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Comment by snikeris | Hacker News Reader

Robinhood takes on a lot of risk when their customers buy GME?

The risk to Robinhood is GME crashing by more than the amount of the margin. A large brokerage that has been through crashes before has systems in place, and can spread the remaining risk around. If a large portion of your customers are invested in a handful of stocks, their risk becomes your risk. Also, other customers of Robinhood who have cash that is in an uninsured account are also at risk even if they are not invested in GME.

Then why not shut down margin purchases of GME, but not cash purchases?

There was some speculation that they didn't have that capability. Brokerage firms should have the ability to restrict margin trading in particular stocks, but what if Robinhood couldn't, at least not on short notice?

There could is also the concern about new accounts trading in GME with funds that might be suspect. It's a risk you don't want to take if you don't know your customers and the bubble is ready to burst at any moment.

They did shut down margin trading in GME and others several days ago, this is a further step atop it.

Did they issue margin calls?

It does because they let them buy on margin.

Interactive Brokers hiked the long margin to 100% (and short to 300%) which is a reasonable way for a broker to behave.

Killing the ability to buy is not.

IB doesn't allow you buy GME even w/o margin account.

I don't think that is correct. They stopped options trading in it not 100% cash backed stock buying or 300% cash backed shorting. I think their position is fairly reasonable and as an account holder there I don't want people going crazy on leverage on this amount of volatility.

Got email from IB that you cannot open new positions on GME this morning.

Probably not even long positions and probably just purely for liability reasons to stay away from the mess when shit hits the fan

That's what they advertise via Twit. But if you try to buy even 1 stock of GME on non margin account (our own money only) it doesn't allow you to do that. I have a screenshot for that if you want. And customer support line is overloaded as expected.

ok that is unfortunate I didn't go all the way through with trying to actually buy. I'm a long time customer and they were definitely better before they went public

aggregate customer exposure means that massive simultaneous losses by retail traders following the herd can mean losses for RH, which they want to prevent.

Even when they're not buying on margin GME is in a short term bubble that will soon pop and leave millions of their users worse off than before. There probably was some internal logic of "protecting" folks from themselves whether we agree with that or not.

Did they stop people from selling in March when the World was panicing about Covid, despite most people assuming the stock market would rebound?

The answer is no.

Quite a bit of difference from markets being influenced by outside events and the market being influenced by your gamified platform.

> most people assuming the stock market would rebound

No, people / pundits / the media were widely proclaiming that the healthcare system would be overrun and the next great economic depression was upon us. Most people assumed the stock market would continue to fall.

Buy high, sell never. Everyone who bought the stock has already written it off as a complete loss. Everyone is banking on being worse off than before. They still buy it for the entertainment value and Robinhood denied them that.

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