually Capital One), FolioFN have tried and didnt get traction.
Fidelity has "Fidelity Basket Portfolios" and I'm assuming they have no traction -- the product is broken 3 of 5 days of the week, and almost nothing works. I could file a dozen Jira SEV-1 bug tickets "Fidelity Basket Portfolios" is so bad.
Chase has a basket product but it is barely surfaced on their OneVest menus.
SIPC protection covers against a brokerage firm failing, which in our case is Apex Clearing. We are not currently a brokerage so SIPC would not apply if Double goes bankrupt.
Dear @jjmaxwell4 -- I'm not really worried about your service given you're a layer atop Apex, however, this is a very common conversation happening right now on many forums -- could you clarify a bit more, how one would "get comfortable" with a new product?
I'm assuming the list is something like this, but that is an non-expert guess:
- Is the institution i'm interacting with regulated (in your case, Yes, Double is regulated by The SEC)
- Who holds my funds, and are they regulated (in your case, the funds are held by Apex Clearing, and if I understand correctly, Apex is a broker dealer regulated by The SEC)
- Are the funds held in my name or pooled in with other money? (in your case, I think the funds are held by Apex only in my name)
I think one of the problems with the Yotta/Synapse/Evolve collapse is -- its unclear how one even evaluates their level of risk.
It is also unclear how one validates SIPC coverage, like could I go to SIPC and enter an account number and validate the funds are actually covered somewhere across the layers?
Would be great for someone who knows this area to comment.
You can sign up directly with Apex (completely separate login) and view your holdings in your name in their web portal, along with all documents that Double sends you on your account activity. The process requires a bit of verification so I've written up a help article here on how to get set up: https://help.double.finance/en/articles/10262406-how-can-i-v...
They're basically criminals. A guarantee by Apex is worthless IMO.
pg 79: https://democrats-financialservices.house.gov/uploadedfiles/...
"Apex provides these same clearing services to many other introducing brokers, including Ally Invest, Betterment Securities, M1 Finance, Marcus by Goldman Sachs & Co., SoFi Securities, Stash Capital, Tastyworks Inc., TradeZero America Inc, and hundreds more"
Take them with a grain of salt.
I thank you for being upfront and honest about this. The tough spot you'll find yourself in, then, is that if any money goes missing between you and Apex, customers are completely SOL. This is not a theoretical risk, this is exactly what happened in the Yotta/Synapse fiasco. Even if I trust that you guys are much better technologists than Synapse, would I be willing to take that risk for a teeny, teeny reduction in fees compared to an index ETF? Sorry, not for me.
EDIT: Wanted to put an edit up here so that it doesn't get lost. Thanks for your response below - for me, that was the critical information I needed, that I can directly verify that my SIPC-insured funds are held by the SIPC-insured entity. That was indeed not the case with Yotta/Synapse (and, indeed, most fintechs who keep customer funds in an FBO account at a partner bank), so I really appreciate the clarification. FWIW, I think it might be worth it to add a small blurb in the "SIPC Insured" section saying that your insured funds can be verified at any time.
Kudos, you guys have thought through a good deal of the important details, and sufficiently assuaged my concerns.
We do not hold any funds ourselves. You connect your bank and ach/wire money to an Apex bank account. You can verify your holdings via apex anytime (see: https://help.double.finance/en/articles/10262406-how-can-i-v...)
The problem is that unbeknownst to users, Evolve had no record of what belonged to which user—it all came via Synapse on behalf of Yotta. And when Synapse went bankrupt, everyone pointed fingers about where the money is and who it belongs to.
With Evolve, money was just pooled into an "FBO" ("for benefit of") account, and not ledgered directly to individual users. This is apparently not the case with Apex since you can verify your balance with them directly. They report your balance, so if any money goes missing, you should have an insurable case with them directly.
Evolve not having their own ledge was exactly the problem.
> My own personal experience with Apex - I transferred measly GME positions out of Stash app (Apex) to Fidelity in June. My Apex/Stash account is still locked from this transfer. My CS requests have been escalated to the broker (Apex) repeatedly. Finally today, Apex confirmed they will unlock my account in 4 business days. That’s 34-36 calendar days after share transfer. All this DD is much smarter than me, but even in little ways these big explanations offer a simple reason for these shenanigans. I have NEVER had my account locked for share transfer past the confirmed transfer date for any other position. They had the gall to tell me today that they needed to speak with Fidelity directly to confirm receipt and Fidelity “received” my shares 3 weeks ago, which was 3 weeks after I initiated it. Why all the runaround?
Reconciliation costs a lot of money. They typically just watch the balance and and bark at the fintech for more money when it runs out. There are people at every bank calling partners every day demanding wires for overdrawn FBO accounts. Buyer beware.
Let’s say I invest $250k with you. From my research it appears the SIPC premiums on that amount would be more than $12/year.
