[HN Gopher] Robinhood denies claims that it sold GameStop shares...
___________________________________________________________________
Robinhood denies claims that it sold GameStop shares out from under
its traders
Author : Alupis
Score : 226 points
Date : 2021-01-29 15:59 UTC (7 hours ago)
(HTM) web link (www.theverge.com)
(TXT) w3m dump (www.theverge.com)
| TheRealDunkirk wrote:
| > "And though traders may be outraged by the surprise,
| Robinhood's terms of service grant it permission to close a
| trader's position under a number of circumstances."
|
| The terms of service for EVERY service we use are entirely legal
| jargon for "we can do whatever the f*k we want to do with any
| data on our service, and you have no legal recourse." No matter
| what the company says about "privacy" or any other rights you
| think you have, buried in there somewhere is a clause that says
| that no matter what happens, you can't sue. What do you expect
| when you've abdicated the right to sue the company for something
| you think is illegal or injurious? It's supposed to be the
| bastion of last resort, to keep everyone honest. When the safety
| net of the legal system is gone (e.g., forced arbitration) -- or
| only used for one side, there's nothing to restrain these
| humungous companies which are running the world now. We're a long
| way past needing a legal reset on "terms of service."
| kahrl wrote:
| Terms of Service do not trump federal law and SEC regulations.
| nicbou wrote:
| In the EU, those would not be allowed. This is also prohibited
| by German laws, particularly with regards to apartment and
| employment contracts.
|
| > Under EU law, standard contract terms used by traders have to
| be fair. This doesn't change if they're called "terms and
| conditions" or are part of a detailed contract that you
| actually have to sign. The contract is not allowed to create an
| imbalance between your rights and obligations as a consumer and
| the rights and obligations of sellers and suppliers.
|
| This includes...
|
| > Terms which restrict how and where consumers can take legal
| action and obliging them to provide proof which is the
| responsibility of the other party to the contract.
|
| https://europa.eu/youreurope/citizens/consumers/unfair-treat...
| hinkley wrote:
| I hope some sociology students are documenting the hell out of
| this whole thing. There's so much juicy stuff going on.
|
| For a moment yesterday, I got sucked into this whole thing. I
| bought a few shares just to see if my brokerage still would allow
| it, then sold them a few % higher because it was bouncing all
| over.
|
| Then I remembered that I'd been asking myself how close the
| conversational tone in /r/wallstreetbets was to mob
| mentality/mass hallucination and thinking, "I'm no expert, but
| this doesn't look good."
|
| When the RH stuff started yesterday, I started thinking of
| another failure mode: horizontal aggression. If the incumbent can
| pit their opponents against each other, they can grind each other
| down while the incumbent sits back and waits for the blood to
| dry.
|
| It's hard not to see some of that going on too.
| sneak wrote:
| Linked fron the article is another one saying Apple and Google
| are mass deleting negative reviews of the Robinhood app in their
| stores:
|
| https://www.theverge.com/2021/1/28/22255245/google-deleting-...
|
| It's sort of crazy how all of these different things are eroding
| trust in all of these systems simultaneously. Some can trade, but
| not others, happy customer reviews are legitimate, angry customer
| reviews are not.
|
| This is a weird time.
|
| I'm glad that this sort of normally-invisible manipulation is
| being brought to light, however. People _shouldn 't_ be trusting
| these rigged systems.
| kbar13 wrote:
| mass deletion of negative reviews is automatic and has been
| done before if it looks like spam / brigading (which this
| probably looks like). i think it's a reasonable explanation.
|
| https://android-developers.googleblog.com/2018/12/in-reviews...
|
| https://9to5google.com/2018/12/17/play-store-anti-spam-revie...
| sneak wrote:
| I don't think the negative reviews of Robinhood in the last
| day qualify as "spam" under any definition with which I am
| familiar.
|
| I also see nothing wrong with brigading, if you are an actual
| legitimate user of an app and are unhappy with it.
|
| Businesses solicit positive reviews all the time.
| tptacek wrote:
| Every notable online review venue works to resist canvassed
| reviews, which break the whole concept of online reviews.
| sokoloff wrote:
| Almost every free iPhone app I install has a "enjoying
| our app? Rate it in the app store!" interstitial at some
| point in the user journey.
|
| Is that "working to resist canvassed reviews"?
|
| (I agree they _should_ ; I don't agree they _are_
| resisting it.)
| FireBeyond wrote:
| Maybe more tangential, but isn't that the app itself
| asking, like a gatekeeper? I think if Apple generates
| that message or its triggered, then it's one-shot - if
| the user says "No", it will never be seen again (to be
| clear, to me and most, this is desired behavior).
|
| So instead you have the app asking things like this, or
| "can we send you notifications?", and so if you say no,
| it can ask later, and not trigger the OS interaction
| until just-in-time.
| tptacek wrote:
| It is not my claim that any online store does an
| effective job of policing canvassing, only that they all
| attempt to do so. No crowdsourced online review source is
| trustworthy. But they're untrustworthy because of
| canvassing.
|
| I'll not also that soliciting a review of an app is not
| quite the same thing as organizing an effort to get a
| huge directional shift in reviews.
| sokoloff wrote:
| Agreed. Both are pretty clearly canvassing though, in my
| estimation.
| spunker540 wrote:
| It'd be neat if rather than just display a lifetime
| average they displayed a stock ticker for the ratings.
| You could see the app was good but then very lowly rated
| for a few days before ticking back up for example
| kbar13 wrote:
| yeah i'm not saying robinhood is in the right here, i
| personally. i just think that this may not be an example of
| apple/google conspiring to take action because of any
| triggers from the past two weeks' events.
| tptacek wrote:
| Your theory here being that Google and Apple are in on the
| scheme, which is to prop up a couple of hedge funds that were
| short GME, the most notable of which secretly still are short
| despite announcing having covered their position, because
| Google and Apple are big companies and big companies... like
| hedge funds? Or are in cahoots with Robinhood in some kind of
| Silicon Valley solidarity thing?
| spunker540 wrote:
| He never suggested any conspiracy. He just noted how a
| confluence of events are really dramatically displaying our
| reliance on huge centralized services all at once. Between
| Trump and Parler de-platformization a few weeks ago to RH
| only allowing sells while Google and Apple clean up their
| reviews for them.
| sneak wrote:
| Not at all; my "theory" is that a lot of large institutions
| in our society that people put trust in to make decisions
| based upon are really way more arbitrary and less fair than
| is generally assumed.
|
| Most people don't think about it because they never bump up
| against the invisible walls in normal use. Suddenly, they are
| on display for millions.
|
| No grand conspiracy, just a widespread culture of "don't
| worry about how it works, we'll tell you if you win."
| tptacek wrote:
| I'm lost. Explain to me why it is you think Apple and
| Google are removing these reviews.
| sneak wrote:
| To ensure that developers continue to develop for their
| platforms and users continue to turn to their platforms
| for implicit advice about apps, the same reason they do
| most things in their stores.
|
| Apps with large install bases are implicitly valuable to
| the platform as they are popular with phone-buying
| customers. It's not in the platform's interest to
| alienate the developers of such apps as those apps,
| together, cause people to buy that platform's devices to
| run them. The incentives are aligned.
|
| If I distributed VPN malware via enterprise certs, I
| would lose my developer account. When Facebook does it,
| they lose the enterprise cert.
| tptacek wrote:
| If the secret goal here is to make sure that lucrative
| developers all get warm reviews, why don't all lucrative
| developers get warm reviews? Apple makes in fact not all
| that much money in the scheme of things, even in the
| just-the-app-store scheme of things, from Robinhood.
| sneak wrote:
| They do.
|
| Go look at the review scores of all of the top apps in
| the app store. None are below 4 stars, unless they are
| apps for services where users don't have much of a choice
| in apps, such as crap companion apps for hardware or
| national services that people are forced to use.
| pvg wrote:
| So the fact this looks as one would expect without
| nefarious manipulation is proof of nefarious
| manipulation? Your argument is still a little difficult
| to follow.
| tedunangst wrote:
| This is obviously part of google's stadia play to bankrupt
| GameStop. Can't you see it?
| kvetching wrote:
| There is plenty of screenshots floating around of people getting
| their shares sold. The peak at 9:30ish which caused them to stop
| selling the stock had some very interesting screenshots. Some
| people had their shares automatically sell because they had them
| set to sell at a high price, and somehow the market had demand at
| that high price.
| valuearb wrote:
| How do we know these customers didn't sell their own shares?
| Dirlewanger wrote:
| What's more likely: multiple Robinhood customers all colluded
| in a very short time to make it look like RH sold their
| shares without their consent, or RH actually did this?
|
| Occam's razor...
| valuearb wrote:
| What's more likely.
|
| Customers regretting a bad trade use the hoary old claim a
| "glitch" to try to get broker to reverse it, post about it
| to try the ol social media shaming to ratchet up the
| pressure, and dozens of copycats do same?
|
| Or Robinhood decided to start driving GME price down with
| forced client sales to make the DTCC increase their
| collateral requirements and force them into bankruptcy so
| they can end this madness?
|
| What does Occam say?
| Dirlewanger wrote:
| Arguing in bad faith for retail investors isn't going to
| help.
|
| And if the latter is indeed true, it's textbook market
| manipulation by RH to save their own ass, and I hope RH
| is punished to the fullest extent of the law.
| valuearb wrote:
| Most retail investors are just like WSB members, clueless
| newbs who know nothing about how the market works and it
| doesn't take many to try the dumbest Hail Marys possible.
|
| Occams razor tells you it's not market manipulation
| because Robinhood wouldn't last long enough for the law
| to do anything.
|
| Do you really not understand how margin collateral
| requirements work, how close to bankruptcy this trade has
| pushed Robinhood, and how dangerous that is even for
| "winning" GME traders?
| motohagiography wrote:
| The last year has illustrated a new kind of "platform risk,"
| where I think we always tried to diversify exposure to them in
| architecture, security, and supply chains, but it's as though it
| has finally trickled down to individuals.
| SpicyLemonZest wrote:
| Platform risk has always been a factor in finance. That's a
| large part of why retail investing is regulated so heavily:
| retail investors expect an abstraction layer where your
| counterparties will always be there and your trades will always
| be settled, even though the underlying market often doesn't
| work that way.
| driverdan wrote:
| How is this new? Platform risk has always existed. One of the
| biggest in the past 10 years being Mt Gox.
| TameAntelope wrote:
| The new risk that's I'm seeing exposed here is populist outrage
| can tank your business even if you've done nothing wrong, but
| operate in a space that isn't intuitive or won't allow you to
| act intuitively.
|
| Finance is complicated, and often unintuitive and yes, the
| rules here tend to favor the large movers (at least larger than
| retail investors). How do you operate a business for retail
| investors in an environment where the rules will _force_ you to
| screw over your retail customers (one could argue the "real"
| customers are the consumers of the retail investor's trade
| information but let's set that aside for a second) once in
| awhile?
| whatshisface wrote:
| You explain the rules to them as clearly as possible when
| they join, and put in alarm bells to sound when your margin
| account is getting low. Robinhood could have had a ticker on
| their homepage showing how close they were to being forced to
| stop trading, for example.
| [deleted]
| alexpetralia wrote:
| Yes, Dominion Voting Systems got hit by this as well.
| enumjorge wrote:
| I thought a large part of Robinhood's appeal was that it made
| trading more accessible to retail investors. I think the risk
| here is more running a business where the rules force you to
| screw the very audience you're trying to target.
| ibraheemdev wrote:
| In an interview with the Robinhood CEO, the host mentioned that
| Robinhood is owned by a hedgefund which has a short position in
| GME. Vlad Tenev did not deny this claim, but I could not find any
| proof. Is this true?
| cmckn wrote:
| As I understand it, Robinhood had a cash problem because of the
| various collaterals required for high-risk securities during the
| clearing process. When each share traded needs a high amount of
| collateral (1:1, even), and you have a high number of those
| trades happening, you might not have the cash to pony up.
|
| I think this is a downside to their business model (and probably
| moreso their scale and age). There are many upsides to their
| business model.
|
| The interview I saw with their CEO on CNN was laughable. I would
| have a lot more respect for the company if the CEO could get in
| the weeds a bit more. The reality is that what Robinhood and most
| retail brokers provide is a convenient illusion, hiding the
| complexity of trading securities. Why can't they say that?
|
| Edit: I almost certainly don't know what I'm talking about; but
| hey, this has been a fun story to follow, eh?
| nayuki wrote:
| An interview with Webull CEO Anthony Denier explained much more
| about the underlying mechanics of clearing houses, collateral
| requirements, and the Deposit Trust Company (DTC).
| https://www.youtube.com/watch?v=4RS4JIEVyXM
| viscanti wrote:
| Apple trades an order of magnitude more per day than any of the
| stocks that were halted. Somehow the clearinghouses have no
| trouble with the Apple volume.
| JumpCrisscross wrote:
| > _Apple trades an order of magnitude more per day than any
| of the stocks that were halted. Somehow the clearinghouses
| have no trouble with the Apple volume._
|
| The clearinghouse had no problem with GME volumes either.
| They just required collateral. Had Robinhood _not_ been able
| to meet its obligations yesterday and thus gone under, that
| collateral would help settle its trades with other
| brokerages.
|
| Collateral requirements are re-calculated daily. That means
| there is risk between the last collateral calculation and
| where an asset is trading today. That risk is a function of
| volatility. So for a stock like Apple, the DTCC may only
| require 2% of the value of the trade be put up as collateral.
| For a stock like GameStop, it may require 100%.
| pgwhalen wrote:
| It's because considerably less capital is required to clear
| an Apple trade, because it is a much less volatile stock.
| usmannk wrote:
| Firstly, this isn't true. Just this week AMC was trading tens
| of billions of dollars worth of shares per day, which is
| about equal to AAPL. GME is seeing >twice as much.
|
| Second, the insane amount of volatility and concentration in
| these tickers makes the clearinghouses charge the brokerages
| way way more. You have fees (quoted in %) for expected change
| and also lack of diversity.
| dalbasal wrote:
| Definitely a fun one.
|
| A recurring theme when these things happen is people being
| incensed as they peek at the way things work. We scream
| "obvious market manipulation" and then learn how normative this
| is.
|
| This story has been exceptionally good to follow because the
| mechanisms, as well as one half of the trades are all
| relatively simple and public. This isn't a scheme with super-
| complicated instruments and acronyms making their first
| appearances in the news. It's a simple strategy. Simple stocks.
| Simple shorts. Simple companies.
|
| These /wsb nutters just found stocks that was aggressively and
| irresponsibly shorted. I've heard 140% of the total shares in
| existence. In theory (because who knows how tf it actually
| works irl), they now need to buy shares in order to sell them
| at the contracted price. There are only so many shares for
| sale, and the buyers have no choice. The /wsb nutters (and now
| also everyone who hates hedge funds) are holding to spite them.
|
| Meanwhile, brokerage CEOs are hinting (and more) at market
| integrity-level issues yesterday. Solvency of clearing houses
| and other infrastructure stuff that we only hear about during a
| scandal.
|
| This kind of makes sense, there are theoretical market
| conditions where prices go to infinity... which is the ultimate
| stretch goal for wsb right now.
| iamacyborg wrote:
| > In theory (because who knows how tf it actually works irl),
| they now need to buy shares in order to sell them at the
| contracted price.
|
| This assumes that the old shorts haven't already been closed.
| Existing shorts could very well just be those that've been
| created within the last couple days at the current overvalued
| price.
|
| > Meanwhile, brokerage CEOs are hinting (and more) at market
| integrity-level issues yesterday. Solvency of clearing houses
| and other infrastructure stuff that we only hear about during
| a scandal.
|
| Yup, the Chairman of Interactive Brokers was pretty explicit.
