Robinhood is automatically initiating GME sell orders on users' behalf
twitter.com
twitter.com
Not just discount brokerages.
His shares are for $118.93. He's up over 60%.
RH is a pretty awful broker. Anyone who cares about such things pulled out a long time ago
It’s like the bank banning selling your home then repossessing it when the value falls.
Crooked entirely.
Apples and oranges. If you bought a house on margin, the way a brokerage defines margin, they would absolutely be allowed to do that. Margin and mortgage are fundamentally different types of loans.
I agree that halting buys was absolutely wrong. Definitely see where you're coming from, if you look at the two actions together..it doesn't paint a very pretty picture.
Except... You can!
If you ever took a mortgage, take a very, very, very good look on the loan agreement.
A surprising amount of banks simply put it as "bank reserves the right to recall the loan in full, at its sole discretion, at any moment"
Margin loans more like a performance bond. Unlike a mortgage, it gets called in when you cannot cover the loan. Speculation with margin is dumb for most people.
Depending on a loan agreement... It can
The last time this has happened en masse was as recently as 12 years ago.
Since then, people started reading loan agreements a bit more carefully, hence the decline in the number of banks demanding completely unconditional recall clauses.
But look further up, and you'll see that their main client (~40% of their revenue), Citadel, is looking at major losses if this keeps going.
These "here's why it's OK" legitimations are sounding just as cynical as the high profile insiders' rage against WSB that we have been hearing.
This is fast becoming a symbol of brazenly rigging of financial systems to ensure the house wins.
Hypocritical appeals to responsibility are half of what's causing all this rage. Sure, a responsible broker might reserve a right to liquidate your position in order to limit their risk. This isn't a responsible broker. They might also liquidate your position to limit their losses at your expense... or because the cabal said to.
We are not starting from the assumption that they (RH, Citadel, NASDAQ,etc... even the SEC) are acting responsibly, or in the interest of "mom & pop." They are playing heads I win, tails your lose... again.
The hedge funds got caught holding $10m puts with $1bn (so far) long tail risk. RH are in some sort of similar position. They make high, steady returns from such positions. Typical insider deal. When that long tail risk materializes, all bets are off... and this is not even a figure of speech!
The asymmetry is dumbfounding. Responsible actors! Market Fundamentals! The hypocrisy of it.
It's a cat and mouse game. This is a once in a lifetime event where you can push everything to extreme limits. As wall street gets more desperate they will resort to extreme and more extreme tactics. The average retail investor is not going for a win. They are trying to make the house expose all of the cheap tricks.
The end result is a checklist of publicly confirmed anti retail strategies.
Short selling above and beyond? Check
Bailouts among wallstreet? Check
Deplatforming? Check
Control conventional media? Check
Prevent buying stocks? Check
Forcibly sell shares? The jury is still out
The price looks just right to me.
All that said, my personal opinion is that they couldn’t check in a code change to handle the increased collateral requirements, so the only feasible and somewhat legal way to save RH was to prevent its users from buying more. Pretty shitty, but then again, ever since RH crashed on 2020-02-29 because none of their devs thought of leap years, I can’t say I expect very much from them technology-wise.
And that's enough to make people pretty not-happy.
It sounds like now that they have a bunch of additional cash in hand they're going to allow (with limitations) GameStop buys again.
I'd treat anything like this with a huge pinch of salt.
I'm following the discussions a bit, lots of comments by people spreading conspiracy theories, comments asking for evidence are just downvoted, or met by the conspiracy theorist's favorite, "do your research", comments spreading disinformation like "citadel owns robinhood" with a tweet as the only source, people who have no idea how market functions talking about "naked shorting", etc. The disinformation spreads faster than it takes to rebut it.
Yes, this is definitely one of the cookie-cutter responses. Dubious claims of "so many sources" but they are just super busy and can't be bothered to link to a single one.
It's not like a journalist right now can tell Robinhood "give us all your internal emails so we can verify the reason you've stopped trading these stocks". Or "Hey Discord, let's look at your internal slack comms so we can figure out what evidence you had to conclude that the WSB chat rooms were filled with hatespeech." Or "give us a data-dump of all the users and comments you identified as hatespeech".
How about some regulation in that regard? Hey EU? Here's an idea for a possible scenario and how it could look:
1. Public company makes contentious claims.
2. Curious individual (maybe journalist) makes formal request for data to confirm.
3. By law, company above is obligated to provide access.
4. Individual gets given a secure-room, no-data-copying-allowed physical access to inspect and analyze said data.
5. Individual is allowed to report on said data.
Edit. Formatting.
Consider:
* Most conspiracy theories are false.
* Many conspiracies do exist. I've seen people involved in a few.
In conspiracies, people keep secrets. Ergo, there's a poor mapping between actual conspiracies and conspiracy theories. People are speculating with no evidence. On the other hand, the conspiracies I've seen, you haven't heard of, and you probably won't.