How does that work?
off by an order of magnitude, you're saving 0.03% on fees
I'm also not sure I would trust any fintech startup from YC after Yotta and Coinbase.
Matter of fact, I increasingly find YC rewards unscrupulous and morally cavalier founders and products that does more harm to society than good.
i find myself increasingly growing wary of YC affiliated founders not to mention the obvious CCP money involved.
Apex Clearing's website is here: https://apexfintechsolutions.com/ They have 19M brokerage accounts and a lot of brands you've heard of got their start with Apex (Robinhood, Wealthfront)
We're US based and regulated a RIA by the SEC.
[1] https://www.velaw.com/insights/game-over-robinhood-pays-7-5-...
Also Apex is a big name in the brokerage world. They are a business to business company though, so most consumers never would have heard of them.
But not big enough to have a Wikipedia page? Are you sure they're not just a big name in the financial startup/casino/scam world?
Unfortunately, I won't use your product. While you do appear to be cheaper than Vanguard for a comparable product, I don't think the risk of switching is worth it. The primary risk I'd be worried about is your business model changing (or you getting acquired by legacy finance) and increasing fees down the line, at which point I'd feel like I'd want to switch back to Vanguard. I'm also worried about exposing myself to your organizational risk (e.g. your internal controls failing and an employe running off with the money, your accountant falling victim to a deepfake scam, etc.) which I suspect is going to be much higher than your competitors. For the additional .17%, I actually feel that Vanguard is a damn good bargain.
I think your product actually does have a lot of value for folks invested in crappy mutual funds or with some advisor taking a massive AUM fee, but I don't really think those consumers are generally lacking the information required to understand that your product is superior, I think they're just going for something different.
It's a tough spot. The market size is obviously tantalizing but I feel like the segments are all reasonably well served as it stands. For the folks that you're really targeting, I think it's very hard to beat Vanguard. Their corporate structure and huge size really gives them a massive advantage that seems hard to beat. Best of luck to you folks!
One piece I'm curious about is spreading investments around simply for more FDIC / SIPC insurances? Is that something that rich people do?
Do you mean ACAT fees? I haven't seen many accounts charging for ACH fees as those are basically free. Only Wise (Transferwise) charges for it from my experience.
If it's ACAT fees, a lot of brokerages (not Vanguard) will reimburse you the fees if the account balance you are bringing in is big enough, I've noticed.
For someone that has quite a bit of my portfolio in very low cost index funds, something like $40k does seem like a relatively low "fee" for avoiding risk, especially considering it's spread over many years.
That said, I do like the idea, and hopefully there are enough folks willing to tolerate the risk to provide a viable alternative to the big status quo brokerages.
I had to sign up, verify my email, tried opening an investment account, had to untick I’m a US citizen/resident and only then did your platform let me know I’m not welcome as a client.
Oh and PS there’s no way to delete an account is there?
Stocks are not my area of expertise so I gloss over a lot of details... maybe and equity trading specialist can chime in?
I found this PDF from State Street quite informative on the topic. We are working on our own data here as well and aim to share that down the line.
https://www.ssga.com/library-content/pdfs/etf/au/spdr-au-etf...
If the fee is $1/month, why does your form ADV state that fixed fees are $20/month? https://double-disclosures.s3.amazonaws.com/Double+Finance+A...
This is our current latest filed with the SEC:
https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_ia...
I'm sorry to sound negative, I really wish you all the best, but even from your post it looks like you had little to no idea what you are doing when you started this (you didn't know stock tickers are ephemeral?). And yet you are asking people to trust you with their money? With the only selling point being that you seem to be unsustainably cheap? What made you decide that you have the knowhow to do this well and safely?
Dealing with traders is where all the nightmare stories come from.
We are working on getting some more ESG focused portfolios directly live but it's very very do-able right now.
Thank you for mentioning this. ESG funds are the first thing that came to mind when I saw your post.
For the founder, have you thought about doing away with the 1$ for friction reduction while you scale given how tough the switching decision can be?
For the founder, have you considered using ACAT in incentives as a differentiated acquisition tool?
For the founder, are their “moments” people often switch their brokerage you could target aggressively? Ie I imagine Johnny software, 28 , is a hard sell to sit down and port their holding over from fidelity to save a couple of BPS, but maybe people starting their first job? Setting up a retirement plan? What’s your target “moment”?
What are some examples for real world tax loss harvesting of this versus just rotating between things like VTI, SCHB, and ITOT?
I can’t imagine it’s going to be meaningfully more tax savings versus the monumental pain in the ass of dealing with hundreds of lots of many different stocks.
Requiring people hold some minimum cash amount is just charging a fee with more steps involved.
And even the larger offenders of that approach are in the crosshairs: https://news.bloomberglaw.com/securities-law/wall-street-gia...
To be frank, I do not think it should require people to hold some minimum cash amount. Rather, the brokerage can require that buying securities with this reserve cash should be manual, and not automatic. That still gives savvy investors a way to do it manually.