|
| > We are worried about the integrity of the marketplace and
| the clearing system
|
| https://www.cnbc.com/2021/01/28/interactive-brokers-
| restrict...
| dalbasal wrote:
| Riddle me this, if you know...
|
| How is it possible that a $20bn company threatens the
| stability of clearing houses. Tesla moves by $20bn
| regularly. How does one affect the clearing house as a
| whole differently from the other?
| SuoDuanDao wrote:
| It looks to me as if there are more stocks sold short
| than people are willing to sell back. The brokerages have
| plenty of money, but if 140% of stocks are shorted,
| delivering them all to their rightful owners is obviously
| difficult.
|
| If that is in fact the case, the only ones who could
| prevent a full-blown market meltdown is Gamestop if they
| issued the missing 40%.
| iamacyborg wrote:
| It's been explained by other people in the comment
| section already much better than I could do.
| wavefunction wrote:
| Robinhood wasn't fulfilling orders though as far as I
| understand it? More like lead generation for Citadel, their
| market-maker? That seems like an issue for Citadel to be
| concerned with rather than Robinhood.
| astrange wrote:
| Robinhood is their own clearing broker. They send some market
| orders through people like Citadel Securities because it
| improves the price, but not all of them.
|
| (Note, RH was fined by the SEC for possibly not improving the
| price as much as they could. But they were not giving you a
| bad price, it was still better than the NBBO price!)
| fsociety wrote:
| I think the PR strategies of these companies is something along
| the lines of, say the vague things which have no risk of
| backlash as opposed to explaining what happened which has
| higher risk of backlash.
| astrange wrote:
| > As I understand it, Robinhood had a cash problem because of
| the various collaterals required for high-risk securities
| during the clearing process. When each share traded needs a
| high amount of collateral (1:1, even), and you have a high
| number of those trades happening, you might not have the cash
| to pony up.
|
| Something like that. But note that it isn't related to margin
| trading - Robinhood has to post their own cash as collateral
| with NSCC/DTCC, they can't use their customers' cash. So if a
| customer wanted to opt out of the margin account this wouldn't
| actually help.
|
| (I don't know what this rule is for, but it's in the rules.)
| nabaraz wrote:
| Here is my quick math:
|
| Tradeable float: 47M
|
| Top 3 holders: Fidelity, Blackrock, and Vanguard: 27M
|
| Cohen: 9M
|
| Half of Robinhood users own at least one share: 5M (conservative)
|
| That leaves us with 6M shares, and with a short interest of 71M
| held short and ETFs like XRT buying them, it is likely there
| aren't enough shares.
|
| The only way to resolve this is i) Gamestop issue more
| shares/shelf-offering. ii) shorts go bankrupt and/or
| clearinghouse/brokers take the bill.
| gruez wrote:
| >That leaves us with 6M shares, and with a short interest of
| 71M held short and ETFs like XRT buying them, it is likely
| there aren't enough shares.
|
| This is a non-issue, see sibling comment:
| https://news.ycombinator.com/item?id=25961536
| kgwgk wrote:
| XRT has not been buying this week: the AUM are down 80%
|
| https://www.bloomberg.com/news/articles/2021-01-29/the-games...
| dragontamer wrote:
| Or you just borrow shares from Blackrock to sell to everyone
| else who wants shares.
|
| Aka: short selling. Yes, short-selling creates "virtual new
| shares". Its only an issue if the company gets acquired. The
| name of the game is to buy low sell high. Short selling inverts
| it by selling high and then buying low at a later date.
| arcticbull wrote:
| They're still short roughly 100% of float.
|
| That's almost 23 billion dollars. With this much short
| interest the borrow fee must be close to 100% APY [edit: 35%
| APY]. There's really no good way to wait it out for the
| shorties. They're getting squeezed by the borrow rates,
| margin, and WSB.
| dragontamer wrote:
| > They're still short roughly 100% of float.
|
| My overall point is that looking at the float is almost
| meaningless.
|
| Days to cover is arguably a more important figure (how easy
| is it to buy / sell GME? Since GME has such high volume in
| the past few days, its not really hard at all to find
| shares right now).
|
| You're right that the borrow-rate is also important to look
| at, but the short-float doesn't necessarily correlate with
| the borrow rate. You absolutely can't state facts like:
|
| > With this much short interest the borrow fee must be
| close to 100% APY.
|
| That's... just not how this works.
|
| EDIT: I looked up some public information:
| https://iborrowdesk.com/report/GME
|
| Seems to be 35%/year right now for GME shorts. If a GME
| short borrowed at $300, the stock price needs to fall to
| $200 by 2022 before they lose money. Do you really think
| GME can be propped up above $200 for a whole year?
|
| If they short sold months ago at lower borrow costs,
| they've basically would be in the position to wait it out
| longer than most bulls who are just messing with 3-month
| call options.
|
| > There's really no good way to wait it out for the
| shorties.
|
| Selling ITM calls (and maybe hedging slightly by buying an
| OTM call) seems to be the obvious bear trade that would be
| doing well under these circumstances. The theta on these
| call options are ridiculous. That brings theta over to your
| side.
| alexpetralia wrote:
| Not all short sellers entered their position at $5. Many
| have come in at $100 and $200, etc. They will not
| necessarily not face the same short squeeze, but you're
| right they will probably still face the same borrow rates.
| alexpetralia wrote:
| Without assuming naked short selling, how could the 71M of
| shares sold short find "locates" for their positions?
|
| I would imagine that a short seller locates the shares, borrows
| them, then sells them. That is say 100 shares on loan. The
| other side of that trade - the buyer - now owns the shares.
| That buyer can lend those same shares out to another short
| seller - say 100 shares again. Now we have 200 shares on loan.
|
| I don't see why someone necessarily has to lose money unless
| you introduce credit risk (which in the non-theoretical case
| you absolutely should). Wouldn't you just have to unwind each
| of these loans?
| lazyasciiart wrote:
| Sure. The way to unwind the loans is for the people who
| loaned them to give them back, and then the people who bought
| them to sell them back. So shortSeller2 gives back his loaned
| shares to Buyer. But Buyer _sells_ them back to shortSeller1
| - and he doesn 't have to sell them back for the same price
| he bought them, and he doesn't have to sell them to the same
| person. So he actually sells them to whoever will pay him the
| most. ShortSeller1 is paying $1/day to borrow the shares, and
| he sold them for $20. It's 5 days after the sale, and today
| Buyer1 is asking for $40. ShortSeller1 promised to return the
| shares after 7 days. What can he do to not lose money?
| tedunangst wrote:
| Nice to see the half of RH holds GME factoid still in
| circulation.
| ruph123 wrote:
| What I don't get is: Now the stock is clearly overvalued. Doesn't
| this make shorting it now so much more attractive?
| malandrew wrote:
| Technically yes, but as they say, the market can stay
| irrational longer than you can stay solvent. Anyone considering
| shorts should go spend some time in r/wallstreetbets and figure
| out if that is a group they'd want to play chicken against.
| alexpetralia wrote:
| It feels like standing in front of semi-trailer hurtling
| towards the edge of a cliff.
| aphextron wrote:
| >What I don't get is: Now the stock is clearly overvalued.
| Doesn't this make shorting it now so much more attractive?
|
| It sure does. But good luck timing it. The whole point of a
| short squeeze is that the market can stay irrational for longer
| than you can stay solvent.
| hntrader wrote:
| Yeah, it's more attractive to short it compared to 2 weeks ago,
| but consider:
|
| (1) Price is determined by supply and demand, not one person's
| evaluation/perception of value. DOGEUSD was useless 3 months
| ago and is still useless (even more useless than GME), but
| shorting it then would've blown you up because of demand
| exceeding supply. The volume of the incoming retail flow is
| hard to predict, if enough retail people ascribe aesthetic
| value to it, the price will go up.
|
| (2) Borrow is extremely expensive because of high demand for
| the relatively small float, so you need very significant edge
| to justify the high borrow costs.
| enraged_camel wrote:
| Their "democratize finance" slogan serves the same purpose as,
| and means as much as, Google's "do no evil" slogan: it's a
| cynical ploy to trick naive rubes into joining and/or using the
| services of the company.
| awefasdfasdf wrote:
| Right. Instead of behavioural surplus generated through search,
| it is generated through stock activity.
| acct776 wrote:
| From the makers of "Julian Assange is an Intelligence Agency",
| it's "Citizens Talking is Illegal"!
| cwkoss wrote:
| They don't want to democratize finance. They want to make naive
| retail investors feel excess confidence so they can sell more of
| their dumb order flow.
|
| Their interface is horrible for finding any information you'd
| actually want to use to make an investment decision. They are
| good for easy no-fee trading, but you constantly have to avoid UI
| dark patterns pointing you towards sub-optimal decisions.
| bondarchuk wrote:
| Their interface is just laughably, inexcusably bad. The stock
| price charts don't even have labels on the y-axis! No really,
| check it out!
| https://blog.robinhood.com/news/2017/10/31/robinhood-now-on-...
| FireBeyond wrote:
| Right. You can say its hyperbole or "locker room talk" but in
| situations like this, it's very clear that a large part of the
| financial sector is _absolutely sincere_ when they look at
| retail investors as what they literally call "dumb money",
| "dumb flow".
| kasey_junk wrote:
| "Dumb money" is a particularly poor bit of jargon but as it's
| used in finance it doesn't really mean that the finance
| sector thinks a person is a rube or stupid.
|
| It really means you think an order doesn't imply any
| directionality in the order book. Most orders don't! Most
| orders happen because of things outside of the markets (I've
| retired, I'm rebalancing my portfolio, my kid is going to
| school, I got paid so I'm buying into my retirement fund).
|
| Those orders are not indicators that the market is going to
| move. This is in contrast to a hedge fund unrolling their
| position. That act will impact the market.
|
| So for instance while Melvin was taking a bath closing out
| their shorts they were "smart". But my index fund sell that
| made me money was "dumb".
| [deleted]
| Hnsuz wrote:
| Lies lies.. Robin Hood bye bye
| xhkkffbf wrote:
| A margin call is a painful thing. Brokers have always reserved
| the right to sell shares to satisfy a loan. It's nothing new or
| unusual.
|
| If you want to gamble with the big dogs, well, this is the price
| you pay.
| SmokyBourbon wrote:
| RTFA
|
| "But these investors told The Verge they didn't have options in
| GameStop or AMC and hadn't purchased the stocks on margin. They
| had purchased the shares outright, they said, and were planning
| to hold onto them."
| [deleted]
| Armic wrote:
| All robinhood accounts are by default margin accounts:
| https://robinhood.com/us/en/support/articles/robinhood-
| accou....
| rococode wrote:
| Enormous difference between having a margin account and
| trading on margin. A margin account simply means you're
| allowed to trade on margin, not that you have actually done
| so.
| aphextron wrote:
| >Enormous difference between having a margin account and
| trading on margin. A margin account simply means you're
| allowed to trade on margin, not that you have actually
| done so.
|
| You're technically trading on margin when you open a new
| account and trade before your cash has cleared. This is
| most likely what happened.
| cjcole wrote:
| Ok, this makes sense, thanks.
|
| Still, this is a horrible message to show a user who is
| in that situation and who did not place a sell order
| themselves (message wording from the article):
|
| "We've received _your order_ to sell [#] shares of
| [stock] at the best available price."
|
| This is poor communication from RH. A preventable own
| goal.
| thatguy0900 wrote:
| Yes, but money takes a few days to clear. If you open a
| robinhood account right now, deposit 1000$, then buy 500$
| of stocks you will be buying on margin because the money
| hasn't cleared yet. How many people buying gme waited for
| the cash to actually be in their account before buying?
| In a strictly cash account you would be forced to wait,
| invisible margin accounts was one of robinhoods
| "innovations"
| duckfang wrote:
| Gotta love how that HFT'ers and similar can buy,
| finalize, sell, finalize in microseconds...
|
| But our trades take days.
|
| Gee, I wonder why there's so much hate?
| bigtunacan wrote:
| This is directed at thatguy0900, but we have reached the
| reply nested limit...
|
| What you and many Robinhood users probably are missing is
| that your trade actually does take days. Actually go read
| the Robinhood settlement period info.
|
| https://robinhood.com/us/en/support/articles/withdraw-
| money-....
|
| This is not explained clearly, but it is essentially 3
| days to settle (T+2). So if you sell a position you don't
| have the cash to buy for three days. If you have traded
| on Robinhood you have probably noticed that you
| "immediately" have the buying power from the shares you
| sold. That's not your cash, because it hasn't settled.
| For three days that's margin and therefore you could get
| a margin call.
|
| The instant deposit is limited to $1000 (margin). But
| there were people saying they were forced to sell out of
| much larger dollar holdings. Those were probably people
| that sold out of one stock holding and then immediately
| bought into GameStop, AMC, etc... So they likely believed
| they were buying with cash, but they were in reality
| buying on margin.
|
| Just to be clear, I don't think this is a good thing at
| all. A brokerage should not be invisibly providing you
| with margin, it should be very clear to users that this
| is happening.
| thatguy0900 wrote:
| Your trades don't take days, depositing cash into your
| account does. I imagine that applies to them as well,
| they just all already have 2 billion in there. They will
| also have margin accounts that gives them instant
| funding, like you do. Addmitedly I doubt they get their
| margin orders canceled very much when they buy risky
| things.
| thinkmassive wrote:
| Hopefully this becomes more widely understood. It's
| definitely not obvious enough for their target market to
| understand, and it's not a stretch to say they try to
| obscure it.
| jMyles wrote:
| You're saying that you read this to mean that all trades,
| even done in what otherwise appear to be cash terms, can be
| margin called?
|
| If that's the actual intent of this document, it is
| substantially misleading.
| Armic wrote:
| Not quite - it seems like when you deposit cash, some up
| to all of it is made available immediately for trading if
| you're on the default account settings. My guess is that
| most users believe that when they buy stocks with this
| money, they think it is cash when it is in fact margin,
| and these are the people who got margin called.
| robjan wrote:
| They specify "options in GameStop or AMC" but if you have
| margin on any instruments or options which are at risk of
| being assigned you will also get margin called.
| UShouldBWorking wrote:
| I always thought Reddit started as a response to people
| replying without reading the article. It was I, I "read it".
| Of course now if for children to complain about their parents
| and boyfriends, but it used to be great.
|
| I would love a site like, I read it.com where you would be
| encouraged to write a short question about the article that
| needed to be anawered before being able to comment.
| [deleted]
| Triv888 wrote:
| Next up: Google denies deleting thousands of 1-star reviews for
| the RH app in the Play Store...
| Jackson12 wrote:
| Honestly this is a terrible look for Fintech. There's no
| conspiracy here. The legacy brokers who are way more tied to
| "Wall Street" have handled this a lot a better. These problems
| are being caused by incompetence at Robinhood. Someone needs to
| be held accountable.
| xapata wrote:
| Isn't that a standard practice for brokerages -- loan out the
| shares that your clients are holding? I remember Ally Invest sent
| me some notice that I'd be receiving a cut of the profits when
| they loan out my shares.
| secondcoming wrote:
| IANAL but I think they can only do that if you've bought those
| shares on margin. They _may_ still be able to loan out shares
| you've 100% paid for unless you explicitly tell them not to.
|
| Denying RH the ability to loan out shares was a tactic
| discussed on WSB
| bigtunacan wrote:
| They can loan your shares out whether they are bought with
| cash or margin. Some brokerages allow you to opt of loaning
| your shares to short sellers. Robinhood pays you part of the
| interest made if they lend your shares out, but as far as I
| know there is no way to opt-out of share lending on
| Robinhood.
| llampx wrote:
| Its not standard in that you can choose not to lend out the
| shares, and for the GME situation, you expressly DON'T want the
| shares to be lent out to the shorters.
| xapata wrote:
| Yeah, but you might have to explicitly opt out. It's probably
| in the fine print of your terms of service.