The CIA is quite literally the US government covert agency set up to meddle in foreign affairs. It's raison d'être is to:
1. Collect covert intelligence for the US
2. Undermine enemies of the US / support friends of the US
A vague statement like "The CIA is involved in conspiracies" or even slightly less vague "The CIA lies and sometimes vilifies people" are almost vacuously true. That's literally what a covert government agency is designed to do.
A conspiracy theory is much more specific. "The CIA assassinated [leader] on [date] by [some action that looked like an accident] in order to [favorable outcome]." Most of those, with blanks filled in, are paranoid nonsense. If the CIA is doing it's job, I'll never find out about whom it assassinated or why. On the other hand, a blanket statement like "The CIA sometimes engages in assassinations" is obviously true. We have plenty of records from times the CIA slipped up.
As far as associating people with crazy by associating conspiracy theories with them, we're not even at the level of CIA. We're at the level of municipal politics, divorce cases, executive battles, and corporate PR smear campaigns.
If the CIA isn't involved in conspiracies, where are my tax dollars going?
Calling this a conspiracy theory is...inaccurate in my opinion.
Market manipulation is happening but mostly cuz Robinhood doesn't do anything on their own they rely on other companies
So yes. It's literally a conspiracy theory.
If you think Kan is a conspiracy theorist making baseless accusations, we see the world very differently. Which is fine. Diversity of thought is always welcomed in my opinion. But I am curious how you can have that opinion. It seems so clear to me, so I'm a bit confused as to how someone can hold the oppsite view.
https://twitter.com/justinkan/status/1354853920762253315?s=2...
Yes, I do, multiple people in fact (which I refuse to name drop). That’s why I replied to you the way I did in my other sibling comment. Him tweeting it means somebody told him, and likely he trusts that person. Billionaires are humans like anyone else, they sometimes trust the wrong people. They can also fall victim to “hearing what they want to hear”. They also have a lot of folks who want to win favor with them and thus will intentionally or unintentionally take information out of context and oversell it as something it isn’t. The ultimate point is that thinking a billionaire won’t possibly be misled/deceived themselves and then share wrong info (Elon Musk has had this happen a few times as an example, but he’s far from alone), or won’t deceive others for their benefit (there’s a “household name” in the US that immediately comes to mind as an example, leave it to you to decide who I mean), just seems naive to me.
I was definitely assigning him some kind of value that he may or may not have based on his success. Thanks for pointing out this flaw in my train of thought.
Have a wonderful day!
Which is definitely reasonable, but my point was that doesn’t necessarily lead to the conclusion you assumed. Hope I’ve helped, but either way, have a wonderful day yourself!
It doesn't even make a lot of sense as the part of Citadel that executes trades cannot talk to the part of Citadel that takes short positions, and vice versa.
Probably because it’s the law that there’s barriers put in place, that’s why? Like some communication will inevitably happen, but there are compliance teams who’s job it is to ensure it’s at a minimum.
So rich people are never lied to by people they trust? I get it, you trust him, but thinking just because he “has a source” saying it doesn’t automatically makes it factually correct. Maybe it is, but appeals to authority and essentially calling anyone who disbelieves crazy doesn’t compute for me.
Thank you, I will be here all day.
Isn't everybody working from home? How do you overhear things?
In some sense this was basically inevitable. Robinhood allowed (perhaps even encouraged) a huge mass of clueless investors to flood into the market. As long as the going was good, nobody complained, but as soon as things go south, people have started to learn expensive lessons.
This is not the first time this has happened. Almost every single market stress for the past 20 years has caused grief to retail in some way as they were caught out on something they didn't know about.
One clear example that comes to mind is when the Swiss national bank has removed the currency peg and a whole bunch of FX retail has made the expensive discovery that stop limit orders are not guaranteed to execute...
They're not investing in anything, their money doesn't contribute to any form of progress.
More details on margin calls here:
RH is getting sued for market manipulation. This is the inevitable result from that. RH may very well be guilty in all of this, but not for these margin calls.
And it was impossible on RH and other brokers to buy more shares, selling (liquidating a long position) was always possible, AFAIK.
Some of the margin calls may have been triggered earlier than investors may have anticipated given that (I believe) Robinhood recently adjusted their margin requirements for GME. (It’s also normal for brokers to raise margin requirements on particularly risky stocks, which GME clearly is at the moment)
Wow, that's pretty awful since liquidating the position may actually put the user at a net loss, which wouldn't avoid risk: It would actually "instantiate" the potential risk of having to sell the stock after falling below the purchase price.
Why not give users the opportunity to provide more collateral for their margin?
Second, this is not about the individual's risk of losing money. This is about Robinhood losing money because they lent him money.
And about why they didn't give him a chance to provide further collateral is simply because there wasn't enough time. I watched the stock drop from over $400 to $125 in just over an hour. Not sure what you could expect Robinhood to do in that situation.
