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.
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 It's not worth it, and the terms change with such frequency that it would be outdated immediately.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.
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.
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.
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.
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.
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.