| ur-whale wrote:
| "Don't let the customer see how the sausage is made lest they
| rush to puke in the back alley" is rule #1 for very many
| businesses.
| tombert wrote:
| Honest question; if I had a magic wand and tomorrow banned all
| short sales, what would be the negative side-effects? From a lay-
| person's perspective, short selling seems pretty horrible, but
| very often I find that there are variables to this that I do not
| fully understand, and I know some people here are more
| financially literate than I am.
| graeme wrote:
| Short selling unearths fraud. Check out some of the shorts
| Muddy Waters had against fraudulent Chinese companies, or the
| short positions against Wirecard. The latter was a complete
| fraud aided by German regulators and finally taken down by
| shortsellers and the Financial Times.
| KerryJones wrote:
| ^ This.
|
| A great book on a specific example is David Einhorn in
| "Fooling Some of the People All of the Time". He routinely
| finds fraud and shorts them, in this case, Allied Capital.
| octo_t wrote:
| One core place that shorting is key (which isn't touched on
| much) is shorting/going long on commodity futures. Very
| simplified example below:
|
| If I'm an airline (and my business is dependent on the price of
| oil) and I think the price of oil will go up, I will hold some
| amount of oil futures at the current price. If the price of oil
| rises, my company is "hedged" against that rise. This is good
| for the buyer of the commodity. If the price of oil goes down,
| I lose on my future, but my business is fine overall.
|
| Correspondingly, if I'm the seller of a commodity (I own an
| oilfield), I might short oil futures, in case the price goes
| down. I make less money selling my oil, but I hopefully make
| some back on the short
| Heliosmaster wrote:
| For sake of completeness, you just described a "Married Put"
| notyourwork wrote:
| I agree! My opinion is that options market is similar to the
| derivative market we got into with bundling mortgages up.
|
| Its effectively putting a layer on top of something and the
| confusion gives those involves in the abstraction ability to
| make money on top of the real economy.
| yowlingcat wrote:
| Great question, and historically the answer is hyperinflation.
| In fact, there was one very well known historical case
| involving the Weimar Republic...
| MrMan wrote:
| without short selling market down moves become more crash-y -
| short sellers buy (to realize profit) as the stock goes down
| which tends to support the price. without buyers, an out of
| favor stock might keep going down in price and have maybe no
| willing buyers! and that also affects spreads, because market
| makers hate volatility.
|
| oversimplified but real
| fairity wrote:
| Shorting stocks, in general, is a beneficial action for the
| market because it helps prevent shares from becoming
| overvalued.
|
| I think this situation has actually highlighted the fact that
| shorting stocks needs to be easier. Currently, it's too easy to
| purposefully trigger a short squeeze.
|
| With the goal of efficient prices in mind, short squeezes are
| bad, and enabling shorting is good.
| jMyles wrote:
| > With the goal of efficient prices in mind, short squeezes
| are bad, and enabling shorting is good.
|
| Yeah? Aren't they equally useful as market messages?
|
| If I am willing to tie up some money holding an instrument
| afloat at overvalued prices longer than you are willing to
| remain in your short position, haven't we ultimately,
| together in our conflict, created a useful message about the
| underlying asset?
|
| Maybe I think Company G is worth $20 but not $40, but if you
| are selling it short at $5, and I'm prepared to be illiquid
| for a while, don't I send the correct market signal by
| squeezing you out of your short?
| fairity wrote:
| > Maybe I think Company G is worth $20 but not $40, but if
| you are selling it short at $5, and I'm prepared to be
| illiquid for a while, don't I send the correct market
| signal by squeezing you out of your short?
|
| In this example, you'd be sending the "correct market
| signal" if you sold your shares as soon as it appreciated
| to $20. Anything more, and you're moving the market away
| from its efficient price.
|
| The problem with the squeeze is that certain participants
| are put into a position where they're being forced to buy.
| And, that creates an incentive for other shareholders to
| hold onto their shares well past their fair value. Holding
| onto shares well past their fair value is antithetical to
| efficient price discovery.
| jMyles wrote:
| > In this example, you'd be sending the "correct market
| signal" if you sold your shares as soon as it appreciated
| to $20. Anything more, and you're moving the market away
| from its efficient price.
|
| Is that true? Isn't anything above that price a 'reward'
| for being correct? And isn't that part of the signal
| according to a perfect information paradigm?
| fairity wrote:
| Well, it's definitely a reward. But as I mentioned in my
| last reply, it's rewarding the wrong behavior if our goal
| is efficient price discovery.
| jMyles wrote:
| I don't see how; it creates a disincentive to take short
| positions which are too low (good for price discovery)
| and provides a reward for discovering and outing them
| (good for price discovery).
| Hamuko wrote:
| > _If I am willing to tie up some money holding an
| instrument afloat at overvalued prices longer than you are
| willing to remain in your short position, haven 't we
| ultimately, together in our conflict, created a useful
| message about the underlying asset?_
|
| I'd say it really only sends a message about your assets.
| postalrat wrote:
| I hear that argument then I heard the argument that short
| selling doesn't reduce the price.
| threedots wrote:
| It does reduce prices because it increases the supply of
| available shares, it's just that reducing prices isn't
| necessarily a bad thing. We want the prices of bad things
| (e.g. frauds) to go down and more generally we want prices
| to reflect reality which happens more effectively when
| informed investors can express negative views through
| shorting.
| notahacker wrote:
| It's worth adding the qualifier that increasing the
| supply of available shares need not reduce prices at all
| if there is enough demand to buy shares at the original
| price (which there should be if the price is definitely
| correct and the market is efficient enough). Even without
| perfectly efficient markets the shorters don't make money
| if enough other market participants think they're wrong
| fairity wrote:
| The process of shorting involves selling shares now with
| the intent of buying shares later. Price will drop in the
| near term bc you're increasing supply. In theory, without
| short selling, the market would still eventually arrive at
| the correct price, but short selling expedites the process.
| jandrese wrote:
| The second order effects are problematic though. Someone
| shorting a stock has an incentive to see a company fail.
| Sometimes people will put out rumors or even go on fiance
| shows talking about how poorly run some company is. Maybe
| they make a discreet call to their buddy at the ratings
| agency and have them downgraded a step. If the market's
| stated purpose is to help companies find the capital they
| need to succeed, then short sellers run counter to that
| purpose.
|
| If however the purpose of the market is to be a big game for
| people with huge amounts of mostly virtual currency to gamble
| with then short selling is a vital instrument.
|
| One problem with the market is that value is not based on
| what a company is worth, it is based on what investors think
| it might be worth in the future, which is largely just a
| guess. So the whole thing becomes divorced from reality while
| investors play games with each other to try to make the
| numbers go up as fast as possible.
| kansface wrote:
| > Someone shorting a stock has an incentive to see a
| company fail.
|
| How is that incentive any different than the incentives of
| someone taking the opposite position:
|
| > Sometimes people will put out rumors or even go on fiance
| shows talking about how ~poorly~ well run some company is.
| valuearb wrote:
| The stock markets purpose isn't to help companies find
| money, that Pr spin.
|
| It's to help investors invest their monies more cheaply and
| safely. The side effect is that companies get cheaper
| access to investment funds.
|
| Without short sellers frauds would be even more prevalent,
| investor costs would be higher and companies would raise
| less money.
|
| If you have a solvent company brought down by a short
| seller, you never had a solvent company.
|
| And value != price. True investors like Buffett don't
| really mind the casino aspect, because volatility creates
| opportunities when value diverges far from price.
| jcranmer wrote:
| > Sometimes people will put out rumors or even go on fiance
| shows talking about how poorly run some company is. Maybe
| they make a discreet call to their buddy at the ratings
| agency and have them downgraded a step.
|
| Some people buy a stock, and then put out rumors or even go
| on finance shows talking about how great this company is
| and how its stock is undervalued. And then sell it at the
| peak, leaving others holding the bag. Yet people don't run
| around saying that we should ban people from being able to
| buy stock because of that.
|
| Both the scenarios (the one you describe and the one I
| describe) are illegal market manipulation. Sure, I would
| not be surprised if market manipulation of the short side
| were vastly underprosecuted, but I don't think that's a
| reason to complain about short selling per se.
| jrowen wrote:
| _Yet people don 't run around saying that we should ban
| people from being able to buy stock because of that._
|
| I honestly feel that way sometimes. I struggle to see how
| the real value created by this whole system outweighs the
| negatives. It's been abstracted too far away from
| "investing in a company" and created too many perverse
| incentives. Too many people just playing numbers games,
| under the impression that they're somehow creating value.
| HFT? How is that anything but absurd?
|
| I feel like we'd be better off going back to a more
| simple system where actual people have actual skin in the
| companies they're taking ownership of.
| quickthrowman wrote:
| > The second order effects are problematic though. Someone
| shorting a stock has an incentive to see a company fail.
| Sometimes people will put out rumors or even go on fiance
| shows talking about how poorly run some company is.
|
| " Tesla CEO Elon Musk had a number of things to talk about
| during Wednesday's quarterly earnings call, but spent a lot
| of time discussing the company's Full Self-Driving system.
| According to Musk, the FSD will be capable of Level 5
| autonomy by the end of 2021."
|
| How is Elon Musk claiming (lying) that level 5 FSD will be
| available for Tesla vehicles in 2021 any different from
| short sellers making similar claims about the potential
| downsides of a stock?
|
| FWIW, Elon Mysk said they'll have a million robotaxis
| operating before the end of 2020. I believe there are 0
| currently operating. [1]
|
| I will bet anyone 10,000 dollars that Tesla will not have
| level 5 FSD by EOY. If anyone is willing to lend me money
| to make the bet, I'll bet as much as they'll lend me.
|
| [0] https://www.cnet.com/roadshow/news/elon-musk-full-self-
| drivi...
|
| [1] https://www.cnbc.com/2019/04/22/elon-musk-says-tesla-
| robotax...
| mianos wrote:
| Because he works there. He has the most information
| possible. He is not guessing. The SEC is quite clear
| about how this has to be honest disclosure. He has been
| rebuked several times for this. It is not unreasonable
| for companies to miss targets and when the forward
| looking information they provide at investor briefings
| may be less trusted and this would normally be reflected
| in the stock price change.
|
| Experienced investors make long term investment decisions
| with this sort of thing in mind. Not everything goes to
| plan but if this was fabricated it would be illegal and
| is very commonly pursued by the authorities.
| sakopov wrote:
| Not all of short selling is bad. Sometimes it's an act of
| activism. Bill Ackman has been shorting Herbalife for years
| while trying to expose the pyramid scheme that it is. He was
| quite successful for a number of years. Similarly, Hindenburg
| Research, which was shorting Nikola Motors, revealed a lot of
| fraudulent stuff surrounding Nikola's public statements and
| their demo truck video.
| izolate wrote:
| The way I understand it is that short selling is part of a
| check and balance against companies that you know are lying
| about their financials. It disincentivizes untruthworthy
| business practices by incentivizing calling companies out on
| their untruths.
| jfim wrote:
| One example of such a short sell was the report by Hindenburg
| research about NKLA [0], which also discloses their short
| position. The net outcome of such disclosures is that
| fraudulent activity is exposed, the people shorting the stock
| make a profit, the people who were holding the stock still
| have their shares, and hopefully new investors are more
| informed about the stock that's being shorted.
|
| Not all short sellers take this approach though, they could
| just short the stock because they think it's overvalued. It
| seems that it's what happened here, but ended up on the wrong
| side of the trade when WSB decided to buy GME.
|
| [0] https://hindenburgresearch.com/nikola/
| jariel wrote:
| There's nothing horrible at all about shorting, it's just about
| investing in the other direction.
|
| It's horrible if funds try to push a company down on that
| basis, but otherwise it's normal.
|
| It's 'good' because you want people betting on the other side
| of irrational hubris - if the market is way-overvaluing a
| stock, you want them to 'lose' and for the stock to come to
| something within reasons.
|
| Shorting helps prick mini bubbles, or stabilize them, before
| they start to get way out of hand.
| FireBeyond wrote:
| I'm not a particular fan of short selling, but I can see a
| definite validity to the value thereof.
|
| What happened here is massive naked short selling, with
| estimates from 120 to 140 to as high as 200 per cent of
| available stock shorted.
|
| This is entirely illegal, and has been since 2008, when it was
| (one of) the contributing factor(s) to that collapse.
|
| However, as per usual, there are loopholes. So the big
| investors are able to carry on as normal, doing this, and have
| ways of covering themselves after the fact in a way that
| protects them from prosecution, while still distorting the
| market in the very ways that were problematic to begin with.
| valuearb wrote:
| It's not naked short selling. BME trades it's entire share
| count in a daily basis, making it easy for the same share to
| be shorted multiple times.
| ballenf wrote:
| Is there an equivalent to short selling for physical goods?
| Does the question even make sense?
|
| If you though gold was overpriced (and there was no gold
| futures you could short) what would you do? Buy silver? I guess
| you invent a short by entering a contract to sell someone gold
| 6 months from now for a given price. But short of inventing a
| means to short-sell, what would you do?
| jmalicki wrote:
| " I guess you invent a short by entering a contract to sell
| someone gold 6 months from now for a given price." - i.e. a
| short futures contract (there needn't be an exchange to have
| a futures contract).
|
| You could short it like you short a stock - find someone who
| owns some gold, and have a contract to borrow the gold now,
| and give it back to them in 6 months, while paying them a
| small fee while it's outstanding.
|
| That's exactly what happens with shorting.
| teyc wrote:
| yes, futures contracts.
| renewiltord wrote:
| Yeah, with fungible items you can easily do it, but you don't
| because all of them have the natural transformation into pure
| paper.
|
| For instance, you could borrow a gold ingot and run through
| the whole thing. But there's no point in that since the
| validity of the whole thing rests on your creditworthiness
| and how good that contract is. So you might as well never
| borrow the real ingot and just write in the rest of the
| clause of how you are entitled to delivery of the ingot. That
| way you can trade them.
|
| For shorts to be viable you just need sufficient liquidity
| that you know you won't fail to deliver on your side of the
| thing. Which is why fungible goods are easiest.
| roywiggins wrote:
| As long as it's not onions, that's what futures are for.
|
| https://en.wikipedia.org/wiki/Onion_Futures_Act?wprov=sfla1
| tedunangst wrote:
| Would you still want to buy put options? Who would sell them to
| you?
| valuearb wrote:
| Without short sales, could Put options even exist?
| mikestew wrote:
| "My put contract says that you have to buy my FooBar shares
| at $X, despite the last sale price being $Y and $X > $Y." I
| thought that FooBar would drop down to at least $Y, that's
| why I bought the options contract.
|
| In other words, as long as I have shares to sell, and
| there's a contract saying that you will buy them from me
| for a fixed price, then put options could most certainly
| exist.
| threedots wrote:
| The point is that without short selling option MMs
| couldn't hedge so no one would sell put options.
| leetcrew wrote:
| > From a lay-person's perspective, short selling seems pretty
| horrible
|
| this person is probably not trading options.
| mpalczewski wrote:
| During market draw downs it's the short sellers that are buying
| first. Without short sellers bubbles would get bigger because
| no sellers taming them and their bursting would be much harsher
| as you would only have sellers. Shorting also allows one to
| invest in a company while shorting others in the sector in
| order to invest in a company while hedging broader economic
| risk. Also buying put options allows you to insure your own
| risk. These are sold by market makers that are able to hedge
| their own position by short selling, without short selling no
| more insurance.
| rtkwe wrote:
| > bursting would be much harsher as you would only have
| sellers
|
| I'm not sold on how much of a cushion that is. Shorters want
| it to fall as much as possible, in an ideal world all the way
| to zero so they don't effectively owe anything. There's no
| reason for them to buy until they think it's hit bottom and
| they also have incentives to drive the price lower with bad
| press and any other manipulations they can think of.