If it's any consolation, I've had Fidelity, IB, et. al., do the exact same thing when a trade turned sour. Difference is, I didn't run to Reddit to display my ignorance to the world.
Speaking of margin calls, a brokerage usually gives you the courtesy call saying, "either you liquidate (or give us more money to cover), or we'll do it for you", but on GME I could see skipping that call given the volatility.
Not sure I understand this perspective. GME was a balloon floating around in a needle shop.
No one believed GME was worth over $40 a week ago, but now suddenly they pretend they honestly believe it's worth $300+? There's no book depth beyond the short squeeze.
If Valve made a full buyout offer at $100/share, management wouldn't take it?
It's a once in a lifetime historical event.... It's insane. At least 1 hedge fund has gone bankrupt, thanks to a group of average joes on Reddit. By the end of the week, there will be a line of bankruptcies.
So let's start at the beginning:
First of all, stocks are pretty simple, when they go up in value, you make money, because it's worth more than you bought it for. Stock goes up- you make money. Stock goes down- you lose money. Short selling, is the opposite. Short selling makes money when the stock goes down in value. Short sellers borrow someone else's shares, and sell them, with the goal of buying them back later, and pocketing the difference as profit. So, Tim borrows Bob's shares in GME, and sell them for $10, he pays Bob $1 to do this, and promises to give all of Bob's shares back. Then, if the stock goes down to $5, Tim buys the shares back at a cheaper price. So Tim's profit is $10-$5-$1 = $4 profit. So that's where we start. A hedge fund tried to force down the price of Gamestop, and short the stock. It usually works fine. It's been done thousands of times, with no problems. So they shorted Gamestop (GME) from $20, to $10, to $4. Their greed kept compounding. They kept doing it again, and again, for months. Making billions of dollars, and almost bankrupting this company.
Enter Wallstreetbets. A trading/investing subreddit. Someone noted that these hedgefunds shorted 140% of all shares available. These hedgefunds were so damn greedy, they borrowed more shares than actually existed. That's how arrogant and dumb they were. They borrowed 140% of all the available shares. It was literally impossible for them to buy them all back. So someone on Wallstreetbets realized this, and told everyone. Now, the rule with short selling is that ALL those shares that they borrow, MUST be paid back. And so we reach our main story of how the hedgefund's greed ruined them.
Realizing that these hedgefunds shorted GME by a ridiculous amount, these Redditors (a bunch of regular Joes like you and me), bought every share they could get their hands on. Driving the price up as much as possible. Why? Because these hedgefunds eventually (within a few months) HAD to buy all those shares back, at whatever price they could get them. They didn't have a choice. So if they borrow a million shares, and sold them for $10. They made $10 million in immediate profit. But eventually, they HAD TO buy those million shares back. They didn't have a choice. That was the deal they made when they borrowed the shares. So these Redditors bought the shares, driving the price up, forcing these hedgefunds to buy back at crazy prices. Yeah, the hedgefund sold and made $10 million, but now they had to spend $147.98 million getting those same shares back. A HUGE FUCKING LOSS of $137.98 million.
So eventually, the due date for when these hedgefunds need to return the borrowed shares comes closer. And what do they do? They double down. They short MORE. Because they're sure that they can manipulate the stock enough to get it to crash, thereby saving themselves. Fast Forward a few days, every attempt to crash the stock fails. Oh it works temporarily, but not enough for them to save themselves. Everyone knows what they're trying to do, so people keep buying the stock. And with every additional bit of media attention, more and more people are buying the stock, destroying the greedy hedgefund in the process. Eventually Melvin Capital- a multi billion dollar hedge fund, needs a bailout, because it has lost so much money shorting GME. They borrowed billions off another hedgefund. That was yesterday. The stock price was $76.
Today, the stock ended up at $147.98 for every share. Up from $4. These hedgefunds are STILL shorting the stock, at 130% of available shares. That's how fucking greedy these guys are. All those millions of shares STILL have to be paid back. And that's where our story picks up. Hedgefunds are crying on CNBC, on CNN, on FoxNews. On literally every every platform they can get their hands on. They want the government to stop trading. They want this reddit forum investigated and banned. They're screaming ''market manipulation'', when in reality these hedgefunds were the ones manipulating the stock, but they got caught, and are now trying to take their ball and go home.
Now, if you haven't realized it yet: With a normal investment, when buying stocks normally, the maximum you can lose is your original investment. When short selling, your losses are theoretically infinite. Because you HAVE to buy back at whatever price is available. So while these hedgefunds are on every news channel, every investing segment screaming about Reddit and Wallstreetbets, they inevitably draw attention to themselves, and what's going on.
Enter the ''whales''- individual investors who can make a splash and impact the stock. Millionaires and billionaires that have a bone to pick with hedgefunds and short sellers. Elon Musk famously despises short sellers, because they tried to cripple Tesla so often. With a single tweet, Elon sent the share price skyrocketing from $147.98 to $230. And along with Elon Musk, a huge number of wealthy ''whales'' have started to jump in. Buying up HUGE amounts of stock, at crazy prices. But these investors don't care. They don't care how expensive they buy the stock for. Because they KNOW these hedgefunds MUST buy the shares back. For many of them, they don't actually care if they lose money. They just want to watch these hedgefunds burn.
So what happens next? No one actually knows. The hedgefund Melvin Capital is definitely bankrupt. They've already gotten one bailout. They probably won't get a second. As time goes on, and as hedgefunds fight to buy back as many shares as possible (driving up the prices more on each other), their bill will eventually be due, and they will have to return the borrowed shares. More will likely be bankrupt. But it's not guaranteed. Does this mean you should buy GME? I'm not gonna answer this question, because you obviously shouldn't be listening to strangers on the internet when it comes to your money.
There's a lot of upside to buying GME, but there's also a crazy amount of downside. Tomorrow the share could go back to $4 and you could lose everything. These shares are obscenely overvalued, and the only reason they keep going up is that people are gambling that the hedgefunds will buy them for a higher price (they likely will, but up until what point?).
It's a game of chicken.
When the game ends, the house of cards will crumble, and people will lose millions. This is not financial advice. This is just me trying to explain what the hell is going on right now. We're witnessing a once in a lifetime event that will undoubtedly change the markets, and how hedgefunds and other big businesses operate.
The only thing I can recommend is that you grab a beer, and keep an eye on GME and enjoy the fireworks.
You think that the presence of volume from retail traders of Robinhood wasn't the cause of the increase to begin with? To put it mildly, that's delusional.
The NYT a few days ago had an opinion piece on how no one reads the TOS for things like this. A very choice line:
> A 2012 Carnegie Mellon study found that the average American would have to devote 76 work days just to read over tech companies’ policies. That number would probably be much higher today.
https://www.nytimes.com/2021/01/23/opinion/sunday/online-ter...
When I bought my house, the attorneys sat down with me and had me read through and explained to me every single term of the purchase agreement and my mortgage, checking that I understood them. Absolutely no one has done this for Facebook, throwing a few hundred into Robinhood, etc. It's not worth it, and the terms change with such frequency that it would be outdated immediately.
I don't think having such impossible terms that you "agree" to are in good faith.
I'm not ignorant, I'm pretty typical, and I'm not going to spend 1/3 of my time simply sitting reading TOS.
Really? Because that would make closing take forever. I mean, even after the purchase agreement and mortgage terms, there are a ton more documents to go through.
Instead, our attorney got a copy of all forms the day before closing for him to review. Then he could review them quickly, looking for anything unusual. Then, during closing, we didn't have any questions, so this made an already long process a bit more efficient (still took over an hour).
(I don't mean to accuse people of hypocrisy by mentioning this! I just mean that I genuinely think financial intermediaries are in a tough spot as they're pressured to allow everyone to trade things where quite a lot of customers don't quite know what they are or what they signify.)
That's really cool to be able to do. For the average American, that's pretty much impossible to afford.
https://edition.cnn.com/2021/01/11/success/1000-emergency-ex...
Is that the purpose of these apps? To get uninformed liquidity into the market to benefit investment banks?
RH is no different than any other startup in this regard. They aren't going to open themselves up to the risk of not following a margin agreement in the name of "the revolution!" They are in the business of making money, even if that means users lose their shirts.
And if people have been trading GME, AMC, et al on margin? (I mean, unless the government steps in or something?) I'm afraid a lot of them are going to be losing their shirts in the coming weeks.
Argumentum ad populum. Not very convincing.
There is a reason the finance industry is so heavily regulated, and, at least in terms of intent, it is not to allow the elites to hoard all of the capital (although that may be a side effect).
I still have my binder from my closing. Worked in the mortgage industry for a while in college. If they truly had you read through every page with explanations it would have taken you multiple days to do your closing. I think you're misremembering.
What they likely did was went through page by page, giving you a summary of each page as they went, and gave you the option to read it in its entirety or just sign based on their summary. You might have read through the first 4 pages before you realized you would be there for the aforementioned multiple days if you wanted to read through every line of every page.
Is a house really that much worse when it comes to paperwork? Or is the US just that much worse with this stuff?
Compared to paying lawyer to explain it to you in let's say 1/10 of the time and better understanding
X/10h$ + lawyer fees
Compared to not reading and just trusting
No upfront cost, but probability of bad outcomes increases.
I think when buying a house that makes sense.
Buying 100$ worth stock? Not sure. 10k worth? Hmmm maybe
Margin accounts someone could read over after the fact - but the length and lack of a critical summary on most agreements is ridiculous.
I'm beginning to wonder if the people who rushed into this "war" really ever knew what they were getting themselves into? Especially the ones who bought on margin. It's such a risk, and obvious loss in this situation, that I can't imagine any non-suicidal financial actor doing it?
https://cdn.robinhood.com/assets/robinhood/legal/RHF%20and%2...