| hartator wrote:
| I don't get blocking buy on certain stocks for "liquidity
| requirements". When buying on Robinhood, I need to first wire
| them my money. Can't they use that cash to fund my own buys?
| bob1029 wrote:
| The entire thing is best viewed as a super-short-term credit
| basis between all participants. At no point is the financial
| system in a state of absolute settlement. It is continual flux.
| Best you can get is scoped, relative settlement with
| assumptions. DTCC is the most fundamental source of truth, but
| this is after the fact and not very useful when one needs to
| make an immediate decision.
| alfalfasprout wrote:
| Yeah, but settlement happens EOD not on each transaction (as
| the orders fill). As long as we're talking about trades _not_
| on margin then Robinhood should already have the requisite
| assets for clearing readily available.
|
| Margin is a totally different story.
| bilbo0s wrote:
| _Can 't they use that cash to fund my own buys_
|
| Is this how people really think the markets work? If it is,
| it's no wonder that a lot of retail investors will be taken to
| the cleaners. What you just suggested is so illegal that no
| professional trader would have had the nerve to even mention
| it.
|
| I think it might be helpful if RH had some kind of trading
| tutorial that maybe went through the mechanics and rules so
| that people joining would have a better understanding. What
| I've been reading the last few days betrays a massive lack of
| understanding about how a lot of this works.
| ta1234567890 wrote:
| > What you just suggested is so illegal that no professional
| trader would have had the nerve to even mention it.
|
| Why is it illegal?
|
| At least from the outside, it doesn't make sense. If I
| transfer money to RH to buy stocks, I expect that money to be
| used to buy the stock, when I buy the stock, whatever that
| process might entail. So if my purchase requires collateral
| because settlement happens later, then I would expect for my
| money to be used as collateral for my purchase and then be
| fully paid out once settlement occurs. Why wouldn't it be
| that way? (if I'm not borrowing money from anyone).
| marcinzm wrote:
| Doesn't Robinhood allow you to buy stocks before the transfer
| finishes? So you can buy right away rather than waiting 3+
| days. They call it Robinhood Instant.
| Tsiklon wrote:
| From what little I've read on the matter if they're offering
| you the ability to trade instantly when you send them money,
| they are allowing you to trade on margin.
|
| That is to say that the money you've sent them won't actually
| settle in their account until several days later (depending on
| their clearing house). Therefore they're actually taking on a
| loan to allow you to use their services "instantly" - this is
| entirely transparent to the user.
| Alupis wrote:
| Let me get this straight:
|
| 1) RH automatically makes every account a Margin account.
|
| 2) RH doesn't make this clear to their customers (buried in the
| TOS where they know newbie investors won't look, which makes up
| probably 99% of their customers).
|
| 3) RH allows people to initiate money transfers into RH, but also
| allows purchasing of stock immediately (on Margin) without
| informing the customer.
|
| 4) Investors believe they've outright purchased stock, because RH
| app shows the stock in their account, and money now gone (even
| though it's still pending the transfer).
|
| 5) RH then "margin calls" all of the people who had money
| transfers pending at the time of GME purchase.
|
| Ya... that seems pretty predatory in my opinion. Downright shady
| business... How can this not be construed as market manipulation,
| even if RH _had_ to do this to save themselves yesterday. RH got
| themselves into this position in the first place...
| MattGaiser wrote:
| There are all sorts of rules that brokers generally abstract
| away:
|
| https://finance.zacks.com/tax-rules-use-proceeds-stock-sales...
|
| https://www.fidelity.com/learning-center/trading-investing/t...
|
| My understanding is that you couldn't do day trading without a
| margin account.
| mrits wrote:
| I have a margin account but E*Trade let me day trade for
| years without one. There were rules like you couldn't buy and
| sell the same stock in the same day but you also got hundreds
| of violations before they suspended this ability. So if you
| are more of a day-swing trader and not doing high volume it
| worked well enough for me.
| dillondoyle wrote:
| Does schwab? I've gotten notices for selling stock before it
| settles
| downrightmike wrote:
| I have a RH, and yeah when you sign up they tell you what
| margin is and you can choose to not use it as it is riskier. As
| this is just a 'see what happens' use case for me, I didn't
| elect margin. And well this is what happens. The predatory part
| is just giving it out at all to low funds retail traders.
| BoorishBears wrote:
| 99% of the people who use RH could not use it if RH didn't
| give you "implicit margin". The "democratization" is centered
| around it
|
| And I mean if you want, ask RH and they'll downgrade to to a
| cash account... just be ready for T+2 and no options trading
|
| https://robinhood.com/us/en/support/articles/options-
| investi...
|
| > NOTE: If you start options trading in your Cash account,
| we'll automatically upgrade you to an Instant account.
|
| If Robinhood only had covered options you'd be right back to:
| not supporting the way people are using it to enable all
| this.
|
| -
|
| In fact, imagine if they didn't do this, all the new people
| who tried to enter GME would have had to wait 2 days to
| enter, and much fewer people would have had access to options
|
| Ironically I actually think it might have stopped this dead
| in its tracks by damping the influx of cash
| kllrnohj wrote:
| > And I mean if you want, ask RH and they'll downgrade to
| to a cash account... just be ready for T+2 and no options
| trading
|
| You can do options trading on a cash account. You can only
| do covered options, but honestly that's probably a good
| restriction for most.
| hmaxwell wrote:
| I think the way it works now is great, being able to go
| short on naked options with a proper margin maintenance
| is way smarter than restricting everyone to go long on
| options or only allow people to sell calls on covered
| options (which kind of defeats the purpose of a bearish
| position when you are required to hold the deliverables).
| kllrnohj wrote:
| For a mass-market low-education target demographic? The
| defaults matter here.
|
| Retail investors shouldn't be restricted from having such
| capabilities, but that doesn't mean it should be the
| _default_
| manigandham wrote:
| A bearish position is to be long on puts. You don't need
| to write options, especially naked options which are
| usually the highest tier of access on every broker and
| require extra agreements.
| BoorishBears wrote:
| Edit: Actually can you show me where RH even says you can
| trade covered options without Instant? I've only found
| evidence to the contrary
|
| https://robinhood.com/us/en/support/articles/options-
| investi...
|
| > NOTE: If you start options trading in your Cash
| account, we'll automatically upgrade you to an Instant
| account.
|
| Maybe if you've downgraded they won't upgrade you, but
| it's neither here nor there, covered options aren't what
| have allowed this to happen
|
| If Robinhood only had covered options you'd be right back
| where I said it'd be: not supporting the way people are
| using it to enable all this.
| dataflow wrote:
| Their advertisement for Gold literally says "access to margin"
| on one of its selling points. How is anyone without Gold
| supposed to read that without mistakenly concluding they don't
| have margin?
| j2bax wrote:
| It's just a minor UI discrepancy. Take it easy man!
| [deleted]
| avlewis wrote:
| I really think Robinhood might go out of business before
| Gamestop.
| kbar13 wrote:
| the instant availability of funds likely was a growth decision
| for better on boarding UX. imagine getting a referral from a
| friend who said hey get in on this stock, installing the app,
| and having to wait 2-5 business days for ACH to clear. guessing
| during normal operation this is an acceptable risk for
| robinhood and users, obviously this isn't gonna fly when things
| go wild like the last couple of weeks
| cm2187 wrote:
| Pretty much every broker does that when you buy stocks too. I
| think most securities settle T+2, which means that you are
| not the owner (and cash hasn't gone out of the door) until 2
| business days after the transaction. But the broker will show
| your account debited immediately and will add the stock to
| your portfolio in the UI too. It's well intended but
| misleading.
| MattGaiser wrote:
| https://www.fidelity.com/learning-center/trading-
| investing/t...
| scsilver wrote:
| Imo The whole gamma squeeze was based on options writers not
| taking into account how quickly and army of new investors can
| leverage this instantly available capital.
| gruez wrote:
| >5) RH then "margin calls" all of the people who had money
| transfers pending at the time of GME purchase.
|
| Is there any evidence of this? The article seems to only say
| that _some_ people got margin called, but didn 't say whether
| those people were using "real" margin or was using the "instant
| deposit" margin.
| CrazyCatDog wrote:
| Exactly! Maybe 15 years ago I had the same confusion with
| fidelity---why are my trades on margin when there is ample
| cash to support them? It's all about the speed of settlement
| --margin unlocks the opportunity to transact in real-time. At
| the time, I remember having an option to opt-out of margin
| based transactions, but don't remember seeing that anytime
| recently.
|
| For people playing the gme lotto (no wrong making---actually
| wish I had time to join the party), settling any way other
| than margin is effectively Russian roulette!
| kylecordes wrote:
| Right, there's probably no way to margin call people who have
| already initiated the transfer of the money. RH has to float
| it a few days for the ACH to complete.
| dylan604 wrote:
| Why in the world does ACH take so damn long to complete? Do
| the electrons move slower in the ACH network? I make a
| request to purchase, the funds availability in my account
| are verified, the withdrawl is requested, then, waiting,
| waiting, waiting. Why? This is the area I would love to see
| "distrupted". Force the banks to honor the requests in
| order they are received (not in the order they choose that
| is most lucrative to the bank). If a transfer request comes
| in for a value greater than my account has, decline the
| transfer.
| astrange wrote:
| It's largely artificial and controlled by the Fed; it
| can't really be disrupted since you can't replace the Fed
| (PayPal and Zelle haven't replaced ACH), but they have
| shaved off a day in recent years and plan to add actual
| realtime settlement in the next few years. In the
| meantime, the computers still work business hours and
| take off weekends for some reason.
|
| > Force the banks to honor the requests in order they are
| received (not in the order they choose that is most
| lucrative to the bank).
|
| Didn't this already happen?
| toast0 wrote:
| ACH settlement is getting faster. There's been a big push
| in the last few years, which will finish March 19, 2021
| with three same day ACH settlement windows, and from what
| I can tell most (all?) ACH transactions under $100,000
| eligible for same day settlement, with the remainder
| settling the at 8:30 AM Eastern the next business day (or
| future day if future dated).
|
| What services banks and brokerages offer on top of that,
| can be more limited of course, but that's the state of
| the system.
| dheera wrote:
| RH is free and doesn't charge commissions.
|
| This should be a BIG RED FLAG that you are the product and not
| the customer. In general, if you aren't paying, they have no
| interest in keeping you happy.
| Dylan16807 wrote:
| They skim a little bit off each trade, but in a way that
| doesn't cost the consumer more than the sticker price. It's
| basically a commission and every broker does it, so no red
| flag.
| ghaff wrote:
| For regular purchases, _most_ large brokerages don 't charge
| commissions these days on most purchases. Not a particular
| fan of RH but the fact that they don't charge commissions
| isn't any more of a flag than in the case of Fidelity.
| deelowe wrote:
| Almost no one charges commission these days.
| FabHK wrote:
| A bit like the forex shops at airports that sell you the
| pound for $1.47, and buy it for $1.27, but charge "no
| commission"...
| ghaff wrote:
| Obviously brokerages still make money in lots of ways
| such as low interest on cash accounts, fees on their own
| mutual funds, etc. But the point is that there's noting
| _unique_ about RH not charging commissions.
| astrange wrote:
| RH isn't free, you can upgrade to a paid account.
| vineyardmike wrote:
| It's pretty obvious (at least to me when I signed up) that the
| "instant money transfer" means margin. Even if you don't get
| the concept of "margin" specific to investing, you should get
| that you're borrowing against the transfer when you use it.
|
| Edit: I just deposited more money into robinhood, and the
| screen says "your funds will be transfered in next several
| days... in meantime, we'll give you access to $X while you wait
| for the funds to clear"
|
| Also, the UI separates your cleared money, from the instant
| deposit money as 2 line items.
|
| It says that its not your money in the UI.
| marcinzm wrote:
| In the age of the internet (well 30+ years into it even)
| thinking that digital funds can be transferred instantly
| seems a pretty sane assumption.
| ur-whale wrote:
| It isn't.
|
| Settlement is complicated business.
|
| Complicated enough that it took the invention of Bitcoin to
| take it out of the bankers hands and move it to the digital
| realm.
|
| And even then, it was not instantaneous (10mn) until layer
| two solutions appeared.
|
| Thinking that "money can be transferred instantaneously
| because digital" is not a reasonable assumption.
| kllrnohj wrote:
| > Complicated enough that it took the invention of
| Bitcoin to take it out of the bankers hands and move it
| to the digital realm.
|
| That's not at all what bitcoin does or helps with.
|
| Settlement is not complicated. ACH is complicated, but
| ACH isn't just settlement. Bank to bank wire transfers
| are just settlement, and are regularly same-day (even
| same-hour) with immediate fund availability.
|
| Hell, FedWire has been doing real-time near-instant
| moving of money between accounts _since 1920_
| https://en.wikipedia.org/wiki/Fedwire
| harikb wrote:
| "15 minutes" to settle cash for next trade is enough
| "instant" for most traders I think. The part that
| irritates people is the "2 business days" problem in the
| regular account.
|
| I have heard it is complicated, but can someone elaborate
| the "computing cost" of a regular (non-coin) digital
| transfer?
|
| Btw, transfers within 15 minutes are being done all over
| the world without the fancy blockchain and coin. I do
| understand the need for some transfers to be delayed ,
| say liquidating all of one's investment to take a few
| days just for security reasons.
| ur-whale wrote:
| >can someone elaborate
|
| Well there's - for starters - :
|
| https://www.investopedia.com/terms/c/counterpartyrisk.asp
| fastball wrote:
| In the UK bank transfers are instant.
| ur-whale wrote:
| They very likely aren't. They just appear to be to the
| retail crowd.
| marcinzm wrote:
| It seems to be in fact instant:
| https://en.wikipedia.org/wiki/Faster_Payments_Service
| ur-whale wrote:
| There is precious little explanation in the article you
| cite on how this is _actually_ implemented on the back-
| end.
|
| Banking plumbing is notoriously harder than most folks
| realize, and I wouldn't be surprised if there wasn't very
| hard (and very small) limits to how big of an amount /
| how many TPS you can actually execute with this system.
|
| I might be wrong, but I'd be surprised if you could move
| 10M pounds instantaneously with this.
| Alupis wrote:
| Just like with Tesla's AutoPilot, naming does matter.
|
| If you tell people your car has AutoPilot, what would a
| reasonable person assume? It can drive itself! And they
| did, and people have died.
|
| When RH tells Average Joe that the funds are "Instantly"
| available... that does indeed mean _instant_ to most
| people.
| Alupis wrote:
| Pretend you're not a techie and not aware of how ACH works.
|
| "Instant" means instant to most folks. Not, "we're going to
| lend you the money for several days and can then force sell
| your stocks whenever we want".
|
| RH app even pretends the money is actually in your account.
| There's a lot of deception that went into designing the app.
| kinkrtyavimoodh wrote:
| I AM a techie and even I would take RH on their word when
| they say 'instant'. When I send money to India from a US
| bank account via an intermediary (so that neither the US
| bank nor the Indian bank are first-party to the
| transaction) it is removed from my US account (in USD) and
| reaches my Indian account (in INR) within seconds, and I
| can see the balance in my Indian account and spend it right
| away, so I have no reason to believe it can't happen
| domestically when it doesn't even involve a currency
| change.
|
| It's like this in most parts of the world. It's only the
| perversity of the American banking system where money
| transfers in this day and age routinely take 2-3 days and
| no one thinks there's anything bizarre about that.
| mensetmanusman wrote:
| It's a balance, because instant transfer has some bad
| side effects.
|
| E.g. if a scammer steals all of your money, it would be
| good to have a day to try to cancel that...
| philderbeast wrote:
| reversing transactions is a thing even without putting an
| artificial delay in the transaction process.