You'll find a similar concise and clear statement from every broker when you enable margin trading.
This might be true for the myriad of free online services and applications most people use on the daily.
But with anything I plan to spend or invest my money in/give my real personal information to I will most certainly take care to properly read and understand what I'm agreeing to there.
In that context, comparing your mortgage agreement with signing up for Facebook is apples to oranges. One of those is a very real very long-term financial liability directly and undeniably tied to your real identity with a legally binding contract, the other is a service that tries to monetize whatever data you give to them based on EULA and ToS that in many jurisdictions are not even legally enforceable.
And when you don't understand the dense legalese how did you get clarification? Did you pay a few hundred dollars to have a lawyer review the contract and explain it to you? Perhaps call the company up to have a minimum wage call center employee explain it to you? Or just come up with an interpretation of the text that seems to make sense and conclude that must be what they mean?
After awhile even doing that grows tiresome for all but the most important services. So, we really do need something better.
By asking people knowledgeable in the field I trust, if it's big and relevant enough I might even invest in a lawyer, but at the very least I will put effort into trying to understand it.
If that doesn't work then I will be way more skeptical of whatever I'm supposed to agree to because anything written to be purposefully vague, and difficult to understand, does not entail a lot of trust nor confidence in me.
But not understanding, and making no efforts on your end to understand, is a very poor defense for entering anything legally binding: Making sure you understand is ultimately up to you and only you because at the end of the day it will be your ass and your assets on the line.
Which is a mindset even shared by WSB: That submission is full of regulars reiterating how people have been told not to buy GME on margin exactly because of what ended up happening.
This confuses me a bit because I have personally never encountered anything in a legal document that I didn’t understand. I am not in support of reading all of the TOS, as that seems like an impossible feat, but when I have read any TOS or contract, it seemed understandable.
The hardest thing for me is comma separated if statements written in plain English. But that’s mainly because it can be difficult to hold the conditionals in short term memory - but it has always been manageable.
What’s an example of dense or unintelligible legalese?
> We calculate interest each month based on the lowest Daily Closing Balance. We pay interest on the last Business Day of April and October. To earn any interest, the account must stay open for one full calendar month before the payment date.
Not dense language at all. But, note how Daily Closing Balance is title case, so that means its been defined elsewhere, so I need to flip back and refer to the definition then flip back to page 8. The definition which by the way isn't how you'd likely define a closing balance. Next part of interest is April, and October. So, interest is only paid twice a year⁉ That makes no sense, so I scan around and see this is for the Savings X account. But, I don't think that's what the name of my account is called, so now I have to flip through all 8 docs to find what specifically my account is named. Except none of the docs actually tell me which product I signed up for, instead I figure this out by comparing the fees outlined in the account types with what I wrote down when choosing the plan with the agent that I spoke with earlier.
Now back to the paragraph above and realize I'm realizing I've been analyzing the interest schedule for an account that isn't relevant to me. Scanning for my account I find that the interest is calculated as one would expect--some special conditions around the daily closing balance.
I'm frustrated and growing tired, but that is only 1 paragraph in 1 of 8 documents. The bank clearly made no effort to include only the sections that apply to me. So there is a great chance that I'm either going to miss a nuance in a section (like how they've defined daily closing balance to have some exclusions), or ignore a section believing that it doesn't apply to me.
Keep in mind you and I are likely both college educated, have training in logic and can figure this out if we spend the time/energy. Do you think the average American has a chance to understand what they've signed?
These are standard terms and you are borrowing money from them so logically they will have a lot of say in terms of that money. Credit cards will have interest rates, collateral loans will have liens on property, etc, etc. Nothing about this is impossible.
I do find it funny how the people who complain about this are also complaining about government oversight, robinhood stopping trades, etc. If you want full freedom then it's on you to pay attention to the details and not expect someone else to bail you out of your own ignorance.
If you take a loan and didn't check the interest rates, term, and basic conditions, that's on you.
There is eventually a point where if you want to make independent financial decisions as adult, you need to be responsible for understanding what you’re getting into.
Do t read the TOS for your Facebook account? Low risk. Don’t read the agreement for your RH margin account? That’s just dumb.
Well, there you go. You determined it wasn't worth it, so don't be surprised if there's an outcome you don't like.
I read terms quite often and have flatly refused to use services because of them, or in some cases told them in writing I don't accept a problematic clause (for whatever that's worth). It's a real pain and I typically have very little bargaining power.
Maybe if the world wasn't full of people who simply don't care we could effect some change here.
Spirit of the law is always considered in situations like this when it isn't explicitly made clear (like on the splash screen) will always fall under scrutiny and rejected at the jury level.
You can sign away your life but it doesn't make it legal because there are fundamental laws that pertain to human rights in the West as such are security laws.
RH broke the trust and if what we are hearing is true, they may have colluded with the conflict of interest parties that took massive short positions before pressuring RH to halt trades may lead to actual jail times for the people involved.
In the past the Obama administration has been soft on wallstreet but the Biden administration has signaled they are willing to play big government. Especially as politicized as the whole GME/WSB has gotten, there's zero chance they will pass up on the opportunity to win the popular support.
Erm isn't the point of communities like Reddit to discuss? The implication that there's a certain class of people who are suited to stocks and a certain class that isn't is exactly why people are so impassioned about this right now.
This is, frankly, common sense. If you deposit $100, buy $300 of stock, and that stock falls below $200, your account's equity will go below zero and your broker is in trouble. If this happens on a large enough scale, the market will be in trouble. The broker will try to protect itself by liquidating your position before this happens, and they may even be required to by market rules.
(The actual calculation of required margin is quite complex for good reason.)
Let's say your scenario is a little different: you deposit $100, buy $300 of stock, and the stock goes up to $600, then drops to $400. Then the broker sells your shares at $400 to "protect themselves". If that's what's going on here, that seems wrong. On the other hand, if it's as you describe that seems reasonable.
Suppose I deposit $100 and Butt $300 of stock. Now I have -$200 of cash. (The UI doesn’t necessarily show it like that, but that’s what’s in my account.). If the stock goes up to $600, I still have -$200 of cash. If the stock drops to $400, I still have -$200 of cash. If the volatility estimates change such that a rapid crash to $199 seems likely, the broker should margin call me, as a crash to $199 would send my account value negative.
Contrast this with non-margin trading. If I deposit $400 and buy $300 of stock, I have $100 of cash, and the broker doesn’t particularly care what happens to the stock price, since they are taking no risk. Their clearer may impose requirements on them, but that’s a somewhat separate issue.
All accounts are "Robinhood Instant" by default. You need to permanently opt-out of Robinhood Instant (or wait for deposits/trades to settle) to opt-out.
Edit: to add a link. This info is fairly well buried: https://robinhood.com/us/en/support/articles/robinhood-accou...
And what repercussions would they face, surely they’ve flagged that risk and are doing it anyway.
Most users who don’t know anything about WSB probably
Idk who is still going to use RH but I know they exist.
Ultimately, they know that their SEC Fine will be less than the $50B+ in losses they face from their irresponsible naked short selling.
Did we learn nothing in 2008? Are we just going to continue to allow wall street to get away with fleecing everyone else in America / the world?
ed. yes, on the chance that this wasn't just a margin call
Nothing worth worrying about. Every single case in the financial sector over the past two decades has resulted in fines that are a fraction of the profits. I mean, you had banks laundering money for cartels, Malasians were looted, etc etc... every single time they fine the culprits a tiny fraction of their profits.
The US has made criminal activity profitable, even if you get caught.
So Citadel and RH probably just made the smart move. Screw the rules, because the punishment for breaking them will be more than worth it.
Pretty sad to see most of HN willfully ignoring this fact and jumping to the defense of Hedge Funds and the billionaire class.
Having said that, there is no question that banks ruined the economy during the GFC, and didn't pay enough of a price, and hedge fund managers often make a killing, while paying very little in taxes, and HFT make a killing without providing any social value.
But the answer to that is not, I'm afraid, hyping some gaming stock and trying to squeeze a few shorts.
The answer is political action - voting, pushing for proper regulation. There are lots of proposals out there: stringent capital requirements for banks; closing the "carried interest" loophole; changing the structure of markets (eg auctions every minute instead of continuous markets).
Remember:
This morning Robinhood conspired with Citadel to halt trading amid a short ladder sell to drive the price lower, allowing shorts to cover their losses with no competition.
This is blatant market manipulation and anti competitive behavior, and must be stopped.
Why does everyone insist on protecting billionaires who insist on playing the game with a different set of rules than the rest of us?
You trade with robinhood's money, then they can decide not to lend it to you anymore for nearly any reason they want. ¯\_(ツ)_/¯
You have to admit, though - that is disingenuous. Those plays were profitable, no need to call them (unless there has been irresponsible behavior on the behalf of the broker)
The fact does remain, though, that the way the data is presenting itself seems to indicate that there was disingenuous behavior on the behalf of market makers and a number of hedge funds. To be seen, I guess.
Can they? I thought margin calls were you personal debt. It's like the bank deciding to sell your house that you have mortgage on because they think the market is too volatile. Makes little senes.
https://www.fidelity.com/learning-center/trading-investing/t...
SOMEONE proceeds to ladder short sell GME to cause a massive price dump.
Users are margin called from previously profitable positions (without being able to provide buying pressure needed to fight against a ladder short sell)
Shorts are able to unethically cover your position.
Read into this... it's all over the news and verifiable with documentation from various regulatory agencies.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and sticking to the rules when posting here, we'd be grateful.
As i say elsewhere - this margin call was FORCED by RH because they blocked users ability to buy shares as Citadel + others were ladder short selling to artificially lower the stock price of GME, forcing the margin call.