| MattGaiser wrote:
| Any broker that lets you immediately use the cash from a
| sale to buy something new is also doing the same deception.
|
| If an account allows those, it is a margin account.
| brigade wrote:
| Uh no, as defined by Reg T, brokers are free to let cash
| accounts immediately buy with unsettled funds. It's only
| a violation if you _sell_ a security before the funds
| used to purchase it settle.
|
| Margin accounts have a different legal definition and
| regulations.
|
| Robin Hood is actually pretty unique in that its cash
| accounts are _always_ restricted to settled funds;
| instead they decided to optimize for margin accounts that
| don 't allow for increased leverage. Which is not
| something other brokers optimize for that I've seen.
| Alupis wrote:
| The typical RH customer... the one that invests spare
| change, purchases fractions of a share, and thinks they
| can get rich off a $100 investment, is not going to know
| these nuances.
|
| There's good reasons the traditional brokerages have so
| many rules...
|
| The facts seem to be RH saw a opportunity to prey on
| uninformed individuals by making investing seem "cool"
| and "stupid easy".
|
| RH deliberately did not do a good job of A) Putting
| limits on newbies (like no margin!) so they do not get
| themselves into trouble and B) Explaining the more
| complicated concepts behind what RH was allowing
| literally any mirror-fogging human being to do.
| Dylan16807 wrote:
| > RH deliberately did not do a good job of A) Putting
| limits on newbies (like no margin!) so they do not get
| themselves into trouble
|
| But someone who has initiated a money transfer and then
| used that pending money to buy stock, technically on
| margin, is _not_ getting themselves into margin-related
| trouble. There is no good reason for there to be limits
| here.
| Tenoke wrote:
| Plenty of people trading for 10k at Schwab don't know
| either. Plenty of people don't know the details of their
| bank account, too. I do blame RH but not for this..
|
| People are always going to be uninformed about some
| things, yes we should minimize that but we shouldn't make
| services available only to the rich because of it.
| Alupis wrote:
| I'm not aware of any other institution that allows to to
| take on debt by accident.
| kortilla wrote:
| Banks (overdraft)
| Alupis wrote:
| All banks offer overdraft protection when you open your
| account, and they clearly explain what it would mean for
| your account to go negative.
|
| Definitely not a good comparison.
| Tenoke wrote:
| You've never heard of a reversed PayPal or bank
| transaction that leaves users with a negative balance?
| db579 wrote:
| OK so as a none techie why is it _not_ genuinely instant?
| Why can 't my cash be exchanged for the stock in real time
| (where real time is defined as within a minute or two say).
| astrange wrote:
| It's cheaper to do it slower - banks don't have to
| constantly talk to each other all day. Russia actually
| gave up on same day settlement and called it a
| modernization.
|
| https://www.fintechfutures.com/2013/03/moscow-exchange-
| adopt...
|
| Also, you may still be able to pay for stocks with checks
| at some places, so the cash isn't always available.
| nullc wrote:
| RH can't win here: Previously they came under fire when a
| user committed suicide after the RH app showed a
| substantial negative balance due to an offsetting position
| that hadn't settled yet.
|
| If they reflected it accurately they'd be showing a
| negative balance until the funds arrived and some users
| would think they lost all their funds.
|
| The real mistake is that they're extending margin to
| uninformed and unsophisticated users. ... but pointing that
| out just brings accusations that it's gatekeeping or
| limiting access to people who aren't rich.
| ziml77 wrote:
| People hate the gatekeeping but then complain when they
| get bitten by something they didn't understand. There's
| only so much you can boil this stuff down and if they
| don't want gatekeeping then they need to accept personal
| responsibility when it turns out that they didn't know as
| much as they thought they did.
| joshspankit wrote:
| They could certainly have won by being clear on each
| screen.
|
| They specifically positioned as the "everyman trading
| platform", and so even from the drawing board they knew
| that the majority of app users would be people with
| little or no experience.
|
| All they had to do to win was to say "Hey, I know this
| balance looks bad, but it's actually not the final number
| and here's why", and similarly: to be explicit about
| _why_ they automatically make margin accounts, and then
| to again mention that when people purchase stocks.
| nullc wrote:
| I think you might underestimate how deeply and
| inexplicably confused people can get.
|
| I fielded a question from a friend who was furious that
| his broker wouldn't let him exercise a call yesterday ...
| a call that he was _short_. But he understood his
| position enough to understand exercising the call would
| be very profitable for him. Part of the reason that he
| thought he could excercise it was because there were
| notices about call exercise (presumably that it was still
| available for people who were already long the calls).
|
| It's extremely hard to anticipate all the ways someone
| might become confused and adding additional material to
| resolve a potential confusion risks introducing other new
| and novel confusion. There is a constant trade-off.
|
| I think the goal of an actual "everyman trading platform"
| is essentially achieved by the sorts of interfaces
| offered on 401k accounts-- geared around not-more-than-
| daily trades of highly liquid securities (and if not
| outright curated, at least focusing on diverse relative
| safe funds). What RH is doing might be marketed as an
| everyman trading platform but for many (most?) users it's
| just a casino.
| MattGaiser wrote:
| Any broker that lets you do anything like day trading is
| essentially extending margin.
|
| A true cash account has quite a few restrictions:
|
| https://www.fidelity.com/learning-center/trading-
| investing/t...
| nullc wrote:
| Sure. And? It used to be the case (only a couple years
| ago--) that you had to have an account worth at least
| $10k and at least represent that you had some experience
| to get approved for margin at most brokerages.
|
| Although it's been a long time, I spent the first decade
| with a trading account without margin just fine.
| ziml77 wrote:
| As far as I know Robinhood only lets you trade on margin
| if you have a pending transfer of money in. They also
| have a very low limit on that of $1000.
| MattGaiser wrote:
| It is also margin trading if you buy and sell before
| settlement. Buying a stock, selling it a day later, and
| using the funds to buy something else requires a margin
| account.
|
| https://www.fidelity.com/learning-center/trading-
| investing/t...
| kllrnohj wrote:
| > It is also margin trading if you buy and sell before
| settlement
|
| Not always, see situation #3
| https://www.sec.gov/oiea/investor-alerts-and-
| bulletins/ib_ca...
|
| You need margin to engage in day-trading, but you can
| sell a settled stock & immediately use the funds to buy
| something else just fine as long as you then hold onto
| that purchase for 2 days.
| vineyardmike wrote:
| it doesn't take techie knowledge, but I'll admit it takes
| financial knowledge.
|
| Which IMO you should have before you do anything "complex"
| like invest real money.
| pnathan wrote:
| It was not obvious to me.
|
| What my perception was, was that you were being loaned money
| against the transfer you were sending in. It was _not_ clear
| at all to me that it was a generic margin account. Because,
| among other things, I consider margin trading to be a higher
| risk activity than I care to engage in; if I had known that I
| was signing up for a margin account, I would have not signed
| up at all.
|
| That said, I've definitely been edu-ma-cated on this, and
| I"ll be reading brokerage ToS more carefully from now on.
| Tenoke wrote:
| >What my perception was, was that you were being loaned
| money against the transfer you were sending in
|
| That _is_ margin trading though. It sounds like you thought
| only some trading on a loan counts as margin per definition
| but you knew you weren 't trading with your actual money
| but a loan which is the important part.
| kllrnohj wrote:
| https://www.investopedia.com/terms/m/margin.asp
|
| margin trading overwhelmingly refers to paying a
| percentage as a collateral, _not_ a stop-gap loan to
| cover ACH transfer delays. Yes you have to have a margin
| account to trade with immediately deposited funds (thanks
| ACH), but that 's not the typical usage of the phrase and
| as such isn't what you'll find being described when you
| look up the term.
|
| Particularly since you _can_ trade with unsettled funds
| using a cash account in some circumstances, see situation
| #3 here: https://www.sec.gov/oiea/investor-alerts-and-
| bulletins/ib_ca...
| kortilla wrote:
| You're confusing margin trading with leveraging. Margin
| trading is just using loaned money to execute the trade.
|
| The "dangerous" part of margin trading is taking a loan for
| more than you have equivalent cash collateral of.
| ibraheemdev wrote:
| I'm confused. Why is everyone getting mad at Robinhood? Wasn't it
| the market makers who stopped them from trading GME? And doesn't
| Robinhood have the right to sell margin stocks bought on margin?
| CarelessExpert wrote:
| a) It's not clear these were margin calls. If they were,
| absolutely, they were in the right. If these were cash
| accounts, this would be... bad.
|
| b) The MM's almost certainly didn't force RH to shut down buys.
| Current speculation is it was likely a combination of pressure
| from clearing houses and their own internal risk management.
|
| Odds are they didn't have enough capital on hand to deal with
| settlement given the level of volatility, and if they let more
| people buy, it would've pushed them over allowable levels.
|
| This is supported by the fact that they've drawn down about
| 500mm from debt facilities and announced a 1B funding raise
| this morning
| (https://www.nytimes.com/2021/01/29/technology/robinhood-
| fund...), while throttling purchases of GME to no more than 5
| shares per account and no more than 10 options contracts
| (https://robinhood.com/us/en/support/articles/changes-due-
| to-...).
|
| And note, I say this is speculation because RH has been
| completely opaque about what happened here. All they say is "we
| have regulatory requirements", and we're left filling the
| blanks.
|
| Edit: In fairness to RH, I should note that in their blog post
| on the topic (https://blog.robinhood.com/news/2021/1/28/an-
| update-on-marke...) from late yesterday they mention:
|
| "As a brokerage firm, we have many financial requirements,
| including SEC net capital obligations and clearinghouse
| deposits. Some of these requirements fluctuate based on
| volatility in the markets and can be substantial in the current
| environment."
|
| This does obliquely point to the issues I mention above, and is
| enough to unpack what happened here _if_ you have an
| understanding of the structural mechanics of stock trading.
| Though it 'd be nice if they were a lot more direct in their
| language, here. If I was a layman investor this'd look like
| meaningless obfuscation.
|
| But it's certainly (somewhat) better than some of the early
| interviews and reporting...
| ineedasername wrote:
| This might indicate that, at least for this sort of fintech,
| "lean" can't be an option: there will need to be some form of
| deep-pocket backing in order to stop the company from going
| belly-up due to a short-term credit crunch. Fortunately RH
| had sufficient funding for that, but it's conveivable that
| the next time if there's an even bigger collateral call by
| the clearing houses (or some other issue) they won't be able
| to cover it-- sort of like Bear Sterns in 2008, which
| collapsed more because of lack of confidence than actual
| liabilities, which it could otherwise have weathered, but
| panic set it, they lacked credit necessary to stay afloat,
| and were basically liquidated at crazy fire sale prices. (I'm
| Not saying they didn't have a lot of responsibility in their
| downfall: they played fast & loose, and when that collapsed
| it caused a general panic on them as a whole)
| CarelessExpert wrote:
| > This might indicate that, at least for this sort of
| fintech, "lean" can't be an option: there will need to be
| some form of deep-pocket backing in order to stop the
| company from going belly-up due to a short-term credit
| crunch.
|
| Honestly, I think this is tough. Building a regulatory
| regime for a six sigma event is extremely difficult.
|
| That being said, there probably needs to be a better
| mechanism--maybe a market wide 24 hour circuit breaker plus
| some sort of emergency credit backstop--to ensure liquidity
| for these types of events without disadvantaging any
| particular market participants.
|
| I dunno, I'm making shit up here and don't know what the
| hell I'm talking about.
|
| Seems complicated though...
|
| Now, I will say, if you ask me, it's about time to start
| putting in even more short-side controls.
|
| Allowing these massive funds to build gigantic positions
| with infinite loss potential clearly represents systemic
| risk, particularly given we've seen over and over and over
| again that, as much as these institutions are supposed to
| be "professionals", their risk management is utterly
| inadequate.
|
| Start with totally banning naked shorts. Increase margin
| requirements on short positions. Maybe flat out ban
| shorting over a certain percentage of float. How about
| limit the amount of short-side risk a firm can hold as a
| percentage of its total portfolio.
|
| RH is in many ways a victim of a much much larger
| structural market dysfunction.
|
| > Fortunately RH had sufficient funding for that,
|
| So _that_ I don 't agree with.
|
| RH had to completely stop buy-side activity on their
| platform yesterday and then _massively_ curtailed it today.
| Not only did they not have sufficient funding to support
| BAU, they still don 't!
|
| Meanwhile, the controls they put in place to allow them to
| limp along single-handedly produced a massive drop in the
| price. Then, to add insult to injury, they increased margin
| requirements and margin called accounts, forcing
| liquidation at substantially reduced prices, thereby
| locking in losses for their clients.
|
| My guess is they're buying time, right now, by limiting
| buy-side volume and dipping into credit lines, until the 1B
| cash infusion lands on their books, all while preparing for
| the class action lawsuits and congressional investigations.
|
| Oh, and that IPO? Expect that to be postponed...
| PragmaticPulp wrote:
| > If they were, absolutely, they were in the right. If these
| were cash accounts, this would be... bad.
|
| As outlandish as this sounds, Robinhood signs everyone up for
| margin accounts by default.
|
| Users must explicitly opt-out of margin to get a cash
| account. Robinhood calls it "downgrading" their account.
| ineedasername wrote:
| Which is kind of crazy: It looks like their default margin
| is 100% of your cash balance.
|
| It would be much more transparent to be opt-in & say "Hey,
| you deposited $1k. If you want, we're willing to _loan_ you
| an additional $1k. " I think more people might refrain from
| margin trading if it was presented that way. But it would
| reduce trading volume, and therefore a major revenue source
| in the form of trading data they sell to market makers, so
| of course they don't do that.
|
| As it stand though, to my outsider's eyes it makes their
| theoretical liabilities twice their collateral. Normally
| that's probably fine, gains & losses on large volumes of
| divers stockes will even out. But in unique circumstances
| (um, right now) the collapse of a single stock (or worse, a
| highly correlated asset class) puts them on the hook for an
| amount equal to their customers' losses. Considering their
| retail clientele, it's probably fair to assume that many of
| their customers can't (or won't) cover those loses by
| depositing more cash... hence the suicide a while back.
| CarelessExpert wrote:
| Ugh, I know. Honestly, I will be more than happy if RH
| doesn't survive this. Gamifying investing and all but
| encouraging gambling behaviour, defaulting to allowing
| trading on margin, and now their behaviour over the past
| couple of days... there are _far_ better options out there
| these days.
| TeMPOraL wrote:
| > _Why is everyone getting mad at Robinhood?_
|
| They were the first to suddenly block buying (but not selling!)
| GME when everyone in retail wanted to buy, and they refuse to
| explain why.
|
| > _Wasn 't it the market makers who stopped them from trading
| GME?_
|
| Who knows? _They refuse to explain anything_.
|
| > _And doesn 't Robinhood have the right to sell margin stocks
| bought on margin?_
|
| Yes. That part of the anger is misplaced. But it's not a
| significant part of the drama anyway.
| tptacek wrote:
| They haven't refused to explain why. Very Online People just
| don't accept their explanation.
| TeMPOraL wrote:
| Well, they've published a blog post. And got CEO on the
| news. But what they offered was not an explanation.
|
| The explanation they offered in their blog post:
|
| _" As a brokerage firm, we have many financial
| requirements, including SEC net capital obligations and
| clearinghouse deposits. Some of these requirements
| fluctuate based on volatility in the markets and can be
| substantial in the current environment. These requirements
| exist to protect investors and the markets and we take our
| responsibilities to comply with them seriously, including
| through the measures we have taken today."_
|
| That's not an explanation, that's just hot air.
|
| _What_ financial requirements? _What_ capital obligations
| and clearinghouse deposits? _Which_ requirements fluctuate
| based on volatility? _How_ do these requirements protect
| the investors and the markets? And ultimately, how
| _exactly_ any of this leads to them blocking buy orders on
| $GME?