This is horrific, criminal, and should be prosecuted.
Ultimately, they know that their SEC Fine will be less than the $50B+ in losses they face from their irresponsible naked short selling.
Did we learn nothing in 2008? Are we just going to continue to allow wall street to get away with fleecing everyone else in America / the world?
Yep, that we are going to have to pay their losses.
Well yeah. Why would you expect anything else? And if anyone complains about it, the complaints will get scrubbed off the internet. And if you go to private messengers to complain, your session keys will get escrowed because "terrorism" or "misinformation" or something and you'll be banned. Keep in mind that the WallStreetBets Discord server was banned for "hate speech" right in the middle of all the recent drama. Does anyone actually believe that was the real reason?
It's because of shenanigans like this that I'm categorically against any sort of control whatsoever over flows of information.
They'll probably make it a crime to organize large groups of individuals to herd buy/short a stock.
You'd better believe that something will be done to ensure that the rabble can't insult their betters like this ever again.
But so what if you did allow just smart people win? Most people aren't that smart and you'd wind-up with a fleecing. So making this game fair isn't particularly in the average not-genius-with-nerves-of-steel person's interests. It's more in the average person's interests to have an index-traded-funds go up a reliable amount each year.
Fleecing Reddit geeks isn't fleecing everyone in America.
Edit: My point is - sure it might be against the rules but this affair is between smart speculators and big speculators. Saying it's crime against everyone is ridiculous.
"It's more in the average person's interests to have an index-traded-funds go up a reliable amount each year."
You are saying that people are too dumb to decide what to do with their own money, and that's not your call.
The reason this is a crime against everyone is because there's allegedly a "free market", but moments like this show that the emperor has no clothes and that in fact that's not the case.
When an army of retail investors openly collaborate on messaging platforms to manipulate a stock's price, essentially a crowd-sourced "pump and dump," it falls under SEC enforcement. A retail investor can still be prosecuted for violating SEC regulations, such as using insider information, when trading.
This is yet another example of unintended consequences with regards to social media and its power to concentrate misinformation and incite mob behavior. I'm sure the vast majority of the people on Robinhood trading up Gamestop (GME) have no idea of the potential legal harm they may be exposed to, not to mention financial harm, even though the T&C's they signed on opening their accounts (especially margin accounts) almost certainly spelled out those risks.
Robinhood business model is the canary in the coal mine.
If you happen to work in the industry, you've probably had to certify compliance with SEC regulations to stay employed.
Now I don’t personally think GME is worth $300/share, but the people buying it think they will be able to sell it for more, and that is their right. They aren’t being “tricked” with deliberate misinformation, there are indeed a lot of shorts still out there that will eventually need to cover.
It’s really kind of ironic. People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work and the risks involved. Simultaneously, the same people are blaming RH for stepping in the way of what very certainly would have turned into a bad trade for a lot of people.
I don’t take RH’s side but it’s hard to see a winning play for them, it’s damned-if-you-do-damned-if-you-don’t.
No, RH is saving their own asses from the poor financial decisions of their clients. They don't want to be on the hook when those accounts crater along with GME.
If this is true, RH and other platforms pulling smiliar stunts should be sued out of existence.
Take it up with the SEC. Oh, wait, the SEC is at least partially responsible for such rules being in place. It's a conspiracy, I tell ya!
People that think they'll get rich off pocket-change investments, are not in a position to understand trading on margin, nor it's risks.
However, they should have inserted some notice in the UI that this was a result of a margin call that couldn't be met, given the level of knowledge of many of their users.
In contrast, once you're on margin you give them the right to liquidate any part of your portfolio, at any time, to cover your margin balance.
What they can't do is liquidate beyond the margin balance. Once they've covered the balance they would have to stop closing out your positions.
Someone reuses passwords all over the internet, gets hacked and loses savings of a lifetime, HN says “OMG sooo stupid, you have to have minimal computer literacy in life” etc.
People get burnt on literally run-of-the-mill situations with trading and get angry with the world, and vent in a rigged system.
Of course there is space for outsiders to challenge the establishment, but assuming you grok finance because you installed Robinhood app is... naive!!!
With a real stock, somebody has to be left holding the bag at the end. (Probably with BitCoin as well, but that's a separate discussion.)
My understanding was that, with the short squeeze, for a certain number of those stocks the buyer would be the hedge funds. But it seems like at this point there must be way more stocks that the buyers have bought than the hedge funds have shorted, no?
Unless there's some other scheme that I'm unaware of, I think Tesla buyers do think it's worth that much, though they may be wrong about that.
That brokerages would remain neutral and allow buy and sell orders of listed stocks like they do on other days. It's totally fair to acknowledge a sudden and unpublished rule change at the market open that foreseeably led to big price swings.
At a minimum, the SEC needs to step in and describe the exact circumstances when brokerages are allowed to unilaterally halt sales of securities. Markets where people don't understand the rules are worse than casinos.
It's about time we talk about how it's not in the public's interest to allow companies to put arbitrarily user-hostile terms in their user agreements.
This was when both stocks were near the lowest point during the day.
I had ~$110,000 total portfolio with many positions holding penny stocks strictly so I would be able to unload in the afternoon. I had been exercising AMC $7C all day and 2 of them were not sold automatically as I had sell limits on them.
Immediately after, both GME and AMC prices went up.
This is criminal on a level I have not seen before. An options contract gives me the right to buy the shares at a certain price and that right was taken away from me.
The total difference in the GME contracts from the point at which they sold mine and the average price all day was about $35k less. This. Is. Criminal and it must be shut down completely.
Liquidate, restructure, hose commons.
It's GME -- it's a dead company trapped in yesteryear.
I'm cynical enough to entertain that possibility, but what really would be the leverage/pressure they could put on Robinhood to accede to this? Presumably these moves will hurt Robinhood with their users and possibly introduce legal liability.
It's already the case that many of ethereum's DeFi apps can't betray users.
Unlike a centralized financial institution, a DeFi app's smart contract code can be shown to be a public API that treats all users fairly and correctly, with no admin keys or back doors.
Smart contracts can fail for other reasons, such as bugs or bad economics. But, what they can't do is call up their friends and ask them for some favoritism.
In DeFi, we say that smart contracts that can't betray users are "credibly neutral". https://nakamoto.com/credible-neutrality/ (by Vitalik Buterin)
As an example, one important DeFi app that is credibly neutral is Uniswap, a decentralized trading exchange that did $700M in volume yesterday. The main Uniswap app is here https://app.uniswap.org/. Financial stats for Uniswap are available here https://info.uniswap.org/. Yesterday, Uniswap made $2M in fees for its liquidity partners (anyone can provide liquidity). Fee data can been seen here https://cryptofees.info/.
Many tokens on Uniswap are pump-and-dumps or projects that won't succeed. Anyone can list any token. Yet, users seem to love the control and reliability given to them by Uniswap and other DeFi apps.
Gee.. I guess a slap on their wrist will make them behave NEXT time. How come people are not in jail for this?? I hope this time around politicans will make enough stink that SEC will actually forward indictments to DOJ.
[1] https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_...
https://twitter.com/dreamwisp/status/1354865709998723072
edit: My bad, it's "just" cancelling their orders, not selling anything on their behalf.
Also that user does not have a blue check.
What in the world??
"In order to protect you from yourself, we have taken away your free will. Thanks!"
I thought RH was forcibly selling a customer's stocks that the customer had previously purchased with their own money.
Thanks for the clarification!
I don't know if it's only about shares on margin or how the process exactly works behind to judge if there actually is a threat to RH or not.
Do you not believe there could be simpler explanations to brokers halting buying of the meme-stonk tickers that are 1) explained by their own financial incentives and risks, and 2) not by a shadowy conspiracy of financial elites pulling levers behind the scenes?
He is concerned that there is a $15 billion loss out there due to options on GME. This could wipe out the intermediates guaranteeing the trades. Further that $15 billion can grow arbitrarily as GME is in a short squeeze and disconnected from reality.
[0] - https://www.cmegroup.com/clearing/risk-management.html
Edit: yes this comment isn't related to the linked article.
What's unusual about RobinHood is that they make buying on margin very easy. It's a feature of a "Robinhood Gold" account.[1] "You can try Gold for free for the first 30 days. Sign up anytime from your account settings." This gets people trading on margin who probably shouldn't be trading on margin. Many of them are going to be busted down to zero. Those prices aren't going to stay up once the fad is over.
Here's RobinHood's margin agreement.[2]
[1] https://robinhood.com/us/en/support/articles/gold-overview/
[2] https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Custo...
1) I'd expect a credible brokerage to treat me like a human being. Call me up. Talk to me. Allow me to add money to my account if need be. Simply liquidating my position with no notice with an automated script isn't how I'd like my money to be treated.
2) This is among a rather large number of sketchy practices.
I have no horse in this game. My money's mostly in index funds and mutual funds, with maybe 1% actively managed. There's a certain way I expect solid financial institutions to behave with my future. There's a different way fly-by-night institutions behave. This very much sets of my fly-by-night detector....
https://blog.robinhood.com/news/2021/1/28/keeping-customers-...
>We also raised margin requirements for certain securities.
Is that how margin trading always works? The broker can just without prior notification increase your collateral requirement and liquidate you instantly?
The bank's collateral is its lien on the house. A bank is not interested in foreclosing as long as you keep paying interest + principal every month. In fact, if the value of your house drops 90% it is in your interest to drop the keys off at the bank and say: "You guys can have it".
A broker's collateral, when you buy on margin, is the security you bought. As the value drops, collateral goes towards 0. Of course they're going to cover their own a*. It's in the agreement you signed when you opened a margin account.
Nobody changed any terms.