| tptacek wrote:
| We have so many sources, from multiple brokerages, about
| increased capital requirements to clear GME and AMC
| trades that it has revived discussions about whether
| there are bad unintended consequences of the Dodd-Frank
| regulations that centralized clearing, which have the
| impact of transmuting private company risk management
| policies (that protect systemically important firms like
| DTCC) into global financial policy. But you've managed to
| dismiss all this as "hot air", thus, I would suggest,
| confirming my suggestion that Very Online People simply
| don't accept the fairly clear explanation of what
| happened.
|
| It seems reasonable to fault Robinhood for shitty comms
| (though, as 'JumpCrisscross pointed out yesterday, the
| general rule is "aviate, navigate, then communicate"),
| but the endemic message board pathology is to use shitty
| comms to justify conspiracy theories, which are more fun
| to talk about than reality and take over these threads
| like algae.
| TeMPOraL wrote:
| Everybody here correctly divined what you mention, and
| then could confirm it after other trading apps went on to
| actually shed some light towards what's going on.
|
| My point is exactly the shitty comms of Robin Hood - they
| were the first to make this move, they gave no reasonable
| explanation. It doesn't matter what we know now. What
| matters is that RH's users didn't know _then_.
| tptacek wrote:
| In light of this comment I can't really understand what
| you meant by the last paragraph of your last comment.
| Were you actually asking? Or did you know, and know that
| RH's answers to those questions were in fact not
| nefarious, and just want to keep the drama alive a bit
| longer?
| TeMPOraL wrote:
| I get the high-level picture, I'm somewhat unclear about
| the details, and I'm not sure iff this even applies to
| Robin Hood, because they didn't confirm any of this.
| That's all irrelevant, though.
|
| The top-level question here was, why people are angry at
| Robin Hood. My explanation is simple: they cut a lot of
| people off buying at the moment they wanted to buy, and
| provided no explanation. Any theory as to why they did
| that comes from taking explanations of other traders and
| the mechanics, not from anything RH said.
|
| If you think what they published was sufficient
| explanation (and remember, the target audience is mostly
| regular folks with even less clue about stock market than
| I have), then why did RH's CEO get drilled by the news on
| the same questions I'm listing? Apparently the
| newscasters and their audiences also don't believe he
| answered anything.
| tptacek wrote:
| First, it's Robinhood, not Robin Hood.
|
| Second: I'm not interested in the binary of whether or
| not people are mad at Robinhood. People should be mad at
| Robinhood for a variety of reasons, most notably that it
| is an online casino masquerading as an investment app.
|
| I am very interested in the conspiracy theory that says
| Robinhood halted GME orders as part of an effort to
| protect hedge funds. That conspiracy was repeated by a
| number of legislators yesterday, seemingly encouraging
| ordinary people to follow on this terribly risky GME
| bubble. The conspiracy appears to be false.
|
| If we don't disagree, we don't disagree.
| TeMPOraL wrote:
| Alright, so we were talking past each other. Sorry for
| not picking up on it sooner.
|
| I don't subscribe to the conspiracy theory - the
| "mundane", mechanical explanation seems perfectly
| adequate. My only opinion on Robinhood is that the
| current backlash they face could've been avoided if they
| were communicating honestly and in details. The angry mob
| ultimately isn't after them.
| jedmeyers wrote:
| > And doesn't Robinhood have the right to sell margin stocks
| bought on margin?
|
| Only if they issue a margin call. But what if they were the
| ones responsible for the conditions that lead to the margin
| call in the first place (blocking buys on a specific stock)?
| cardiffspaceman wrote:
| Naturally, many longs were in on margin. RH asserted their
| right under their TOS to margin call without notice. This
| might be legal, but it looks like mining the retail investors
| for gold. I think it should NEVER happen. A firm like RH
| should instead gather its fortitude and fund itself to ride
| such events out, and ALWAYS give accounts five days to
| respond to a margin call. To do otherwise is to "undermine
| market confidence" in the words of the SEC.
| franklampard wrote:
| The CEO denied anyone else influenced them to do what they did
| yesterday.
| secondcoming wrote:
| I'm not buying it. Lots of other brokers also did the same. I
| think RH were the first. I find it hard to believe this move
| wasn't coordinated in some fashion.
| CarelessExpert wrote:
| > Lots of other brokers also did the same.
|
| And a lot didn't.
|
| Some (e.g. TD A) imposed increased margin requirements, but
| that's perfectly normal for high volatility stocks or
| options in margin accounts, and to be honest I'm amazed it
| didn't happen sooner.
|
| This comes down to those brokers that are their own
| clearing house versus those brokers that rely on a company
| like Apex.
|
| It looks like Robinhood, Webull, IBKR, and others, all ran
| into the same capital requirements issues as their
| customers loaded up on a high value, high volatility stock.
| Their clearing houses basically told them they had to pony
| up more cash, or they had to stop allowing customers to
| increase their positions.
|
| So this was "coordinated" insofar as they all used a
| clearing house (I believe RH and Webull both use Apex, but
| don't quote me on that) that made what amounts to a margin
| call on the brokerage.
|
| To be clear, _this should not have happened_. It 's
| entirely a function of the companies being under-
| capitalized as a result of inadequate risk management
| practices in this very strange market environment.
| secondcoming wrote:
| > they had to stop allowing customers to increase their
| positions
|
| I can't get my head around the logic. They allowed people
| to sell; you can't sell unless there's a buyer. But RH+
| blocked people from buying.
|
| Does a clearing house care whether a transaction is a buy
| or sell?
| CarelessExpert wrote:
| > They allowed people to sell; you can't sell unless
| there's a buyer.
|
| There are many other exchanges. The buy side of those
| sells might be on TD Ameritrade or Schwab or other
| brokerages where purchases were still allowed, not to
| mention institutional buyers looking to hedge calls or
| cover short positions.
|
| What this prevented was RH customers specifically loading
| up on more stock.
|
| I think your confusion might be thinking "they" all
| blocked buys, but that couldn't be further from the
| truth. A couple of brokerages blocked buys, but the
| majority did not.
| depingus wrote:
| Robinhood is its own clearing system.
|
| https://blog.robinhood.com/news/2018/10/9/introducing-
| cleari...
|
| https://www.cnbc.com/2021/01/28/robinhood-interactive-
| broker...
| CarelessExpert wrote:
| Ah, yup, I stand corrected, they moved off of Apex. I
| told you not to quote me on that! ;)
|
| Nevertheless, they still have capital requirements they
| have to adhere to in order to ensure settlement can
| occur, and it appears they were on the verge of being
| unable to meet those requirements.
| bri3d wrote:
| If you read the article at all, it clearly mentions that the
| traders in question don't believe they bought the shares on
| margin. Whether or not this is user error, who knows. And
| Citadel have gone on the record repeatedly stating they did not
| influence Robinhood's trading halt. The information available
| makes it seem as though Robinhood were told they needed to
| deposit more into their DTCC (clearinghouse) accounts to allow
| trades to continue - essentially, that Robinhood got called on
| their own margins at the clearinghouse level.
|
| https://www.ft.com/content/9a1b24e6-0433-462a-a860-c2504ea56...
|
| https://www.bloomberg.com/news/articles/2021-01-29/for-robin...
|
| https://www.nytimes.com/2021/01/29/business/dealbook/robinho...
| midjji wrote:
| There have been rumors of robinhood simply being buggy for
| some time before this. Things like orders being processed
| after being cancelled, orders being processed out of order
| causing conflicts, orders being executed massively delayed
| after the client threw an error message. Basically, if their
| database infrastructure is buggy and unstable, then combined
| with heavy load, something like this could happen. And
| notably robinhood does not provide use client side action
| logs, only server side actions logs on demand.
|
| I think it could have happened, but I very much doubt they
| ever did it intentionally, and it is practically guaranteed
| people would claim this happened to them, regardless of if it
| did actually happen to them.
| crazynick4 wrote:
| If they process an order 'late' the price change could
| swing in their favor and they would end up netting the
| difference. FXCM got caught for this in FX years ago,
| skimming fractions of pennies off the trades for millions
| in profit. I'd be interested to know if those late trades
| always went in one direction.
| JohnTHaller wrote:
| Robinhood blocked its users from buying or opening new
| positions in GME. But allowed selling. From the outside, it
| appears to be a coordinated effort to drive the price down to
| protect the overgeneralized billionaire hedge owners. The CEO
| of Robinhood did interviews to 'explain' why they did it, but
| it was really just a word salad of an explanation.
|
| CORRECTION: "60% of its users owned GME at the time." appears
| to have been incorrectly reported and since corrected.
| reducesuffering wrote:
| 60% of RH users owning GME is false (or if they do, it's
| indirectly through ETF's that they can still sell). This was
| misreporting and corrected by the original reporter.
|
| https://twitter.com/motherboard/status/1354956664974278656
| JohnTHaller wrote:
| Thanks, corrected.
| NoOneNew wrote:
| They didnt allow people to buy GME. Only sell. Forced one sided
| positioning. It's rather frowned upon. That's where a big
| portion of hate comes from.
| bpodgursky wrote:
| Ok, but if they had banned selling and there was a large
| price drop anyway (forcing investors to eat a loss, unable to
| sell), they would have been catastrophically screwed legally.
| kinkrtyavimoodh wrote:
| Robinhood doing anything unilaterally about this sounds and
| feels extremely sketchy and screams illegal to me (if it
| isn't it should be). It's one thing if the SEC stops all
| GME trade coz that would be fair across the board. But
| Robinhood effectively being able to block trades for retail
| while institutional investors do whatever screams market
| manipulation.
| bpodgursky wrote:
| Yeah, I'm not at all defending blocking buys, just saying
| that blocking both buys AND sells was completely out of
| the question.
| PragmaticPulp wrote:
| Reading between the lines, they ran out of capital to post
| the required collateral for the trades.
|
| They've been dancing around the subject because they don't
| want to trigger a bank run, but this is likely why they had
| to suddenly raise $1 billion and draw down their credit lines
| yesterday.
|
| It appears they reached a point where they simply couldn't
| afford to support the buy orders on the volatile stocks any
| more. They likely had 2 options:
|
| 1) Shut down the entire platform until they could raise
| enough additional capital to post the required collateral.
| It's difficult to retain users and raise another round if you
| literally have to turn your service off on the hottest
| trading day every.
|
| 2) Shut down buy orders on the few stocks that were driving
| the capital requirements over the limit, at least allowing
| users to continue to sell.
|
| Frankly, I think the narrative that Robinhood users are
| driving this situation has been greatly exaggerated. A few
| weeks or months from now, I think we'll learn that the
| majority of volume came from institutional investors rather
| than retail users. Redditors may have sparked the situation,
| but hedge funds are certainly capitalizing on it.
| sidibe wrote:
| Did they block people from buying or did they block people
| from opening new positions?
| andonisus wrote:
| Yes.
| ibraheemdev wrote:
| Yes to both?
| randylahey wrote:
| When someone does this it means both the things you asked
| are being answered in the affirmative.
| nrmitchi wrote:
| Even if that is the case (which I don't disagree with you on)
| Robinhood has done, and continues to do, such a shitty job
| education it's users on what they're actually buying that they
| don't know this.
|
| So is this action Robinhood's fault? Not really. Is the fact
| that the user doesn't understand this at all Robinhood's fault?
| 100% absolutely.
| bvirb wrote:
| I think one way to look at it is that RH based their company
| off of amassing a huge number of retail customers and selling
| their deal flow. They then pissed off a huge number of those
| retail customers with a surprise and un-announced change to
| their trading rules (no more buying GME) in the middle of those
| retail customer's massively successful effort to make a bunch
| of money using their product. Their customers then pretty
| quickly lost a bunch of money.
|
| Regardless of where the fault lies that seems like a recipe for
| pissing of a lot of your customers, and from there it seems
| reasonable that the customers would be pissed at the company
| who sold them the product (as opposed to one of their
| vendors/customers).
|
| In that light, and particularly w/ a finance app, it might seem
| even weirder if their angry customers _weren't_ mad at
| Robinhood and were willing to accept "it wasn't our fault" for
| any reason.
| CyberDildonics wrote:
| There is a thundering herd of people with no experience buying
| a stock at 100x what it was a few months ago and vowing to lose
| their savings by never selling. It shouldn't be a surprise when
| they ultimately get outraged at the biggest target.
| MrMan wrote:
| RH might well be incompetent - I dont understand why we are
| discussing them when their offering is inferior to basically
| all other brokerages. people should switch away from bad
| products / services
| jariel wrote:
| Why does the media even remotely consider repeating the companies
| 'marketing mission' BS when reporting on them?
|
| CNN spent years with these fluffy articles basically promoting
| Robin Hood and their 'Occupy Wall St.' rubbish.
|
| "Democratize Finance" is PR, not reality, it shouldn't be
| contemplated as part of the story.
| gruez wrote:
| If you read the other threads it's clear what's happening is that
| robinhood's product isn't designed to cope with high
| volatility[1]. Is this a flaw in their product? Yes. But then
| again, they are a _discount_ brokerage for a reason. It 's not
| any different than any other consumer product that shits the bed
| during 99.9 percentile events.
|
| [1] Specifically, they're required by the DTCC to put up a
| deposit on every trade their users make. During periods of low
| volatility this is fine because they can come up with the money,
| but when volatility goes up so do the deposit requirements, which
| can cause them to become insolvent. This is further compounded by
| the fact that their product invisibly hands out margin, eg.
| "instant" deposits of $1000, or giving you the money before it
| settles (2 days later).
| nightski wrote:
| Obviously the situation needs to be investigated. But I think
| there is a real possibility they did nothing wrong here.
|
| Despite this, the main problem I see with Robinhood is that
| with it's gamified UI, ease of access, etc... these 99.9
| percentile events are mainly what it is designed for. It's
| encouraging people to pick up the "hot stock" on social media
| on a whim.
|
| While there may not be legal repercussions for this, it's
| fundamentally incapable of it's core purpose. If you are new to
| RH you might not realize that the platform has outages all the
| time and it costs its users a lot of money. It is straight up
| dangerous to trade on this platform for the purpose which the
| UI glorifies.
|
| Index funds have done a lot more to democratize finance than RH
| in my personal view. While commission free sounds fantastic, it
| comes with some very large hidden costs.
| mike00632 wrote:
| There are worse problems with Robinhood, all of which I'm
| surprised people aren't bringing up more:
|
| 1) They've had outages where 100% of stocks were unavailable
| for trading.
|
| 2) Their business model is to offer their users inferior
| prices and then collect on the arbitrage (Yes, this is
| illegal. Yes, they are in trouble with the SEC over it).
|
| 3) Robinhood isn't transparent with their users about the
| risks of trading options and trading on margin. Some of the
| barriers they've removed for their users to make risky bets
| were there for regulatory reasons, it's not just a matter of
| their app being over-gamified.
| alexpetralia wrote:
| (2) is false.
|
| You can't offer "inferior prices" to customers. It's called
| the Order Protection Rule of RegNMS. You must price improve
| the customer, by law. If a bid-offer is 23.01/23.02,
| Robinhood (but actually Citadel/Two Sigma) _must_ transact
| with a buy order at 23.0199 or less (the subpenny rule only
| applies to quotes, not actual trades). The reason Robinhood
| sells this order flow is because Citadel/Two Sigma would
| rather collect a spread of almost 1 cent (23.0199-23.01)
| from _you_ rather than a hedge fund, who may conceivably
| move the market against the market maker. They are "paying
| for order flow" (PFOF) - much less than 1 cent - to collect
| the 1 cent spread from you.
|
| Robinhood is in trouble with the SEC for a failure to
| disclose this relationship to customers, _not_ for having
| the economic arrangement to begin with.
| filoleg wrote:
| (1) is pretty weak too.
|
| Yes, they had outages where 100% of stocks were
| unavailable for trading, which is factually true. What
| makes that assertion weaker is the fact that other
| brokerages had the same kind of outages too, and not with
| less frequency of occurrence either. Which is why (1) is
| not really a meaningful point against RH specifically.
| pessimizer wrote:
| That other fruits are rotten does not weaken the
| assertion that this particular fruit is rotten. I don't
| think anyone is claiming that every fault that Robinhood
| has is unique.
| Dylan16807 wrote:
| But it _does_ weaken the argument of "why isn't everyone
| bringing this up more?"
|
| If they have a normal amount of outages, then the outages
| aren't brought up because that's boring.
| filoleg wrote:
| >That other fruits are rotten does not weaken the
| assertion that this particular fruit is rotten
|
| Services occasionally experiencing unexpected outages
| doesn't make them a rotten fruit. By that metric,
| literally every single complex online service in
| existence is rotten. Given how rare those outages are,
| and how they are all not happening at the same time
| across different brokerages, I wager to say it is normal
| with nothing nefarious going on. Unless you expect a
| complex online service to have zero downtime ever, which
| is just unrealistic.
| MrMan wrote:
| thank you
| newacct583 wrote:
| That I think is the real scandal here. Robinhood was built to
| market to (and in some sense coevolve with) the
| wallstreetbets culture of crowd-sourced market manipulation.
| And that was a great growth hack.
|
| Until it grew enough that the crowd source market
| manipulation was... actually manipulating significant
| markets. GME has been ballooned to the tune of something like
| $13B over the past few days, based almost entirely on a
| flawed understanding of short trading.
|
| And absent any discussion about Robinhood in particular, I
| think we need to be asking whether or not this crowd of
| people who didn't quite understand shorts were fed those lies
| at the direction of users who did. Someone has (or will have)
| made a ton of money here at the expense of the late-arriving
| GME traders. It seems like we should find out who.
| Miner49er wrote:
| What is the flaw in the understanding of shorting?
| newacct583 wrote:
| Most people seem to have been led to understand that the
| short leverage of 140% meant that when the short call
| happens, the hedge fund will "have to buy more stock than
| exists" to settle, and thus that something like an
| infinite price spike will happen. The same people tend to
| refer to this as a "naked short", which it is not[1].
| Most of these people seem to have latched onto a theory
| that the short calls are all coming due today and that
| they NEED to buy as much GME as possible ahead of the
| metaphorical rapture.
|
| But the hedge funds in question closed out their short
| positions days ago. The stock right now is being propped
| up by simple (and misinformed) speculation. And
| effectively all of the purchase price that people are
| paying right now is going to end up being transferred to
| the people with earlier positions who are getting out at
| the peak of the bubble.
|
| [1] A naked short is a short sale where no underlying
| stock was borrowed first. This is a crime, but only
| possible for certain very privileged traders with control
| over the various tracking records. Leverage over 100%
| just means (for example) that you borrowed a share, sold
| it, then later went to the same buyer and borrowed it
| again. You end up owing them "two shares", but not
| necessarily the _same_ share twice. In practice what
| happened is that as the stock started rising, Melvin
| closed its position buy repeatedly buying and returning
| shares to the tune of 140% of the capitalization. (Edit
| to add: it seems likely that it did so in combination
| with a bunch of loans and favors from other hedge funds
| with the ability to buy and hold GME across the
| inevitable collapse. The WSB folks complaining about
| hedge fund corruption and insider dealing aren 't wrong.)
| [deleted]
| mike00632 wrote:
| ^^^^ so much this.
|
| I keep seeing over and over again that hedgefunds MUST
| buy stock if the price goes up, and that 100% shares
| short is some sort of trigger that means everyone must
| buy.
|
| There is another common misconception that stock cannot
| be created, that there is some finite supply. People
| should take note that AMC has (shrewdly) issued a lot of
| new shares in response to their stock price climb.
| arcticbull wrote:
| There's a few issues for the short sellers though, one is
| that their brokers are charging them interest on their
| borrowed shares as a function of their share price. The
| higher the share price, the more interest they have to
| pay. Not just that, the harder the shares are to borrow,
| the more interest they have to pay. This creates a
| ticking clock. During the initial BYND squeeze, some
| people were being charged 100% APY.
|
| Then of course as it goes up and they bump up against
| their personal (or their brokers' personal) risk
| tolerance, they're forced by _them_ to buy.
| samstave wrote:
| How does one borrow a share of stock?
| arcticbull wrote:
| Go to a broker, search for the security you're interested
| in but don't have a position in. Hit sell. You will
| receive cash, and you will see a negative number of
| shares in your account.
| MattGaiser wrote:
| > But the hedge funds in question closed out their short
| positions days ago.
|
| I have asked people about this. They accuse me of buying
| into corporate media propaganda. Melvin must still be in
| and be near exploding in their minds.
| nrmitchi wrote:
| At this point "Melvin Capital's position" seems like more
| of a conspiracy theory than anything based in fact.
| nrmitchi wrote:
| > And effectively all of the purchase price that people
| are paying right now is going to end up being transferred
| to the people with earlier positions who are getting out
| at the peak of the bubble.
|
| There is _at least_ one other group that is likely
| benefiting massively through all of this: Those who have
| been selling options. There are a lot of levels here, but
| when this is all done I suspect that the aggregate spent
| by retail traders on premiums for options that expired
| worthless will eclipse the final market cap of GME.
|
| When there is this much volume, you have to remember that
| _someone_ is in the middle of it taking a tiny fraction
| in order to facilitate it. These people are likely doing
| a very good job limiting their risk, and just printing
| money right now.
|
| I suspect that overall we'll end up with "Hedge Funds"
| (as an aggregate) in likely the same positions,
| intermediaries and market makers _wayyyy_ up, and Retail
| (as an aggregate) way down. Which, I guess is the system
| that people are virtual-rioting over.
| [deleted]
| majormajor wrote:
| "The short interest staying at a similar range means
| nobody has closed out their old positions so we can keep
| squeezing" seems to be a big one.
|
| If you assume that new short positions are being opened -
| and at the recent prices, that's not an entirely
| unattractive thing to do - then the short interest
| staying steady suggests some positions being closed and
| others being opened, and tells you little about single
| actors.
|
| And anyone opening short positions at today's prices is
| basically "resetting the clock" on how long you'd need to
| squeeze to get them to back down... so if I were to sell
| it short now, I'd be betting that some folks making some
| of their first investments ever to ride the hype train
| are going to be more likely to blink first than I am.
| ticviking wrote:
| The WSB guys are talking about this in theie coded meme
| terms about diamond hands and it's not over til it's over
| language.
|
| They're basically loudly signalling that they will not
| sell until the short float is down.
| TheOtherHobbes wrote:
| Speculation:
|
| We know how easy and cheap it is to buy anonymous Twitter
| and Facebook accounts and use them to create a convenient
| illusion of crowd sentiment.
|
| We also know that Bitcoin appears to have been pumped and
| dumped through a number of cycles.
|
| https://www.financemagnates.com/cryptocurrency/interview/cr
| y...
|
| If - hypothetically, ignoring the nominal legalities - it
| were possible to do the same on Reddit without leaving too
| obvious a trail, what's to stop one or a small number of
| players from running a virtual operation that creates this
| kind of sentiment for trading?
|
| And then betting for or against it - or perhaps both, in
| sequence - for some very easy money?
| samstave wrote:
| Do we know if any of the C-Suite of GME sold a ton of
| shares during this debacle?
| astrange wrote:
| If they did, it would be a coincidence, since corporate
| officers usually can't sell shares whenever they want.
|
| GME might have sold new shares though; they were already
| set up to do this at any time.
|
| https://thefly.com/landingPageNews.php?id=3209193&headlin
| e=G...
| bunnyfoofoo wrote:
| Some did a couple weeks ago:
| https://finviz.com/quote.ashx?t=GME
|
| Scroll to the bottom, there's an SEC filing section.
|
| Nothing to write home about though.
| vincentmarle wrote:
| > But I think there is a real possibility they did nothing
| wrong here.
|
| They did blatantly lie about their liquidity problems. They
| didn't mention it in their fluff blog post. Their CEO smirked
| on national TV and insisted it was not about liquidity. Turns
| out it was. That's the problem.
| valuearb wrote:
| If he admitted how close they were to insolvency Robinhood
| would be out of business and no one would be getting their
| trades closed.
|
| Financial firms never warn about liquidity issues to
| prevent a run on their bank.
| WrtCdEvrydy wrote:
| No sector of the finance industry is ever honest about
| liquidity... too much fear of a panic.
| swalsh wrote:
| The messaging was certainly problematic. But the actions
| seem to be done in good faith.
| cma wrote:
| > Despite this, the main problem I see with Robinhood is that
| with it's gamified UI, ease of access, etc... these 99.9
| percentile events are mainly what it is designed for. It's
| encouraging people to pick up the "hot stock" on social media
| on a whim.
|
| Landline phones and CNBC in the dot com boom and after could
| do much the same. They had a show where a guy just yelled out
| symbols all angry with cheesy soundboard effects. Only
| difference was higher commissions and no buying into
| fractional shares and stuff.
| ghaff wrote:
| Commission free is pretty much the norm these days. There are
| exceptions, but the norm.
|
| I don't disagree that, for most people, just investing in
| index funds is probably the best approach.
| YinglingLight wrote:
| Citadel fulfills most of Robinhoood's orders.
|
| Citadel owns Melvin Capital, which is collapsing as we speak.
|
| Our new Treasury Secretary Janet Yellen has been paid $810k by
| Citadel for her orator skills.
|
| Our new Press Secretary stated that Yellen will not recuse
| herself from any potential involvement with GME.
| Miner49er wrote:
| > [1] Specifically, they're required by the DTCC to put up a
| deposit on every trade their users make. During periods of low
| volatility this is fine because they can come up with the
| money, but when volatility goes up so do the deposit
| requirements, which can cause them to become insolvent. This is
| further compounded by the fact that their product invisibly
| hands out margin, eg. "instant" deposits of $1000, or giving
| you the money before it settles (2 days later).
|
| Assuming they aren't allowing any margin to be used on GME
| (including instant deposits) how could they possibly not come
| up with the money? Does that mean they are doing other stuff
| with users money and only fractionally paying for shares? The
| clearinghouse (normally) just assumes they are good for it if
| they ever need to come get it?
|
| EDIT: Apparently it is a fractional deposit that the clearing
| house requires. Apparently though, it can't be client money. So
| my next question is, why is that?
| tonfa wrote:
| > So my next question is, why is that?
|
| Don't most brokers allow you to continue trading before
| settlement? (so someone has to put collateral for that)
|
| I guess most traders would complain if they had to wait two
| days after every trade :)
|
| Edit, maybe best is to look at the explanation from Money
| Stuff:
|
| > But at some level of volatility things break down. If a
| stock is really worth $400 on Monday and $20 on Wednesday,
| there is a risk that a lot of the people who bought it on
| Monday won't show up with cash on Wednesday. Something very
| bad happened to them between Monday and Wednesday; some of
| them might not have made it. You need to make sure the
| collateral is sufficient to cover that risk.
| hinkley wrote:
| > Don't most brokers allow you to continue trading before
| settlement?
|
| Hasn't that changed a bit though? I'm trying to recall what
| the policy change alert I got a few years ago. Something
| about you can buy shares with proceeds of unsettled sales,
| but if you sell the new shares before the previous sale is
| settled, your account can get flipped into some state where
| you have reduced trading abilities for a period of time. 30
| days?
|
| It was implied that "the SEC made us do it". I think it was
| meant to put the kibosh on day trading. You can still day
| trade, but your returns are cut dramatically by requiring a
| larger cash position.
| [deleted]
| Miner49er wrote:
| > Don't most brokers allow you to continue trading before
| settlement? (so someone has to put collateral for that)
|
| Sure, but I wonder why RH didn't just change their rules to
| being that you won't be able to trade instantly with any
| sold GME, and then used client funds as collateral? This
| seems much better than stopping buying altogether. I
| suppose maybe the code wasn't in place for something like
| this, idk.
| bilbo0s wrote:
| _and then used client funds as collateral_
|
| Huh?
|
| You realize that's illegal right?
| gruez wrote:
| >and then used client funds as collateral?
|
| check the edit in the parent's comment. It's expressly
| prohibited.
| tonfa wrote:
| > and then used client funds as collateral?
|
| But that's not necessarily settled right? E.g. client
| sells AMC, then buys GME. At this point RH doesn't have
| the cash to for it (the settlement should clear, but it
| still needs to come up with the collateral).
|
| (I'm not an expert so take it with a grain of salt, but
| that makes at least some sense :))
| jmalicki wrote:
| The fraction became 100% on GME, which is typical for highly
| volatile stocks. That's why they had to disable trading in it
| - they could cover the small fraction, but not 100%.
| himinlomax wrote:
| This explanation is plausible, but then the question becomes
| RH's lack of openness, and its CEO's laughable non-answers in
| interviews on the issues.
|
| Their hands may be tied here, but they look bad any way you
| look at it, and for good reasons.
| valuearb wrote:
| The only honest answer the CEO can give is "we are a thinly
| capitalized startup with a unique business model, that meant
| when the DTCC jacked margin requirements on BME further
| trades would have pushed us into insolvency"
|
| That's not the kind of message any CEO wants to put out in
| public,
| rdiddly wrote:
| It can be spun. "We did it to ensure the stability and
| integrity of our platform."
| crazynick4 wrote:
| I think volatility is an issue for any broker.
|
| Does RH wait to confirm an order until they find a counterparty
| or does their system just accept it and then find someone to
| clear it with after the fact? If it's the latter, and they find
| themselves in a situation of extreme volatility/zero liquidity,
| they could end up holding the bag.
| [deleted]
| psychlops wrote:
| I wouldn't call it a flaw. Their product can handle the high
| volatility, their finances can't. At least, that's what we
| believe is true since they got a $1B loan yesterday. But Tenev,
| the CEO, was on TV yesterday saying that it wasn't a solvency
| issue...so....
|
| Interactive Brokers Chairman, Petterfy, highlights that in his
| interview. He also said it caused clearing issues and that his
| firm could afford it. They just, you know, decided to halt
| trading cause he _thinks the squeeze was illegal_.
| valuearb wrote:
| The only thing Robinhood is lying about is their solvency.
| bilbo0s wrote:
| I agree.
|
| I would bet they don't have available funds. They framed it
| as, "We're stopping this to help you." But the reality was
| more like, "We're stopping this because we can't legally
| facilitate any more of these trades since we don't have the
| money to spare."
| pishpash wrote:
| It is both, they need to help themselves and help
| customers who would be harmed if Robinhood had gone under
| suddenly. An orderly unwinding is better for everyone.
| psychlops wrote:
| I believe this as well. He did not do himself any favors
| and let himself be cornered on two interviews.
|
| I respect that he cannot come out and say they have
| solvency issues, as his accounts would empty fast turning a
| potential solvency issue into a real one. But he didn't
| seem to even have a clear idea of, nor a numerical way to
| explain why they were having settlement issues.
|
| My guess is that they will be spending more money in their
| clearing department this year.
| shawndrost wrote:
| Do you believe that about all the brokerages that halted
| trading on GME et al? Or did Robinhood call a halt due to
| insolvency, and coincidentally, other brokerages called a
| halt for unrelated reasons?
| pmiller2 wrote:
| Suppose you're right. How do you explain the $1B loan
| Robinhood took out?
| rdiddly wrote:
| Taking out a loan, in itself, doesn't indicate
| insolvency. If it did, nobody would lend, ever. Now
| defaulting on a loan - that does indicate insolvency.
| valuearb wrote:
| I suspect if they didn't have liquidity issues, they were
| just quicker that Robinhood to prevent them. I'm sure
| they didn't want to tie up a huge part of their
| collateral in BME.
| justforyou wrote:
| If the SEC had done their job RH would have been shut down
| ages ago due to their platform's facilitation of rampant
| identity theft.
| hinkley wrote:
| Tenev said they didn't have a _liquidity_ problem. I think
| he lied about that, but I think they 're solvent. The
| reserve system required by the securities people mean they
| have to have a cash position proportional to the total flux
| of trades. There were some laws passed a few years back
| that reduce how quickly you can turn unsettled trades into
| new trades. Without that they'd probably need a much larger
| cash position.
|
| I suspect he was thinking of bank runs. If people think
| they aren't solvent, then it becomes true. If he says they
| have a liquidity problem (which I agree the loan they took
| out is a confession of that fact), then they could have a
| solvency problem if everyone without a margin account
| cashes out.
| cma wrote:
| Could be something like if Citadel goes insolvent and only
| makes their payments for flow to Robinhood on a delayed
| schedule, then Robinhood may not get paid for the last
| quarter or year of income and incur huge losses.
| astrange wrote:
| Citadel (who loaned Melvin a lot of money) and Citadel
| Securities (who pay RH for order flow) are not the same
| company.
| pageandrew wrote:
| Sorry, as a noob, why does Robinhood need lots of cash to
| facilitate trades, and what connection does that have to
| volatility?
| hi5eyes wrote:
| [irrelevant link]
| pageandrew wrote:
| Couldn't Robinhood just disable margin trading without
| disrupting cash trading?
| tedunangst wrote:
| This would require RH to explain to their users the
| nuances of moving violations (buying a new stock after
| selling an old stock before settlement) and that gets
| messy. Nobody wants to be bothered by rules when they're
| about to make it rain day trading.
| throwaheyy wrote:
| That link was pretty irrelevant to your original
| question.
|
| The answer is that even cash-settled trades take 2 days
| to settle, which most traders would consider an
| unacceptable wait to take delivery of their shares in
| this day and age. Seeing the shares appear in your
| account immediately after buying is merely an abstraction
| provided by brokers, and the brokers need to have their
| own cash on deposit to secure this.
| nrmitchi wrote:
| The person you are responding to posted that link...
| incorrectly? There is no context, but it's just not
| directly applicable.
|
| Yes, if Robinhood is letting people trade on margin, then
| Robinhood needs to have the cash to support that margin.
| That is one thing. And they have largely, as far as I
| know, disabled that already.
|
| The other part is that they are required to have reserves
| and collateral for trades that are "cash" until they
| settle, as all brokerages are. I am not an expert here,
| but my understanding is that this requirement increases
| as volatility goes up, as as correlation of trades goes
| up (ie, if all of the volume is in a couple stocks, it's
| highly correlated, and thus the reserve requirement is
| higher). This must be, by regulation, _Robinhood 's
| money_ (ie, not customer funds), and Robinhood just
| didn't have the money to keep opening new positions.
|
| As for the underlying _why_ of the requirement, I don 't
| know. I assume it has something to do with preventing
| brokerages from accepting increasingly risk trades during
| high volatility events (which, ya, is what's happening
| right now). But either way, it's the current rule, and as
| a brokerage, they have to follow it.
| psychlops wrote:
| Brokers are required to keep a certain amount of capital on
| hand to ensure that customers can be made whole in case
| some sort of risk arises.
|
| The amount of money they are required to keep on hand
| varies according to the risk of the investment (among other
| things). The increased volatility translates into higher
| risk and therefore requires the broker to keep more money
| on hand.
|
| I haven't seen the exact amount in this case other than
| hearing total amount of $14 billion and that it would be a
| percentage of that.
| desertrider12 wrote:
| For shorts and trading on margin that all makes sense,
| but I still don't get why that would prevent retail
| investors from buying regular shares with their own cash.
| Where does the broker assume risk in that transaction?
|
| Edit: nrmitchi below explained how the broker is legally
| required to have some extra collateral on hand in between
| accepting and clearing the order.
| jyrkesh wrote:
| I think this thread did a great job of explaining how
| volatility can affect collateral requirements:
| https://twitter.com/KralcTrebor/status/1354952686165225478
| treis wrote:
| It takes a couple days for stock trades to settle. While
| that process is happening Robinhood has to keep collateral
| at the clearing house to ensure that when settlement
| happens the money is there to pay the other party.
|
| Volatility makes that requirement go up because of the time
| risk. If you agree to buy something for $300, fail to
| settle, and it drops to $20 in the meantime that
| counterparty is out more money.
| [deleted]
| ogre_codes wrote:
| > Their product can handle the high volatility, their
| finances can't.
|
| Multiple times both here and previously, RH has demonstrated
| that their product cannot handle unexpected high volumes of
| traffic.
|
| Also, their finances _are part of_ their product. They are a
| financial services company. Money and finance is what they
| do.
| psychlops wrote:
| I admit, I am not aware of their products capacity, but
| they never mentioned it as an issue, nor has their product
| crashed this week (that I am aware of). It was a conscious
| decision to stop trading.
|
| They cannot control the volatility of the products they
| sell and the subsequent increase in the cost of doing
| business. They can't control their whole supply chain and
| do not sell GME and other products out of inventory so have
| to buy it from someone else.
| ogre_codes wrote:
| The problem here is fundamentally Robinhood is in an
| industry where screwing up has huge consequences for
| their customers.
|
| If Apple has a supply chain issue and my phone is 10 days
| late, I might be irritated but the most it will cost me
| is a few days frustration.
|
| If Robinhood fails to execute a trade for me, it can _and
| has_ potentially cost a user tens of thousands of
| dollars.
|
| What happens when the share price starts to give way and
| Robinhood fails to execute trades as the share-price is
| dropping rapidly?
|
| If I owned shares in GME (or AMC etc) on Robinhood, I'd
| be getting out now because they've done nothing to
| suggest they are capable of serving users when things get
| sketchy.
|
| I don't own GME, and will never put money in RH at this
| point.
| [deleted]
| 99_00 wrote:
| The Gamestop incident is a very counter to the Robinhood brand so
| very damaging to the company.. Communication was not handled
| well. A good lesson for everyone.
|
| People shouldn't be trying to figure out what's going on by
| digging deep in forums and social media. CEO should have been
| front and centre the day it happened. Hindsight is 20/20. A
| lesson for all.
|
| Doesn't help that opportunistic politicians jump on it to raise
| their profile.
| tgb wrote:
| I'll make a little prediction: the negative press Robinhood is
| receiving will be out-weighed by the fact that so many people
| are getting interested in stocks due to this. I think they'll
| be better off despite this debacle in a month. (Though this
| doesn't include the possibility that they broke a regulation
| and lose a court case or that congress is spurned into action
| and regulates them out of business somehow.)
| bob1029 wrote:
| This is my take as well. Robinhood getting raked over the
| coals is a bi-annual tradition which has been practiced for
| several years now.
|
| It's not like they really had a choice or were fundamentally
| at fault for anything in this case. Contrast with prior
| incidents which were wholly related to bad engineering
| practices.
|
| Getting a margin call from the DTCC isn't an optional
| inconvenience. Perhaps Robinhood could have had more buffer
| available to deal with this scenario, and that may wind up
| being the regulatory outcome of all of this.
| nimos wrote:
| Saying you can only sell an asset but not buy is clearly going
| affect the price - regardless of the reason they did it.
|
| If a broker can't do their job they should be forced to shut down
| completely until they can.
|
| Its pretty clear they don't have the liquidity/assets to handle
| their customers transactions. Letting brokers manipulate asset
| prices so they can avoid shutting down is a dangerous precedence
| to set. Really hope IB/RH and everyone else involved gets blown
| up by this.
| jariel wrote:
| It's actually rational.
|
| They're flooded and can't handle the scenario - but they
| definitely can't stop people from selling because that would be
| locking them into positions.
|
| I don't like RH as a company, but if they are facing
| difficulties, this is a reasonable thing to do.
|
| People are giving RH heat for this most recent policy but
| frankly that's not remotely the reason they should be upset. I
| for one, basically believe RH on it. The reason 'RH' is 'shady'
| is for their normal business practices.
|
| Frankly, the notion of 'free option trading for unsophisticated
| investors' sounds like the biggest hustle ever. Surely there
| are a lot of folk using it who really know what's what, but
| mostly not.
| valuearb wrote:
| They didn't manipulate squat, they were fighting to save their
| life. If they were manipulating GME price they would have tried
| to pump it higher because each time it crashed their DTCC
| margin requirements went up.
|
| Driving GME price down before all these trades clear likely
| kills Robinhood.
| nimos wrote:
| You really think stopping all buying and only allowing
| selling doesn't manipulate the price?
|
| I fully agree they were fighting to save their life. They
| can't handle their customer trades they should shut down
| until they can.
|
| Really they should have a system to only allow buying with
| settled funds. I'd be fine with that.
| valuearb wrote:
| Robinhood would have no customers if it implemented that
| system.
|
| And Robinhoods actions affect on GMEs price was likely
| small. The investing world is far larger than Robinhood,
| and Citadels own statistics show retail investors have been
| net sellers of GME since Monday.
|
| And again, every time that GMEs price crashed, Robinhood's
| collateral requirements increased. Why would they try to
| kill themselves?
|
| Saying they manipulated GME trading is like saying one
| pirhana quitting the school is manipulating the feeding
| frenzy.
| bordercases wrote:
| What's so important with Robinhood making it out alive?
| valuearb wrote:
| If it doesn't every Robinhood trader will have their
| account locked, and will only ever get paid a fraction of
| its value years from now.
|
| While that is more than fair for WSB traders who caused
| this mess, there are likely many hundreds of thousands of
| innocent customers who may have not bought one share in
| GME getting the same punishment.
| yowlingcat wrote:
| > They didn't manipulate squat, they were fighting to save
| their life.
|
| These two things don't seem mutually exclusive. Actually, it
| seems like they'd be positively correlated. If you're
| fighting to save your life, aren't you more likely to resort
| to manipulation? And certainly when the cost of fines is
| several orders of magnitude less than the cost of closing
| your position at that point, it seems downright economical.
| lovehashbrowns wrote:
| It's entirely possible that RH doesn't care if the hedge
| fund loses all its money from the short and RH's buddy
| Citadel has to do a bail out to the tune of billions. In
| that scenario, RH still has to pause buy trades to save
| their own ass because they're running out of cash they need
| for the collateral that's required.
|
| Do note that RH is not the only one that paused buy trades.
|
| What I find more suspicious on RH's part is the timing of
| this all. RH should have known well before this week that
| GME was going to be a highly volatile stock. They should
| have already reached out to investors and banks for credit.
| They should have already had over a billion lined up to
| take on the volatility. I can understand other brokers like
| TD not being prepared because they might not be used to
| this Reddit-driven WSB volatility. RH, on the other hand,
| should have been ready. They've been aware of WSB and their
| antics since its inception. Yet they waited until Thursday
| to pause trades. That's where I start to go into conspiracy
| mode.
| valuearb wrote:
| Yes, infinite credit lines are easily arranged within a
| one week notice for a thinly capitalized broker.
|
| Dont you realize how big a $1B credit line is for a
| broker with so few assets such as Robinhood?
| lovehashbrowns wrote:
| Sorry just to fully understand, "credit lines" is the
| issue here, yes?
| valuearb wrote:
| No, the issue is that Robinhood is a startup brokerage
| with likely very few actual assets. Go try to get a $2M
| short term loan using a $1M home as collateral. You will
| get laughed out of every bank in the country.
|
| Now try to get investors to invest $2M for half of your
| home, again the mirth and laughter will be rampant.
| Eventually you will find someone to lend or invest $700K
| but it will take months to close and meanwhile Robinhood
| is dead.
| lovehashbrowns wrote:
| Oh, I gotcha now. I am going off of this story:
| https://www.wsj.com/articles/robinhood-raises-1-billion-
| to-m...
|
| Reading closer, they supposedly got ~$500 million from
| its banks as loans and $1 billion from existing
| investors. My issue is in not knowing when this was all
| initiated and how long it takes for the money to go from
| its current place(s) to Robinhood.
|
| Regardless, I am still learning all of this so thank you
| for replying and adding clarity.
| [deleted]
| valuearb wrote:
| If Robinhood wanted to manipulate the GME market, they
| would have banned selling, not buying. Driving GMEs price
| lower increases Robinhoods collateral requirements and
| pushes them closer to bankruptcy.
| urda wrote:
| Illegally stopping all buying and only allowing sale of an
| asset or stock is market manipulation.
| valuearb wrote:
| There was nothing illegal in what Robinhood did, and every
| broker has the right to determine which instruments they
| are willing to sell or buy, at any time.
|
| Would you prefer Robinhood to implode so you have to wait
| years to get a small fraction of your account paid?
| astrange wrote:
| Brokers can't stop you from selling shares; they're your
| shares. Only the regulator can prevent sales.
|
| This made what RH did look unfair, but stopping buys was
| all they could do.
| paulgb wrote:
| I understand where you're coming from, but if they halted
| selling and it came out that people were stuck in positions
| they couldn't sell out of, people who wanted to sell and
| couldn't would be even madder than people who wanted to buy are
| now (and might also have more legal standing.)
|
| Put another way, just because they have to halt buying, they
| don't owe it to their customers who are holding to _not_ allow
| other customers who want to sell to do so.
| nimos wrote:
| Yes definitely, it would have been a total shitstorm.
|
| I think that shitstorm is preferable to allowing brokers to
| manipulate asset prices to protect themselves.
| filoleg wrote:
| >I think that shitstorm is preferable to allowing brokers
| to manipulate asset prices to protect themselves.
|
| I don't think that "biting off the nose to spite the face"
| is the approach I would prefer when it comes to my money.
| And, I think, a lot of people would agree with me this.
|
| Also, the whole "protect themselves" line sounds like pure
| outrage without thinking about the actual consequences. If
| your brokerage doesn't "protect itself" and implodes, what
| do you think is gonna happen to the value of your assets
| sitting in that brokerage (as well as the assets of
| everyone else in that brokerage)?
| fairity wrote:
| RH and all brokerages should be held accountable for the losses
| their clients sustained due to these trade restrictions.
|
| But, I don't RH deserves to be singled out & vilified when many
| other brokerages ran into the exact same problem as RH and solved
| it with the same trade restrictions.
|
| Overall, I've been happy with the effect RH has had on retail
| investing. Primarily, other brokerages that used to charge me
| $5-8 commission per trade have now been forced to substantially
| lower their fees.
| kleer001 wrote:
| > all brokerages should be held accountable for the losses
| their clients sustained due to these trade restrictions.
|
| That's not how a market works in two distinct ways.
|
| 1 - buyer beware
|
| 2 - businesses cannot be not responsible for restrictions
| placed on them, see 1
| Areading314 wrote:
| If its free, you're not a customer. You're the product.
| crazynick4 wrote:
| Rh was probably losing money on widening spreads. If a client
| buys and holds and volatility increases and spreads widen, when
| the client closes out the trade, Rh will eat the difference in
| the spreads. If a client opens a short position and spreads
| widen, RH will make a net gain when the client closes out. I
| think this is why they halted people from buying and probably why
| they closed out the trades for clients, I would guess it was
| during periods of lower volatility.
|
| I don't know how legal it is for them to do that but when
| volatility is high like this that's when a broker like RH can
| really go under.
| amluto wrote:
| I am pretty sure Rh doesn't take positions the way you're
| describing.
| crazynick4 wrote:
| I am pretty sure they're a broker who hedges their positions
| with a counterparty. Otherwise, they would be taking on the
| risk themselves?
|
| But I think my math was backwards on the closing transaction.
| If the spreads widen they would technically end up net
| positive.
| tedunangst wrote:
| They're a broker, not a market maker. They don't have
| positions.
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